Sole proprietorship is the simplest form of business organisation owned, controlled and managed by a single person. The proprietor provides capital, takes decisions, enjoys profits and bears all risks and losses. There is no separate legal entity distinct from the owner.
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Sole proprietorship has single ownership and control, meaning one person owns and manages the business. There is no separate legal entity, so business and owner are the same. The proprietor has unlimited liability, bearing all risks and losses. It is easy to form and close with minimal legal formalities and allows secrecy and quick decision-making due to personal control.
Merits of sole proprietorship include easy and economical formation, quick decisions, close supervision and secrecy. Demerits include limited capital and resources, unlimited liability, limited managerial ability and lack of continuity due to death/illness/insolvency of the proprietor. Hence it suits small businesses but has limited scope for large expansion.
Business organization, an entity formed for the purpose of carrying on commercial enterprise. Such an organization is predicated on systems of law governing contract and exchange, property rights, and incorporation.
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Sole proprietorship is the simplest form of business organisation owned, controlled and managed by a single person. The proprietor provides capital, takes decisions, enjoys profits and bears all risks and losses. There is no separate legal entity distinct from the owner.
Sole proprietorship is suitable for small businesses where:
Joint Hindu Family business is a form of business organisation governed by Hindu law. It is owned and carried on by members of a Hindu Undivided Family. Membership is acquired by birth. The business is managed by the Karta (head of the family).
HUF business is suitable when:
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Sole proprietorship is the simplest form of business organisation owned, controlled and managed by a single person. The proprietor provides capital, takes all decisions, enjoys the entire profit and bears all risks and losses. There is no separate legal entity distinct from the owner.
Merits: It is easy and economical to form with minimum legal formalities. The proprietor has full control which leads to quick decisions and operational flexibility. Close personal supervision improves efficiency and customer service. Secrecy can be maintained because accounts and plans need not be disclosed. The owner gets direct motivation as the rewards of efforts are fully enjoyed.
Demerits: The biggest limitation is unlimited liability; the proprietor’s personal assets may be used to pay business debts. Capital and resources are limited because they depend on the owner’s funds and borrowing capacity, restricting growth. One person may not possess all managerial skills, leading to limitations in specialised functions. Continuity is uncertain as business may be affected by death, illness or insolvency of the proprietor.
Suitability: Sole proprietorship is suitable for small-scale businesses with low capital requirements and limited risk, where quick decisions and personal contact with customers are important, such as small retail shops, repair services, salons and local trading activities.