DEFINITION:SOLE PROPRIETORSHIP
“Sole proprietorship is that form of business organization which is owned and controlled by a single person who supplies the entire capital to finance the starting and running of the business. He takes all the profit and alone runs the risk of the failure”.
In other words, it is the simplest, oldest, and most common form of business ownership in which only one individual acquires all the benefits and risks of running an enterprise. In a sole-proprietorship there is no legal distinction between the assets and liabilities of a business and those of its owner. It is by far the most popular business structure for startups because of its ease of formation, least record keeping, minimal regulatory controls, and avoidance of double taxation.
FEATURES, CHARACTERISTICS OR ESSENTIAL ELEMENTS
The definition of sole proprietorship brings out clearly certain characteristics which form the basis of it. The features of sole proprietorship are following:
1) Single Ownership:
The most important feature of sole proprietorship is that it consists of a single owner.
2) Capital Contribution:
For the commencement of the business, the necessary required capital is supplied entirely by the owner. In the case additional funds are required, he supplements his business resources by borrowing generally from friends and relatives.
3) No Separate Existence of Business and Owner:
In sole proprietorship, the business and owner are inseparable .The death, insolvency, lunacy or permanent disability due to any reason ends the business life.
4) Individual Management:
In sole proprietorship, the individual owner performs all the functions of manager alone. He plans, organizes, directs and controls all the organizational activities.
5) Entire Profit and Risk Bearing:
An important feature of sole proprietorship is that the entire profit is of owner. This implies that the entire loss is also suffered by the owner himself.
6) Unlimited Liability:
The liability of the sole proprietorship is unlimited. It means that not only his business assets but also his personal assets are liable to pay his business debts.
7) Legal Formalities:
Although sole proprietorship is subject to general laws like law of contract, sale of goods act etc but it is not specifically governed by any act.