Characteristics of sole proprietorship, Finance Basics

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Characteristics of sole proprietorship

The main characteristics of sole proprietorships are as follows:

1) Ownership- The ownership of the business unit is by one person.

2) Management- In sole tradership, the owner is the active manager of the business unit. If the business is large, he/she may delegate some of the powers to his/her trusted employees. However, the final authority and overall control of the policy is retained by the proprietor. '

3) Finance- The capital necessary for operating the business is normally provided by the owner himself. However, if additional funds are required, the capital can be increased.

4) Size of business unit - The size of business unit is small, but it is not necessarily so. The features of small scale business, therefore, may or may not apply to it.

5) Risk - The sole proprietor operates the business for his own personal interests. Therefore, he assumes all risk of the business.

6) Unlimited liability- The liability of the sole proprietor is unlimited. In the event of insolvency the business he will be responsible for making good the deficiency from his personal wealth.

7) Entity - The business is not a separate legal entity from the sole trader.

8) Freedom of action - Sole trader can take prompt and immediate action within a legal framework.

9) Continuity - The continuity of the firm is based on the good health of the owner.

10)  No legal formalities. There are no legal formalities to set up the business. There may be legal restrictions on the setting up of a particular type of the business.

11) Profit - As the owner bears full risks of the business he therefore retains all the profits with him. 

 


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