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Features of Sole Proprietorship

The salient features of sole proprietorship form of organization are as under:

1.    Single Ownership. A sole trading concern is owned by one individual. It is run entirely at his risk of loss. The sole trader provides both capital and management to the business.

2.    Personal Organization or Common Identity. A sole tradership concern has no separate legal entity independent of the owner. The owner and the business concern are one and the same. The owner owns everything the business owns and he owes everything the business owns.

3.    Capital. In sole tradership, the capital is employed by the owner himself from him personal resources. He may also borrow money form his friends and relatives if he cannot depend solely on his personal resources.

4.    Unlimited Liability. The liability of the proprietor for the debts of the business is unlimited. The creditors have the right to recover their dues even from the personal property of the proprietor in case the business assets are not sufficient to pay their debts.

5.    One Man Control. Sole tradership is one-man show. The sole trader provides management to the business. He takes all the decisions, procures material resources, employs persons and directs and controls the affairs of the enterprise. He is not required to consult anyone else in taking any decision. Though the sole trader may delegate some of his authority to his assistants but the ultime authority to manage and control rests with him.

6.    Profits and Losses. The surplus arising in the business of the sole trader entirely belongs to him and similarly all the business losses and risk are to be borne by him alone.

7.    No Special Legislation. Sole tradership is not governed by any special legislation. A partnership firm is governed by the Partnership Act, a joint stock company is governed by the Companies Act and co-operative society by the Co-operative Societies Act. Any person who is competent to contract can start his business as a sole trader. However, he is subject to the common law, the law of contract and the law of insolvency.

Concept of Unlimited Liability. The liability of a shareholder or member of a company or a co-operative society is limited to the extent of the face value of the shares held by him. For example, if Mr. X subscribes to 100 shares of Rs. 10 each, his total liability is unto Rs. 1,000 only. If he has already paid Rs.5 per share, his liability will be restricted to the unpaid portion of his shares, i.e., Rs. 500 only. Thus, there is limit to the extent of liability of shareholder of a company.

However, the liability of a sole trader or partners in a partnership firm is unlimited. In other words, their liability is not restricted or limited ot the amount of capital invested by them. For instance, a sole trader stats his business with Rs. 10,000 and in the course of his business he incurs heavy losses and he has to stop his business. In this case, if the amount payable to creditors is more than the value to the assets of the business, the creditors can claim their amount even form the personal property of the sole trader. So is the case of partners in a firm. It may be noted that the partners of a firm are both individually and jointly liable for the debts of the firm. There is no limit to their liability.

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