Sole Proprietership/Sole Trade

Sole trade is the oldest form of business organisation.All the present-day forms of business organisation are the developed forms of this system.This is popular not only in india,but in foreign coutries also.With the passage of time human needs increased,civilisation developed and the form of business organisation also underwent a change.Gradually,the individual efforts changed into collective efforts which came to be known as partnership,company etc,But the sole trade,because of its merits and specialities,is still regarded as the best form of business organisation.

Meaning Of Sole Proprietership

Sole trade is that form of business which is established by a single individual.He invests the necessary capital,manages and directs it himself by using his ingenuity and is himself responsible for profit and loss.Such a businessman is called sole trader and such a trade is known as sole trade.It is important to understand that the sole trade does not mean that a single individual directs all the activities of business and cannot take the help of other persons.This concept of business organisation only points towards his ownership.Hence,a sole trader can take the help of other persons in his business,appoint employees but the final responsibilty lies on the sole trader alone.The other major thing is related to capital.In the sole trade the capital is invested by one individual which means that nobody else can be a partner in the capital but there is no bar in getting the necessary finance in the form of loan from other people.

"The sole proprieteorship is an informal type of business owned by one person."

Features Of Sole Proprietorship  

(1) Individual Ownership:The first important chracterstic of the sole trade is that it is owned by one individual,which means that he is the sole owner of all the assets and resources of business.

(2) Sole Management:In the sole trade,the owner performs the functions off management but with the increase in the size and volume of business he can appoint managers.It is important to note that he alone is responsible for the actions of the managers. 

(3) Unlimited Liability:The liability of the sole trader can be more than the capital invested.It means that in case of heavy loss if it is not possible to make payment with the help of the assets of business,not only the domestic assets of sole trader can be utilised for this purpose but he can be declared bankrupt and held personally responsible.

(4) Freedom in Selection of Business:A sole trader  can select any business as per his will.The selection of trade from among the many other forms can be made with the suggestion of many people.In this way in the absense of any pressure from other people he can select any business as per his wish and can make any change in future if needed.

(5) Secrecy:There is another speciality of a sole trade which is not found in any other form of business organisation i.e., secrecy.The imformation about all the important matters concerning the business rests only with the owner and no outside party can take any undue advantage out of it.

(6) No Separate Legal Entity of the Business:In this form of business organisation business and businessman are not considered seperately,which means that the business has no separate existense or entity from that of the businessman.All the assets and liabilities of the business are that of the businessman.Hence,he alone will be responsible for all the trade activities and not the trade himself.

(7) Undivided Risk:The profit and loss of the sole trade are related to the owner.He enjoys all the gains and bears all the losses.

(8) Suitable for Some Special Form of Business:There are some special trades which require individual attention and service,and can only be started as sole trade.For example,agriculture,the job of stiching,sweet making,bakery,beauty parlour,etc.require greater individual services.



Limitations Of Sole Proprietorship

(1) Limited Sources Of Capital:In the sole trade the trader himself is the financial source (i.e., his capital) and the sources of taking loans are limited.A single individual generally cannot have both these sources so that he can expand his trade and enjoy the benifits of a big trade.

(2) Unstable Existence:There is a continuous uncertainty in running a sole trade.If because of some circumstances or illness the trader has to remain away from the place of business,he has either to leave the business under the care of his employees or has to close the establishment for some time.As a result of this,the customers get dissatisfied and start purchasing things from other shopkeepers.If the owner dies the business has to be closed.

(3) Unlimited Liability:The greatest disadvntage of the sole trade is the unlimited liability or the utmost individual risk that is inherent in it.The sole trader has to face the entire risk of business.If unfortunately the business fails he loses everything and so much so that his household things are also sold.The unlimited liability is the greatest hurdle in the way of the development of the sole trader.

Thanks For Reading!!!!
-Sujal Juneja
(Juneja Technology)