CHAPTER 2 FBO

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CHAPTER 2CHAPTER 2

SOLESOLE-- PROPRIETORSHIPPROPRIETORSHIP


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Meaning of SoleMeaning of Sole-- ProprietorshipProprietorship

A soletrader is anindividual who investsA soletrader is anindividual who investscapital,capital, employesemployes necessary labour, directsnecessary labour, directstheactivities ofthebusiness & beartheactivities ofthebusiness & bear(accepts) the risk ofabusiness.(accepts) the risk ofabusiness.

Accordingto Prof. J. L. Hanson SoleAccordingto Prof. J. L. Hanson Sole

Proprietorship is OneMan Business.Proprietorship is OneMan Business.


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Features & Characteristics of SoleFeatures & Characteristics of Sole--

ProprietorshipProprietorship Common IdentityCommon Identity

CapitalCapital

Unlimited LiabilityUnlimited Liability

Oneman controlOneman control

Profit& LossesProfit& Losses

Generally local businessGenerally local business Close contactwith customers & employeesClose contactwith customers & employees

Single ownership businessSingle ownership business


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Merits & AdvantagesMerits & Advantages

Ease of formationEase of formation: A soletrader do notneeds: A soletrader do notneedsany registration. In somebusiness itneedsany registration. In somebusiness itneeds

license. For example;druggistneeds license frolicense. For example;druggistneeds license frodrugdept. to runamedical store.drugdept. to runamedical store.

Minimum costMinimum cost: Except license fees thereis no: Except license fees thereis nolegal cost. There will be only costof runninglegal cost. There will be only costof running

business which canbeminimizedby soletraderbusiness which canbeminimizedby soletradereasily.easily.


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ContinuedContinued

Dictator of policiesDictator of policies::Soletrader isSoletrader is

ruler of policies. He can frameruler of policies. He can frameany policy or procedure & thatany policy or procedure & thatwill be his/ her final decision.will be his/ her final decision.

Maintenance of business secrecyMaintenance of business secrecy::AAsoletrader do nothas to providesoletrader do nothas to provideany informationto legalany informationto legal

authorities. So he can keep all theauthorities. So he can keep all the


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Overhead costsOverhead costs::Overhead costofOverhead costofadministration (management) is veryadministration (management) is verysmall compareto other forms ofsmall compareto other forms ofbusiness, because soletrader himselfbusiness, because soletrader himselfmanages thebusiness.manages thebusiness.

Benefit of entire profitBenefit of entire profit ::SoletraderSoletraderwill getentire profitandthatwillwill getentire profitandthatwillencourage (stimulus andincentive)encourage (stimulus andincentive)

himto work carefully (diligently).himto work carefully (diligently).


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Quick decisionsQuick decisions::A soletraderA soletrader

haveto takeall thedecisions ofhaveto takeall thedecisions ofbusiness and hedonthavetobusiness and hedonthavetotake permission (approval) fromtake permission (approval) from

anyone. So quick decisions leadsanyone. So quick decisions leads(show the way) to quick actions.(show the way) to quick actions.


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Limited scope for economiesLimited scope for economies::Economies of scale canbeachievedatEconomies of scale canbeachievedat

higher level operations (production ofhigher level operations (production ofmoreunits inbulk) buta soletrader ismoreunits inbulk) buta soletrader ishaving limited production facility as well ashaving limited production facility as well asneed.need.

Unlimited risk & liabilityUnlimited risk & liability::No oneelseNo oneelseis their inbusiness to share risk &is their inbusiness to share risk &liability. Any decision or policy resultsliability. Any decision or policy results

incorrectbecause heis notgettingincorrectbecause heis notgetting


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Limited managerial skillsLimited managerial skills::AnAn

individual may notbeableto performindividual may notbeableto performeach & every task ofbusiness witheach & every task ofbusiness withrequired skills & qualities.required skills & qualities.

No opportunity for consultationNo opportunity for consultation::ItisItissaidthattwo heads arebetter thansaidthattwo heads arebetter than

one. Butsoletrader is nothavinganyone. Butsoletrader is nothavingany

consultantor guardian who can helpconsultantor guardian who can help


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No StabilityNo Stability::life (existence) oflife (existence) of

business only (solely) depends on lifebusiness only (solely) depends on lifeofthe owner. Life ofbusiness mayofthe owner. Life ofbusiness maycometo endifthe soletrader expirescometo endifthe soletrader expiresor becomes insolvent.or becomes insolvent.

No division of labourNo division of labour::A soletraderA soletradercantdistributethe work dueto smallcantdistributethe work dueto small

size ofbusiness. Hemay donthavesize ofbusiness. Hemay donthave


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Monotony (repeatative) & hardwork :Monotony (repeatative) & hardwork :A soletrader has to work for long hours.A soletrader has to work for long hours.

So many times he has to sacrifice (forego)So many times he has to sacrifice (forego)his/ her social as well as personal life.his/ her social as well as personal life.

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CHAPTER 2 FBO