Sole Proprietorship, Partnership & Hindu Undivided Family — Flashcards

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Sole proprietorship is a business form in which a single person owns, manages, and controls all the activities of the business. The owner is called a sole proprietor or sole trader. All profit and los…

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It is called a single-ownership business form because only one person owns the business and takes all major decisions. The same person provides capital, controls operations, and bears the risk.

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The main characteristics are: ease of formation, single ownership, no sharing of profit and loss, one man's capital, one-man control, and unlimited liability.

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Unlimited liability means the sole proprietor is personally responsible for all business debts. If business assets are not enough, personal property can also be used to pay the dues.

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It is easy to form and wind up because very few legal formalities are needed. The owner can start the business with small capital and can close it at his or her own decision.

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Limited capital means a single owner may find it difficult to arrange a large amount of money for expansion. The owner's own funds and borrowed funds may not be enough for a very big business.

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The sole proprietor gets all the profit and also bears all the loss. This direct link between effort and reward encourages hard work and responsibility.

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The biggest management limitation is lack of managerial expertise. One person may not be skilled in every area such as marketing, planning, or administration.