How is a sole proprietorship formed?


Sole trader business is started by the initiative of a single person. He prepares the blue prints of the business and arranges the necessary finance. No legal formalities are required in the formation of sole proprietorship.

Any individual can start a business whenever and wherever he likes. However, the sole trader must be a person competent to enter into a contract. The business to be carried on must be allowed by law.

In some cases, a license from the competent authorities may be needed for starting the business. For example, a person desirous of starting a chemist shop is expected to get a license from the local Government.


The first decision involved in the formation of sole trader business is the selection of a particular line of business. This decision depends upon the demand potential of a prod­uct, the availability of necessary resources and the scope of earning profits.

The selection of a proper site is another important decision. The requirements of customers and the nearness to the market should be considered. The size and scale of operations have also to be considered.

Sole trader business can be closed at any time without legal formalities. The proprietor has simply to settle the claims of his creditors and wind up the business.

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