Forms of Business Organisation-1 — OCM STD 11 Commerce — Question
Gujarat BoardEnglish MediumSTD 11 CommerceOCMForms of Business Organisation-13 Marks
Question
Explain in brief Sole Proprietorship with meaning and characteristics.
✓
Answer
Introduction :
Man was self-reliant as long as his needs were limited.
He himself used to fulfill his own needs.
But with the passage of time his needs went on increasing and there is found many varieties.
As a result he started depending on others to fulfill his needs and through exchange, trade was started.
The class of Person who providing goods or service against money is called 'trader'.
And for purchase and sale many form of business organization such as sole/individual proprietorship.
Partnership, Hindu Undivided Family $(H.U.F.)$ Co-Operative society, and gradually joint stock company came in to existence.
Meaning of Sole Proprietorship :
Sole-Proprietorship is such a form of trade and commerce in which the management of business in the hands of one person only.
That person does the business in his own name and bears profit and loss of business himself.
It is known as sole proprietorship.
According to Louis and Henry 'Sole Proprietorship is such a form of business organization in which there is only one person at the tp, who is responsible, who directs activities of business and bears the risk of failure only by himself"
In Proprietorship there is only one owner. He is known as 'individual trader'.
His responsibilities are unlimited.
That means he has to be ready to pay the loss of business from his own assets.
Examples of Sole Proprietorship - Grocery shops, small stationery shops, selling sweets and snacks, small cloth shops, beetle cabin store (પાનનો ગલ્લો), washarman, carpenter, cobbler, hawker gelling snacks etc. are good examples of sole proprietorship business form.
Characteristics of Sole Proprietorship : They are noted as under.
Easy to Establishment :
Under this form procedure of establishment is simple.
Any person, at any place can start business without following any complicated procedure and does legal business.
Capital Investment :
In individual proprietorship form of business the owner himself invests capital in his business.
If require he can borrow money from others for his business and he himself is responsible to repay the amount borrowed.
Liability :
Sole Proprietor is liable to pay total debts of his business.
If there is insufficient funds in the business for the payment of debts, then he is liable to pay from his personal properties.
Manager / Organizer :
In this type of form of business, owner himself manages his business.
He performs the function of purchase, sale, accounts etc.
He can take the services of relatives, family members, and salaried employees etc.
Freedom of Work :
The owner of the business frames the policy, rules and regulation and manage all works to be performed.
He enjoys the freedom of management of his business.
Quick Decisions :
Sole proprietor does not have to discuss any business matter to other for decision making.
He is both decision maker and decision implementer.
He can take business related decisions without delay.
Maintenance of Secrecy :
As owner himself is managing business, hence he can maintain secrecy of his business.
Personal Contacts :
In Sole proprietorship the scope of business is limited, so the owner himself has direct contact with customer.
He can satisfy them considering changing fashion, demand, needs etc.
Centralization of Ownership and Management :
In individual proprietorship the owner himself manages his business and makes changes in business as and when required.
Profit-Loss :
In this type of business the owner enjoys the profit and bears loss himself.
Conclusion :
Sole proprietorship form is the most ancient form of business.
Business activity is done anywhere, with small capital without much legal formalities.
Normally every person starts business with sole proprietorship on small scale in initial stage.
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