What are the essential characteristics of Sole Proprietorship ?

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The foregoing discussion reveals the following characteristics of sole proprietorship.

Single ownership:

Any single entrepreneur known as sole proprietor can start this type of business. Even though his family members may help him or few people employed by him to manage the business, the ownership lies with one person. Since the sole proprietor is the only owner, the entire amount of capital is invested by him either from his own savings or partly through borrowing.

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No separate entity:

Law does not confer any separate entity to the business. The business and the proprietor are one and the same in the eyes of law.

No separation of ownership from management:

There is no separation of ownership and management. The entrepreneur himself manages the business and enjoys absolute control over the affairs of the business. He is the owner, manager, seller, purchaser and everything.

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Unlimited liability:

The liability of the sole proprietor is unlimited. Thus, the private property of the owner is at risk as it is liable for business obligation in the event of business losses. There will be hardly any difference between personal property and business property of the entrepreneur.

Individual risk:

The entire risk of the business is borne by the entrepreneur himself as he is the only owner of the business. All the risk and gain are the sole responsibility of the owner. This undivided risk will keep the entrepreneur vigilant and cautious for the business.

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No profit sharing:

The entrepreneur enjoys the entire profit earned in this form of business as there are no other persons to share the profit. Being the owner, he enjoys all the benefits.

Least legal formalities:

There are no legal formalities required for setting up sole proprietorship business. There is no need of registration of the business. But in some cases a license is to be obtained for starting the business. For example, an individual cannot set up a bank or an insurance company. License is needed for starting a restaurant or selling drugs, crackers etc.

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Secrecy:

Since all the decisions are usually, to be taken by the entrepreneur himself, he can maintain utmost secrecy for the same.

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