BUSINESS STUDIES UNIT-2 CBSE|PART 2|FORMS OF BUSINESS ORGANISATION|Sole ...

Forms of organisation. what is forms of organisation?.....

it is the structure of the organisation. it tells about the ownership of the organisation.

the first and simple form of organization is Sole proprietorship....

It is a type of enterprise that is owned and run by one natural person .

Example:

           stationary shop,

           tuition centre,

           computer services,

           xerox shop.

           mechanic shop









The word “sole” implies “only”.

and “proprietor” refers to “owner”.

This form of business is particularly

common in areas of personalised

services such as beauty parlours, hair

saloons and small scale activities like

running a retail shop in a locality.

1)Formation and closure: 

For starting the business.Hardly any legal formalities are required to

start a sole proprietary business, though in some cases one may require

a license. There is no separate law that governs sole proprietorship. 

for closing the business.Closure of

the business can also be done easily.

Thus, there is ease in formation as well

as the closure of the business.

2)Liability: Sole proprietors have

unlimited liability. This implies that the

owner is personally responsible for payment of debts in case the assets of

the business are not sufficient to meet

all the debts. As such the owner’s

personal possessions such as his/her

personal car and other assets could be

sold for repaying the debt. Suppose the

total outside liabilities of XYZ dry

cleaner, a sole proprietorship firm, are

Rupees 80,000 at the time of dissolution, but

its assets are Rupees. 60,000 only. In such a

situation the proprietor will have to bring

in Rs. 20,000 from her personal sources

even if she has to sell her personal

property to repay the firm’s debts.

3)Sole risk bearer and profit

recipient: The risk of failure of

business is borne all alone by the sole

proprietor. However, if the business is

successful, the proprietor enjoys all the

benefits. He receives all the business

profits which become a direct reward

for his risk bearing.

4)Control: The right to run the

business and make all decisions lies

absolutely with the sole proprietor. He

can carry out his plans without any

interference from others.

5)No separate entity: In the eyes of

the law, no distinction is made between

the sole trader and his business, as

business does not have an identity

separate from the owner. The owner is,

therefore, held responsible for all the

activities of the business.

6)Lack of business continuity:

Since the owner and business are one

and the same entity,the business will be stoped in caseof , death, insanity,

imprisonment, physical ailment or

bankruptcy of the sole proprietor will

have a direct and detrimental effect on

the business and may even cause