A sole proprietorship is the oldest and the most common form of business. It is a one-man organisation where a single individual owns, manages and controls the business. Its main 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.
- Lack of continuity i.e. 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.
- Ease of formation
- Maximum incentive for work
- Secrecy of business
- Quick decisions and flexibility of operations
- Limited capital
- Limited managerial ability
- Limited life
- Unlimited liability
Hence, this form of organisation is suitable for the businesses which involve moderate risk, small financial resources, capital requirement is small and risk involvement is not heavy like automobile repair shops, small bakery shops, tailoring, etc. It accounts for the largest number of business concerns in India.