Solution:

Sole proprietorship:

• Sole proprietorship (also, called sole trade organization) is the oldest form of business ownership in India.

• In a sole proprietorship, the enterprise is owned and controlled by one person. He is master of his show. He sows, reaps and harvests the output of this effort. He manages the business on his own.

• If necessary, he may take the help of his family members, relatives and employ some employees.

• Sole proprietorship is the simple and easiest to form. It does not require legal recognition and attendant formalities.

• This form is the most popular form in India due to the distinct advantages it offers. William R. Basset opines that “The one-man control is the best in the world if that man is big enough to manage everything”.

• The important features of a sole proprietorship are :

  • (i) Sole ownership

  • (ii) One man control

  • (iii) Unlimited risk

  • (iv) Undivided risk

  • (v) No separate entity of the firm

  • (vi) No Government regulation

Advantages of Sole Proprietorship:

• (i) Easy and Simple Formation :

  • A sole trading concern can be formed without any difficulty.

  • Unlike other forms, no legal formalities are necessary for its formation. It can be started and can also be closed according to wishes and whims of the sole trader.

  • Thus, there are no legal formalities for expansion, contraction or dissolution of the business enterprise.

• (ii) Direct and Exclusive Control :

  • The proprietor has full authority to manage the business. He is not accountable to anyone and nobody interferes in his working.

  • Thus, there is no problem of co-ordination; he is in a better position to maintain good relations with all his employees, if any.

• (iii) Promptness in Decision-making :

  • The sole trader is the sole dictator of the business and relatively free from outside interference.

  • He is capable of taking prompt actin so necessary for business success.

• (iv) Direct Motivation and Incentive to Work :

  • The-owner enjoys the entire profits of the concern alone.

  • The existence of the direct relationship between the effort and the reward serves as a powerful incentive and makes the sole trader work very hard and manage his concern most efficiently.

• (v) Maintenance of Secrecy :

  • In any business enterprise, maintenance of business secrecy is an important factor; and it is in this individual entrepreneurial organization that the sole trader will get this object fulfilled as there is no need to give publicity to accounts and affairs of his business.

• (vi) Personal Touch with Customers :

  • As the enterprise is generally small and most often the proprietor himself manages it, he can develop close personal relations with his customers.

  • This promotes customer satisfaction which, subsequently, adds to goodwill of the concern.

• (vii) Economy in Management:

  • The business of sole proprietorship is mostly supervised, managed and controlled by the sole proprietor alone or with the help of his relatives and friends and sometimes by one or two paid assistant; hence the costs of management are comparatively lower.

• (viii) Minimum Government Regulation :

  • The operations of a sole proprietor are regulated by Government and law to the minimum extent.

  • He of course, has to comply with tax and Labour laws, but otherwise he is free from interference. There are no legal formalities in formation, expansion or dissolution of the business enterprise.

• (ix) Socially Significant :

  • Sole proprietorship is important from social point of view also. It is a means for earning livelihood independently. The owner is his own master.

  • It ensures diffusion of business ownership and, thus, concentration of wealth and power in a few hands is avoided.

  • It further, helps in the development entrepreneurial qualities such as self-reliance, self confidence, responsibility, tact and initiative etc. in the individual entrepreneurs.