5 Characteristics of Sole Proprietorship

5 Characteristics of Sole Proprietorship are discussed in this article and we hope you find it informative and able to satisfy the demands of your research.

Characteristics of Sole Proprietorship

Sole Proprietorship
Sole Proprietorship – Photo Source: https://www.toppr.com

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Practically, Sole Proprietorship can be defined as a kind of business venture that is owned, financed, and operated by one single individual with the primary aim of making and maximizing profit.

The sole proprietorship is popularly known as ‘one-man business’, it has been around the world for a long period of time, making it the oldest and the most common type of business organization.

It is a business unit that is not incorporated and owned by one person who is in charge of providing the capital, running the business, and undertaking the risks and profits of the business alone without the necessary interference of any person or organization.

Some examples of a sole proprietorship are usually found in primary industries like farming and fishing; in secondary industries like small-scale manufacturing, printing, etc., and majorly in ternary (or service) industries like law firms, tailoring, barbing, truck pushing, hairdressing, music industry, etc.

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Characteristics of Sole Proprietorship

1. Ownership

The business enterprise is usually owned by one person called the ‘Proprietor’.

2. Objective

The primary objective of the establishment of the one-man business is to make a profit.

3. Source of capital

The capital which is needed to set up and run the business is usually provided by the proprietor.

4. Liability

The liabilities of a sole proprietor are quite unlimited.

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A sole proprietorship is not a legal entity as the owner is not separated from the business.

6. Management

The business is controlled and managed by the sole proprietor himself except with few exceptions.

7. Life span

The life span depends on the owner. The enterprise can fold up any time or in the case of the death of the proprietor.

Source of Capital of a Sole Proprietorship

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Because some proprietor operates his business alone, he obtains his capital from:

1. Personal savings

Usually, a sole proprietor can obtain capital from his previous personal savings; he often uses his personal income as initial capital for the business.

2. Loan from friends

He can also raise capital by borrowing funds from friends, relatives, and loved ones.

3. Trade credit

If the proprietor is into buying and selling, he can obtain capital by purchasing goods on credit from the suppliers, producers, or wholesalers.

4. Loan and overdraft from banks

The sole proprietor can also obtain capital from financial institutions like banks. This can be in the form of a loan or an overdraft.

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5. Governmental grants or loans

Sometimes, the government can release capital to its agencies in support of certain programs, e.g. the Government of Nigeria under its Poverty Alleviation Programme, YouWin, etc. can release some funds in the form of loans or grants to unemployed graduates, among others, in order to set up small scale businesses. This acts as a source of capital for a sole proprietor.

The sole proprietorship is just one of the many forms of businesses available in the business world and in underdeveloped nations of the world, sole proprietorship thrives because of a lot of other factors.

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