Definition And Characteristics Of Sole Tradership

| August 17, 2014 | 0 Comments

Write definition of Sole Tradership with complete explanation? What is meant by Sole Tradership and what are the Characteristics of Sole Tradership?

Definition And Characteristics Of Sole Tradership Picture

Introduction:

Sole tradership is a simple and oldest form if business organization. Its formation does not require any legal provision like organisation etc. In this form of business organisation, a single trader who not only make plans for the business but also selects a suitable location for the business. Moreover, besides providing capital to the business, he also works as an employee. The sole trader is alone responsible for the profit or loss of the business.

Definitions:

Definition Of Sole Tradership

Comprehensively Sole Tradership can be defined as, it is;

that type of business organisation, which is owned by one person and he is also considered as the bearer of following function:

  1. Capital formation
  2. Supervision
  3. Management
  4. Marketing
  5. Profit or Loss

Examples Of Sole Tradership:

  1. Retailer
  2. Painters
  3. Carpenter
  4. Tourist Guide
  5. Barber
  6. Beauty Palour
  7. Shoe Service Shop
  8. Doctor or Accountant etc.
  9. Restaurant
  10. Petrol Pumps

Characteristics Of Sole Tradership:

Ownership:

One person owns the ownership of business in sole tradership, The persons, who do not want to work as employees, can became the owners by starting such business.

Formation:

Formation of sole proprietorship business is easy as compared to other businesses because no special law or legislation has been passed in this regard. Moreover, it does not require any legal formality like registration etc.

Capital:

Capital is necessary for operating the business. In sole proprietorship, the capital is normally provided or invested by the owner himself. This capital may be in form of cash or goods or different types of assets. However, if additional capital is required, borrowing can increase such capital.

Management of Business:

In sole proprietorship, the owner of the business is an active manager. He makes and implements business policies himself. However, if the business is no large scale then the owner may delegate some of powers to his trusted persons or employees.

Profit:

The profit or loss is a symbol of success and failure of any business unit. In sole tradership, the single owner alone makes investment in business therefore he goals total benefit or profit of the business and also responsible to bear loss.

Legal Entity:

In sole proprietorship, the business has no separate legal entity apart from sole trader because no permission or registration is required to run the business. So government does not accept such business separate from owner. In case of any dispute, a legal action can be taken against owner and not against business.

Unlimited Liability:

The sole proprietor has unlimited liability. In case of insolvency of the business or not-payment of business debts. he will be responsible for the payments of the liabilities even from his personal assets. Due to this, the sole owner can not be relaxed in business matters or dealings.

Legal Restriction:

Generally, there are no legal restrictions for sole trader to set up the business. But there may be legal restriction on setting up a particular type of business. e.g, medical store etc.

Uncertainty:

The continuity of this type of business is considered uncertain because the absence or illness or limited business ability of the owner can disturb the operation of business.

Door Step Services:

one of the main characteristics of sole tradership is that it can be established anywhere. So, it can provide doorstep service to its customers.

Small Size:

The size of the business is usually small. The limited ability an capital do not allow the expansion of business. So, the trader can serve the customers only in limited area. But it can be manged at large scale in favourable circumstances, which proves beneficial.

Limited Life:

The existence and survival of sole proprietorship is based on good health, active participation or shrewdness of the sole owner. Sometimes the wrong decisions or sudden death of owner may stop the activities of sole tradership.

Success Of Business:

The success, growth and goodwill of teh sole proprietorship are totally dependent on the abilities or capabilities of the sole owner.

Secrecy:

Secrecy is an important factor for the success of every business. A sole proprietor can easily maintain the secrecy if his business because he make all the decisions himself and his business is free from the formalities like audit or publication of accounts.

Easily Transferable:

Such type of business can easily be transferred to another person without any legal restriction or permission. Moreover, the nature of business can also be modified in the time of need or according to changing circumstances.

Easy Dissolution:

The sole proprietorship can be easily dissolved, as there are no legal formalities involved in it. The sale of business may take some days, but its activities can be stopped at any time.

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