Unit-2 Forms Of Business Organization I

In this unit you will study in detail the features, classification, merits and limitations of these different forms of business organisations.

What do you understand by sole trader organization? Show merits and limitations of sole trader organization.

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Learning Pundits Content Team

Written on Apr 15, 2019 5:09:11 PM

  • The sole trader organization (also called proprietorship) is the oldest form of organization and the most common form of organization for small business even today. It is the simplest and easiest to form. What is required is that an individual decides about the type of business to be started and arranges the necessary capital. Required capital may be mobilized from his own savings, or may be borrowed from friends and relatives. The business may be carried either in a portion of his own residence or in a rented building. The person generally manages the business on his own. He may also take the help of his family members or employ some persons, if necessary. He can take the advice from others in running the business, but his own will be the final decision. Thus, the sole trader enjoys full control over the affairs of the firm. He enjoys all the profits earned by the business. So in case of loss, naturally, he has to bear the full burnt of it.
  • Thus, we can now define sole trader organization as "one man's business in which an individual produces independently with his own capital, skill and intelligence and i s entitled to receive all the profits and assumes all the risks of ownership". J.L. Hanson defines it as "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 management of the business". Under this form of business organization, no distinction is made between the business concern and the proprietor. Likewise, the management rests with the same person.

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