Introduction:What is sole proprietorship?A sole proprietorship, also knownas a sole trader or simply aproprietorship, is a typeof business entity that is ownedand run by one individual and inwhich there is no legal distinctionbetween the owner and thebusiness.
The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts Every asset of the business is owned by the proprietor and all debts of the business are the proprietors.
Characteristic characteristics of sole proprietorship are as under- (1) Ownership The business is owned by a single individual. (2) Management and control Being small in size, it is managed by the owner himself. However, he may have some paid workers to assist him. In any Case, the ultimate control rests in his hands. (3) Finance The necessary capital to run the business is provided by the sole owner. However, he may borrow from other sources such as friends or bank as need arises. (4) Risk The proprietor himself bears all the risks. No body else has any stake in the business.
(5) RELATIONSHIP WITH CUSTOMERSTHE SOLE TRADER TRIES TO KEEP GOODRELATIONSHIP WITH HIS CUSTOMERS. THECUSTOMERS ARE GENERALLY PERSONALLYKNOWN TO THE PROPRIETOR AND THEIRORDERS ARE HIGHER VALUED.(6) NO LEGAL FORMALITIESTHE SOLE TRADER CAN SET UP OR CLOSE THELAWFUL BUSINESS AS AND WHEN HE LIKES THEOPERATION OF HIS BUSINESS IS NOT GOVERNED BYANY SPECIAL ACT OR ORDINANCE.
(7) Ease of dissolution The sole trading business is as easy to end or dissolve as is its formation. The decision of the proprietor alone ends the business.
o ADVANTAGES THERE ARE MANY ADVANTAGES OF CORPORATIONS THAT ARE DESCRIBED BELOW: SIMPLE FORM OF ORGANISATION,, OWNERS FREEDOM TO TAKE DECISION, HIGH SECRECY,, EASY WIND-UPS.
DISADVANTAGES: Raising capital for a proprietorship is more difficult because an unrelated investor has less peace of mind concerning the use and security of his or her investment and the investment is more difficult to formalize;other types of business entities have more documentation. One of the main disadvantages of sole proprietors is unlimited liability where the owners personal assets can be taken away. Also, being alone in business, sole proprietors generally lack money which leads to failure[ The small size of the business limits the breadth of management skills because there are fewer people working together
PARTNERSHIPSA partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.
CHARACTERISTIC :FORMATIONFINANCINGMANAGEMENTRESTRICTIONON TRNSFERING OF SHARESTAXATION
Characteristic of partnerships: 1. Formation According to the Partnership Act of 1932, there is no special mode for the creation of a partnership. If persons between 2 and 20 enter Into agreement oral or verbal for carrying on a business, with a private gain, then partnership is formed (10 in case of banking business). To avoid a, it is desirable that the articles of partnership be prepared in writing with legal assistance. The articles of partnership should cover the rights, duties, obligations and the arrangements which the parties have mutually agreed upon.
2. Financing The capital is made available to the firm by the partners as per terms of the agreement. It is not necessary that all the partners should contribute equally to the partnership. A person who has special skill or ability can be admitted to the partnership without any capita contribution. 3. Management In a partnership business, every partner has a right to take part in its management. The important business decisions are taken with the consent of all other partners. 4. Restriction on Transfer of Interest No partner can transfer h share to any other person without the prior consent or willingness of all other partners.
5. Taxation . If a firm is registered under the Income Tax Act, the profit of the firm is first divided among the partners and then assessed separately.
ADVANTAGES OF PARTNERSHIPS: • Partnerships are relatively easy to establish. With more than one owner, the ability to raise funds may be increased, both because two or more partners may be able to contribute more funds and because their borrowing capacity may be greater. • Prospective employees may be attracted to the business if given the incentive to become a partner. • A partnership may benefit from the combination of complimentary skills of two or more people. There is a wider pool of knowledge, skills and contacts.
• Partnerships can be cost-effective as each partner specializes in certain aspects of their business. • Partnerships provide moral support and will allow for more creative brainstorming. Business Partnership Disadvantages • Business partners are jointly and individually liable for the actions of the other partners. • Profits must be shared with others. You have to decide on how you value each other’s time and skills. What happens if one partner can put in less time due to personal circumstances?
• Since decisions are shared, disagreements can occur. A partnership is for the long term, and expectations and situations can change, which can lead to dramatic split ups. • The partnership may have a limited life; it may end upon the withdrawal or death of a partner. • A partnership usually has limitations that keep it from becoming a large business. • You have to consult your partner and negotiate more as you cannot make decisions by yourself. You therefore need to be more flexible.
TYPES OF PARTNERS: Active Partner: Partner who takes an active part in the management of the business is called active partner. He may also be called actual or ostensible partner. He is an agent of the other partners in the ordinary course of business of the firm and considered a full fledged partner in the real sense of the term. Sleeping or Dormant Partner: A sleeping or dormant partner is one who does not take any active part in the management of the business. He contributes capital and shares the profits which is usually less than that of the active partners. He is liable for all the debts of the firm but his relationship with the firm is not disclosed to the general public.
Sleeping or Dormant Partner: A sleeping or dormant partner is one who does not take any active part in the management of the business. He contributes capital and shares the profits which is usually less than that of the active partners. He is liable for all the de of the firm but his relationship with the firm is not disclosed to the general public. Nominal Partner: A partner who simply lends his name to the firm is called nominal partner. He neither contributes any capital nor shares in the profits or take part the management of the business. But he is liable to third parties like other partners. A nominal partner must be distinguished from the sleeping partner. While the nominal partner is known to the outsiders and does not share in the profits, the sleeping partner shares in the profit a his relationship is kept secret.
Partner in Profits: A partner who shares in the profits only without being liable of the losses is known as partner in profits. He does not take part in the management of the business but he is liable to third parties for all the debts of the firm. Minor Partner: Partnership arises from contract and a minor is not competent to enter into contract. Therefore, strictly speaking, a minor cannot be a full-fledged partners. But with the consent of all the partners he can be admitted into partnership for benefits only. He is not personally liable to third parties for the debts of the firm, on attaining majority, if he continues as a partner, his liability will become unlimited with effect from the date of hi original admission into the firm.