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Sole Proprietorship


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Definition , Features , Advantages , Disadvantages , Importance .

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Sole Proprietorship

  1. 1. The word ‘Sole’ which means single and the word ‘Proprietorship’ which means ownership. The legal business activities which is owned and control by an individual is called sole proprietorship. “The sole proprietorship is the form of business ownership which is owned and controlled by a single individual”.-B. O. wheeler “A sole proprietorship is a business owned by one person and operated for his profit”. –Gloss and Baker
  2. 2. “Sole proprietorship is a type of business unit where one person is solely responsible for providing the capital, for bearing the risk of the enterprise and for the management of the business”.- J.L. Hanson From the above definition we can say that the sole proprietorship is the legal business activities where an individual owned and control all the business activities.
  3. 3. Single ownership: Only one will be the owner of the business. No other person will not be involved as an owner. Easy of formation: The formation of sole enterprises is very easy. There are few documents, sometimes no documents to be needed for forming single enterprise. Direct relation: Owner always involve with the activities of single ownership business. That is why owner has direct relation with business.
  4. 4. Investment of low capital: Only owner can invest capital from his or borrowed. Self management: Each and every task will be conducted by the owner. Personal risk: The personal property owner will be liable for sole proprietorship. Profit and loss: Full amount of profit or loss will be entitled by the owner. Government regulation: Government has little or sometimes no rules and regulations about activities of the sole proprietorship.
  5. 5. No separate entity: Owner is not separate from the business activities. Owner and director of the business are the same. Uncertain stability: The stability of the sole proprietorship is not certain. Because any time the business may be winding up for the reasons of loss, death of owner etc.
  6. 6.  Easy of formation  Optimum profit  Low tax  Easy management  Proper decision making  Independence of the owner  Personal relation with the customer  Better control  Flexibility in operation  Easy dissolution
  7. 7. Unlimited liability Limited capital No separate entity Unsuitability for large scale business Lack of stability Lack of employment opportunity Limited size Lack of expert management Limited scope of expunction
  8. 8. Business of minimum capital Product of limited demand Perishable goods Professional and service oriented Product of changing demand Small and cottage industry Business of limited risk  Mobile and temporary business
  9. 9. Providing greater services Assistance in large scale production Increase of savings and investment Increase of income and wealth Increasing employment Preserving individuality Proper training and development Creation of market of goods and services Proper distribution of goods and services Raising standard of living
  10. 10. Recession: A recession also sometimes referred to as a channel is a period of reduced economic activity in which levels of buying, selling, production, and employment typically diminish. This is the most unwelcome stage of the business cycle for business owners and consumers alike. A particularly severe recession is known as a depression. Decline : Also referred to as a contraction or downturn, a decline basically marks the end of the period of growth in the business cycle. Declines are characterized by decreased levels of consumer purchases (especially of durable goods) and, subsequently, reduced production by businesses
  11. 11. Recovery : The recovery stage of the business cycle is the point at which the economy “channels" out and starts working its way up to better financial footing. Growth Economic growth is in essence period of sustained expansion. Hallmarks of this part of the business cycle include increased consumer confidence, which translates into higher levels of business activity. Because the economy tends to operate at or near full capacity during periods of prosperity, growth periods are also generally accompanied by inflationary pressures.
  12. 12. Volatility of investment spending: Variations in investment spending is one of the important factors in business cycles. Investment spending is considered the most volatile component of the aggregate or total demand (it varies much more from year to year than the largest component of the aggregate demand, the consumption spending), and empirical studies by economists have revealed that the volatility of the investment component is an important factor in explaining business cycles in the United States. Technological innovations : Technological innovations can have an acute impact on business cycles . Indeed, technological breakthroughs in communication, transportation, manufacturing, and other operational areas can have a ripple effect throughout an industry or an economy.
  13. 13. Variations in inventories : Variations in inventories expansion and contraction in the level of inventories of goods kept by businesses also contribute to business cycles. Inventories are the stocks of goods firms keep on hand meeting demand for their products. Fluctuations in government spending : Variations in government spending are yet another source of business fluctuations. This may appear to be an unlikely source, as the government is widely considered to be a stabilizing force in the economy rather than a source of economic fluctuations or instability.
  14. 14. Flexibility : According to Gallagher, "part of growth management is a flexible business plan that allows for development times that span the entire cycle and includes alternative recession-resistant funding structures." Long-Term Planning : Consultants encourage small businesses to adopt a moderate stance in their long- range forecasting. Study : "Timing any action for an upturn is tricky, and the consequences of being early or late are serious," said Daltas .
  15. 15. Attention to Customers : This can be an especially important factor for businesses seeking to emerge from an economic downturn. "Staying close to the customers is a tough discipline to maintain in good times, but it is especially crucial coming out of bad times," stated Arthur Daltas in Industry Week. "Your customer is the best test of when your own upturn will arrive. Customers, especially industrial and commercial ones, can give you early indications of their interest in placing large orders in coming months." Objectivity : Small business owners need to maintain a high level of objectivity when riding business cycles. business, especially in economic of the facts can devastate a Operational decisions based on hopes and desires rather than a sober examination down periods.