July 02, 2012

10 Notable Characteristics Of Sole Trading Concern

Introduction

Sole trading concern (also known as sole proprietorship)  is individually owned and operated business. It is the simplest type of business organization in which owners have absolute power and responsibilities. This business does not have legal identity because business activities are performed in the name of sole trader.

Characteristics Of Sole Trading Concern

Some of the main characteristics of sole trading concern can be describes as follows:

1. Individual ownership

Individual ownership is the main characteristic of sole trading concern. It is owned by an individual. It has single ownership. The owner invests entire capital, that may be his private capital or loans from bank or relatives.

2. One-man management

Sole trading concern is a one man show. The owner himself manages it. He makes all the business decisions. He formulates plans and control business.

3. No separate legal entity

Sole trading concern has no legal entity. The owner and the business are one and the same. All business activities are done in the name of the owner. He has individual accountability.

4. Unlimited liability

The sole trader has unlimited liability. He is personally liable for business debts. His individual property can be used to pay liabilities.
  
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5. No profit sharing

Another characteristic of sole trading concern is no sharing of profit.The sole trader takes all the risks. He bears all losses and receives all profits. This motivates owner to work hard.
features-sole-trading-concern
6. Small size

Sole trading concern is of small size. The scale of operation is small. It is suitable for small and cottage industries.

7. Limited operations

Sole trading concern has limited operations. It is confined to local areas. The operations are limited by capital, management skill and time of owner.

8. Few legal formalities

Sole trading concern is subject to few legal formalities. It is easy to start. But it must obey the laws. It is subject to minimum government regulations.

9. Secrecy

High level of secrecy is another characteristic of sole trading concern. It is easy to maintain secrecy in sole trading. The owner himself makes all the decisions. He is not required to publish the accounts. He keeps all the business secrets to himself. Secrecy helps sole trader to face competition.

10. Lack of stability

Sole trading concern lacks stability. The business ends when the owner closes the business, dies or becomes insolvent.

Key Features Of Sole Proprietorship In Short

* It is owned, run, managed and controlled by one person
* It is simplest and oldest form of business
* Sole trader is personally liable for all losses and debt
* It has no legal entity
* It is easy to form and close the business
* Owner retains all the profit made by the business
* It is easy to maintain high level of secrecy and privacy
* It is more flexible than other types of businesses 
* It lacks stability or business continuity