Forms of Business Organisation: Sole Proprietorship: Definition, Characteristics, Suitability and Formation of Sole Proprietorship

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Business organisations may be owned and managed by a single individual or group of individuals. It may form of a partnership firm or a joint stock company. Such arrangement of ownership and management is called as a form of business organisation. Business organisation usually takes the following forms in India:

  • Sole proprietorship

  • Partnership

  • Joint Hindu Family

  • Cooperative Society

  • Joint Stock Company

Forms of business organisation

Forms of Business Organisation

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Sole Proprietorship

The term ‘sole’ means single and ‘proprietorship’ means ‘ownership’. So, only one person is the owner of the business organisation.

  • A form of business organisation in which a single individual owns and manages the business.

  • It takes the profits and bears the losses, is known as sole proprietorship form of business organisation.

  • Sole Proprietorship’ from of business organisation refers to a business enterprise exclusively owned, managed and controlled by a single person with all authority, responsibility and risk

Definition of Sole Proprietorship

“A type of business unit where one person is solely responsible for providing the capital and bearing the risk of the enterprise, and for the management of the business”.

  • J.L. Hanson

Characteristics

  • Single ownership: Single owner who himself/herself starts the business by bringing together all the resources.

  • No separation of ownership and management: Owner himself/herself manages the business as per his/her own skill and intelligence.

  • Less legal formalities: Formation and operation of this type of business does not involve any legal formalities.

  • No separate entity: businessman is responsible for everything that happens in his business unit.

  • No sharing of profit and loss: Sole proprietor enjoys the profits alone.

  • Unlimited liability: Liability of the sole proprietor is unlimited

  • One-man control: Controlling power of the sole proprietorship business always remains with the owner

Suitability of Sole Proprietorship Form

Sole proprietorship is suitable where:

  • Market is limited, localized and the customers give importance to personal attention.

  • The capital requirement is small and limited risk involved.

  • The production of goods and services which involve manual skill e.g., handicrafts, filigree work, Jewellerys, tailoring, haircutting etc.

Formation of Sole Proprietorship Form

  • Any person who is willing to start a business.

  • To start business does not require any legal formalities to be fulfilled.

  • In some cases, like restaurant, chemist shop etc. permission from the competent authority is required.