Sole Trade Concern

Sole proprietorship or individual proprietorship is the simplest, oldest and in some respect, the most natural form of business organization in the private sector. In this form a single individual is solely responsible for providing the capital, for bearing the risk and for overall management and control of the enterprise. It is a one-man show owned, managed and operated by one person.

Content:

1. Concept of Sole trading concern
2. Characteristic of a sole trading concern
3. Merits and demerits of a sole trading concern
4. Registration and renewal of sole trading concern in Nepal

Concept:

A Business organisation owned by a single person’s capital investment and operated by the same single owner is the sole trading concern. Business person can easily establish this business organisation with small capital investment and a few legal formalities.

According to Professor Henry,” the individual proprietor is the form of business organization at the head of which stands an individual as one who is responsible, who directs its operations and who alone runs the risk of failure.”

According to L.H. Haney, “the form of business organisation at the head of which stands an individual as the one who is responsible, who directs its operations, who alone runs the risk of failure.”

Characteristics of Sole Trade Concern

1. Single ownership: A sole proprietorship is wholly owned by one individual. The individual supplies the total capital from which his own wealth or from borrowed funds. The owner has to take every responsibility for all dimensions and transactions of the business.
2. One man control: The proprietor alone takes all the decisions pertaining to the business. He is not required to consult anybody. Ownership and management are vested in a person.
3. No legal entity: sole proprietorship has no legal entity separate from its owner. The law makes no distinction between the proprietor and the business. The assets and liabilities of the business and its proprietor are not different.
4. Unlimited liability: The proprietor is liable for all the debts of the business. In case the assets are insufficient to meet the debts, the personal property of the proprietor can be attached.
5. No sharing of Profit and Loss: The proprietor is all alone entitled to all the profits and the losses of the business. He bears the competitive risk and there is nobody to share the risks, workload or any profit or losses.
6. Small size: The scale of the operation carried out by the sole proprietor is generally small.
7. Risk Bearing: Every business firm has to bear and manage the risks which could affect the business. Here the sole proprietor bear all the risk comes from business.
8. Maintain Secrecy: Sole trade concern is not legally bound to publish financial or any other records, business policy and business strategy so the business secretes can remain with in organisation only. Since the sole proprietor of the business conducts every activity of the business, the owner can keep the business transaction secret for the interest of the business.
9. Independence in decision making: Since there is a single owner of the organisation, he can all the decisions by himself. The owner can get suggestions, feedback and can sit with others but he is the final person to decide based on personal experience/knowledge and capability.
10. limited area of operation: Since the company owned by a single person so this business has limited resources and managerial capacity than other types of business.

Merits of Sole Trade Concern

looking after different elements of business, every business has its own advantages and disadvantages. The following are the major advantages of Sole Trading Concern.

1. Easy to start/establish and dissolve: A sole proprietorship can be set up easily and quickly. No legal formalities and expenditures are involved in the establishment of a proprietorship. There is no need to associate with others or to enter any agreement. Only a license may be needed in special cases. The owner can start business operations as and when he desires. Similarly, a sole proprietorship can be closed down very easily and quickly.
2. Motivation to work: The proprietor is all alone entitled to all the profits and the losses of the business. He bears the complete risk and there is nobody to share the risks, workload or any profit or losses. There is a direct relationship between efforts and rewards. There is an incentive to work hard. The proprietor is motivated to make the best possible use of his skills and resources to maximize profits.
3. Quick decisions: The sole proprietor is completely free to take all decisions and to implement them. He doesn’t need to consult or seek others’ approval. Quick decisions and prompt actions are helping to improve the efficiency of business operations.
4. Independent control: The proprietor alone takes all the decisions pertaining to the business. He is not required to consult anybody. Ownership and management are vested in a person. There is no governmental intervention in day to day activities.
5. Business secrets: The sole proprietor can keep the secrets to himself and these secrets are not known to competitors or others.
6. Personal contact: A sole proprietor is in a position to maintain intimate contacts with his customers and employees. He can enter to the requirements of each and every customer. Close personal touch increases the competitive strength of the business.
7. Flexibility: A sole proprietorship is small in size and has a simple management function. Therefore, it can be adapted easily to suit the changing conditions of the market. The line of business can be easily changed or modified.
8. Economy: The management of a sole proprietorship is inexpensive. As the sole proprietor himself is the manager, the cost of management is very low. Borrowing capacity is high owing to the unlimited personal liability of the owner.
9. Social utility: Sole proprietorship provides an opportunity for gainful self-employment for people with limited money. It offers a way of earning an honorable living for those who do not want to work under others. It also facilitates the equitable distribution of income and wealth.
10. Enhance social prestige: Sole trading is a means of maintaining social status and prestige in society. People can start their own business with a small amount of capital as per his/her skills and experience. We see the people, who don’t like to work for others are usually established such business. It is also helpful to maintain self-recognition.

