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What do you understand by Sole Proprietorship? Outline its features. |
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Answer» Sole proprietorship refers to a form of business organization which is owned, managed andcontrolled by an individual who is the incipient of all profits and bearer of all risks. The word “sole”implies “only” and “proprietor” refers to “owner”. Hence, a sole proprietor is the only owner of abusiness. This form of business is particularly common in small scale business and areas ofpersonalized services. Features of Sole Proprietorship: (i) Formation and Closure :Very few legal formalities are required to start a sole proprietary business,except in the fields where a license is required. Closure of the business can also be done easily. (ii) Unlimited Liability :Sole proprietors have unlimited liability. This implies that the owner ispersonally responsible for payment of debts in case the assets of the business are not sufficient tomeet all the debts. (iii) Sole Risk Bearer and Profit Recipient :The sole proprietor bears the risk of failure of business allalone and also receives all the business profits which are a reward for his risk bearing. (iv) Control and Decision :Making The sole proprietor has the absolute right to run the business andmake all decisions regarding the business without any interference from others. He is the king in allaspects. (v) No Separate Entity :No distinction is made between the sole proprietor and his business in termsof law as business does not have an identity separate from the owner. The owner is, therefore, heldresponsible for all the activities of the business. (vi) Lack of Business:Continuity Sole proprietorship lacks continuity as death, insanity,imprisonment, physical ailment or bankruptcy of the sole proprietor will have a negative effect onthe business and may even cause closure of the business. |
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