Characteristics of Sole proprietorship

Characteristics of Sole proprietorship

Sole proprietorship is a form of business, which is run & managed by a single person. Characteristics of sole proprietorship are unlimited personal liability, no sharing of profit, difficulty in arranging finance, small scale operation etc. These characteristics have been briefly explained below

Important Characteristics of Proprietorship

Some important characteristics of sole proprietorship have been explained below;

1.    Unlimited Liability of Owner

First important characteristic of Sole proprietorship is the unlimited liability of the owner towards business. hence, in case of liquidation of company , if the proceeds from the disposal of assets of business is not sufficient to settle the liabilities of the business, then  owner of the business is personally liable to pay such unpaid liabilities.

2.   Keep All Profit

Second important characteristic of Sole proprietorship is enjoying all profit of business. Sole proprietorship being the sole owner of the business is not required to share the profits of the business. This characteristic is lacking in case of partnership and company, where profits are shared among partners or shareholders as case may be.

3.   Availability of Finances

Sole proprietorship has limited access to the finances due to lower creditability of sole proprietorship in financial markets as compared to corporate business. The financial institutions prefer corporate business for loan facilities, because those businesses are effectively regulated and run by the professional manager. Thus chances of default are low.

4.   Small Scale of Operations

Another important characteristic of sole proprietorship is its small scale operations. Sole proprietorship normally operates in particular city or area. Many shops in the markets are examples of sole proprietorship. The main reasons for limited operation of sole proprietorship are capacity & resource constraints.

5.   Control  Issues

Sole proprietorship businesses are subject to many control weaknesses.Sole proprietorship businesses are normally run by the owner (Sole Proprietor) on the bases his personal knowledge ,experience and understanding of the business. The business is not run in a professional manner, thus it is exposed to control weaknesses.

6.   Easy to set up & Wind up

One of the important characteristics of Sole proprietorship is its easy & convenient set up process. This type of business does not involve many legal formalities for start up. Similarly sole proprietorship can be conveniently wound up.

7.   Timely & Quick Decisions

Another Important character of sole proprietorship is timely & speedy decision making process. The decision making process is very simple and straight forward in sole proprietorship, one person takes all the decisions. We know that timely and speedy decisions are critical for the successful business.

List of important characteristic of Sole proprietorship

1.    Owner has unlimited liability.

2.    Owner Keeps  all the profit (No profit sharing with others).

3.    Sole proprietorship has limited funds.

4.    Sole proprietorship business is subject to many control problems.

5.    Sole proprietorship business is easy to set up & wind up.

6.    Process of decision making is fast & Quick in sole proprietorship.