Sole proprietorship is also known as individual proprietorship. This type of organization is easiest to form. Here the owner himself is responsible for all management actions as well as decisions critical to the business. He uses his own knowledge, skills and experience in conducting business. He is the sole contributor of capital and assumes all risks arising out of business transactions.

The individual, often the owner, who runs a sole proprietorship, is frequently called sole proprietor or sole trader.Like any other form of business, sole proprietorship has its own characteristics. Let us discuss five main characteristics of this form of organization:

a) Ownership:

Sole means single. Hence sole proprietorship itself represents that it is an organization owned and managed by an individual. This individual has complete ownership of all the assets and properties used to carry on business. A chemist or a barber shop is an example of this type of ownership.

b) Management: 

A sole proprietor is completely involved in managing his/her business. Responsibility for taking key managerial as well day to day routine decisions lie with the proprietor. Proprietor assumes full control over how the business functions and various activities that are carried out on a daily basis. He/She takes decisions as to whom to sell, from whom to purchase, which markets to target and so on. But that does not mean that he/she cannot consult anyone. Decision to implement any advice would ultimately be taken by him/her.

c) Capital:

Every business requires funds. In case of sole proprietorship, it is the owner who contributes entire capital. He/She can provide such funds either from his/her own resources/savings, or through borrowings in the form of loan from bank or any financial institution, or from any friend and so on. Since proprietor enjoys exclusive ownership, he/she is required to meet all the capital requirements from day one. For Instance; a chemist procures medicines from a distributor who gives a 30 days credit period. If due to shortage of funds, payment is not made in time, there can be a situation where distributor may completely refuse to supply medicines.

d) Risk:

Again, since proprietor has full control over the operations, he/she directly assumes any kind of risk arising from business activities. Let us consider a scenario where air conditioner at a barber’s shop stops functioning. In winter, any delay in getting it repaired might not impact the business. However during summer, such a delay can impact business as many customers may prefer to go to a shop with a working air conditioner. Therefore, there can be a risk of losing business as a result of delay in decision making on the part of barber.

Similarly take example of a chemist. Nowadays many chemists offer home delivery facility up to a certain distance. A new chemist who decides not to give such a facility may not enjoy immediate customer satisfaction. Even though the objective may have been to save on delivery costs and time, there is a possibility of decline in sales.

e) Legal Standing And Unlimited Liability:

Proprietor and business are not considered as separate legal entities in the eyes of law. Hence all the assets and liabilities of the business are treated as personal assets and liabilities of the proprietor. Therefore a creditor can sue a proprietor to the extent of his/her personal assets if business assets are not sufficient to cover the amount due.

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