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Proprietorship - Meaning
A sole proprietorship is the oldest and the most common form of business. It is a one-man organization where a single individual owns, manages and controls the business. The vast majority of new businesses set up each year in India choose to do so as sole proprietors. This form has the merit of being relatively formality-free; there are no rules about the records you have to keep. Nor is there a requirement for your accounts to be audited or for financial information on your business to be filed with authority.
Sole proprietor can be called an one man show as there is no legal distinction between you and your business-your business is one of your assets, just as your house or car is. It follows from this that if your business should fail your creditors have a right not only to the assets of the business, but also to your personal assets, subject only to the provisions of the Bankruptcy Act (these allow you to keep only a few absolutely basic essential for yourself and family).
Sole Proprietor is run and managed by its owner and he is primarily responsible for its success and failure. The capital to get the business going must come from either you or from loans. There is no access to equity capital, which has the attraction of being risk free. In return for these drawbacks you can have the pleasure of being your own boss immediately, subject only to declaring your profits on your tax return.
Basic Features are:-
- Ease of formation is its most important feature because it is not required to go through elaborate legal formalities. No agreement is to be made and registration of the firm is also not essential. However, the owner may be required to obtain a license specific to the line of business from the local administration.
- The capital required by the organisation is supplied wholly by the owner himself and he depends largely on his own savings and profits of his business.
- Owner has a complete control over all the aspects of his business and it is he who takes all the decisions though he may engage the services of a few others to carry out the day-to-day activities.
- Owner alone enjoys the benefits or profits of the business and he alone bears the losses.
- The firm has no legal existence separate from its owner.
- The liability of the proprietor is unlimited i.e. it extends beyond the capital invested in the firm to its personal assets.
- The existence of a sole proprietorship business is dependent on the life of the proprietor and illness, death etc. of the owner brings an end to the business. The continuity of business operation is therefore uncertain.
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