Question

Attempt the following:

Explain the features of Sole Trading Concern.

Answer 1

A sole trading concern is one of the oldest and simplest forms of organisation. An individual owns the entire business. The individual is the owner, controller, and manager of the firm. Such an individual is called a Sole Trader or Sole Proprietor. This type of business is a one-man show.

1. According to Prof. J. Hanse, “Sometimes known as one man business, it is a type of business unit where one person is solely responsible for providing the capital, for bearing the risk of the enterprise and for the risk of ownership”.
2. According to Prof. James Lundy, “The sole proprietorship is an informal type of business owned by one person.”

The features of Sale Trading Concern are as follows:

1. Suitable for some Special Business: Sole trading concern is suitable for business where personal attention and individual skill are needed e.g., Beauty parlour, groceries, fashion designing, sweet Shops, tailoring, restaurants, etc.
2. Unlimited Liability: The liability of the sole trader is unlimited. In case business assets are not sufficient to meet business expenses, the private property of the sole trader will be used. There is no difference made between private property and business property of the sole trader.
3. No Sharing of Profits and Risks: A sole trader enjoys all the profits of the business. As he is the single owner of the business he assumes full responsibility in business. He alone bears all the losses or risks involved in the business.
4. Business Secrecy: Maximum business secrecy can be maintained in a sole trading concern. A sole trader is responsible only to himself. He need not discuss any matter of business with outsiders. Moreover, there is no legal compulsion for sole traders to publish books of accounts of the business.
5. Local Market Operations: A sole trader has limited capital and limited managerial skills, which forces him to operates in local are market only.
6. Individual Ownership: A sole trader is the single owner of the business. He owns all the property and assets of the concern. He brings in the required capital for business. A sole trading concern is a ‘One man show”.
7. No separate legal status: Sole trader and his business are considered one and the same in the eyes of law. Thus, it does not enjoy a separate legal status.
8. Direct Contacts with Customers and Employees: A sole trader directly deals with customers and employees. A sole trader can pay personal attention to his customers. This helps him to maintain good relations with his customers. He can serve customers according to their likes and dislikes. As there are less number of employees, he can build good relations with them. He can listen to their grievances and try to solve them.
9. Self-employment: Such a business form is best suitable for self-employment. Instead of being remaining unemployed, one can start such business as it requires low capital and has less legal formalities.
10. Freedom in Selection of Business: A sole trader has the freedom to select any type of business. Businesses selected must be allowed legally. A sole trader can use any method of maintaining books of accounts.
11. Minimum Government Regulations: Sole trading concern need not follow any special Act. There are not many legal formalities needed for forming and closing a sole trading concern. Only the general law of the country has to be followed.