Demerits of Sole Trading Concern:

The following are the major disadvantages:

1. Limited Capital: Sole proprietorship has limited capital. Since there is only one investor/owner, he/she can not manage a huge amount of capital.
2. Unlimited liability: The liability of sole trading concern may be more than its capital investment. Sole proprietors can borrow money from any form of financial provider, but when the problem of dissolution/closing arises, the proprietor has to settle all the payment of business even by selling their personal property.
3. Uncertainty: the existence of the sole trading concern depends on the wish of the proprietor. Sole proprietors can dissolve the business when he feels there is no benefit of continuing the business. Also, this business will automatically dissolve if something happened to the proprietor.
4. Limited public relation: The owner has to manage all functional areas to run the business smoothly so he gets less time to connect with his customer. Due to lack of time, he can get limited opportunities to share his business information with his client.
5. Impractical decision: “Two heads are better than one” is the universally accepted proverb. since he has to involve in all the business activities and he cant specialize (has broad knowledge) in all the areas of business. So when the business owner decides on any matter in which he/she is not aware, the decision is more likely to be wrong or impractical.
6. Difficult to obtain a loan: The internal matter or any activities of the sole proprietor remains to secrete within the business organization. Investors find it less trustworthy to invest in such a business.
7. Lack of Specialisation: In the sole trading concern, the proprietor has to share his time in various sectors of the business and he cant give focus on specific areas of operation so the proprietor cant specializes in a particular area of business.
8. limited opportunity for the employee: This is a small organization with limited resources and area of operation. There is less opportunity for the staff to grow.
9. Sole proprietor only uses his ideas and innovation capacity. So there is the limited managerial ability
10. Sole proprietors must work more to earn more profit .higher profit generation is important. So, there is dull and monotonous work.
11. Death of sole proprietor causes the death of sole proprietorship.
12. There is no specialization in decision making. So there can be chances of taking wrong decisions
13. There is low investment resulting in limited areas of operation.

Procedures of registration

1.  Apply for registration (Submission of Application form): There are different concern department to give application for registration as per nature, level of the business. The application form is needed to be filled up and apply for registration. The application must include the following things:

1. Name of firm
2. Address of the firm
3. Objective of the firm
4. Name and address of owner including father’s and grandfather’s name.
5. Other particular things.

After filling the above detail in the application form, it should be submitted to the concerned department or office along with the specified fee.

2. Deposit registration fee: The registration fees may or may not be deposited in the Nepal Rastra Bank. A voucher is needed for the deposit of the registration fee. It should be enclosed in the application form.

3. Receiving the certificate of registration

After the concerned department receives the application, an authorized officer will examine it for verification/approval. If It satisfied all the requirements then the form is approved and legal business can be operated.

Procedure of Renewal

The entire registered firm should be renewed each year within 35 days of the time period. He should fill the application for renewal with a renewal fee to the concerned department. This amount is dependent upon the capital invested. For renewal of sole trading concern, it is necessary to submit a duly filled renewal form at the concerned department along with the required fees and documents like tax clearance, audit report, etc.

Effect of non-registration and non-renewal

If the sole trading concern is operated without registration and renewal then it is considered illegal. It can’t get a loan from any financial institution. This department will charge from Rs 5 to Rs 50 as a fee. The effect of non-registration and non-renewal is if the is not registered and renewed then a fee is charged. If the same crime is done 3 times, an additional r 10 is to be paid. If it is committed to gain hen sole trading concern is closed and no any concern can be established under his name.

Condition for the Termination of JSC:

The concerned department of department (where we register our company) may cancel the registration of a sole trading concern, if it doesn’t renew the firm within a prescribed period (i. e. within one). But the concerned department can revoke the firm even in the following circumstances/condition:

1. If the owner of the firm submits an application stating reasonable reason(s).
2. If a firm has been registered by providing false details.
3. When a firm cannot submit the details sought by the concerned department
4. When the firm does not give the details of the work progress specified in the license to the concerned department,
5. If a sole trading firm commits any act against the law.

Before cancelling the registration of a private firm, the concerned department shall provide a reasonable opportunity to the sole trading concern for submitting a clarification. Any other private firm which carries same/similar objectives shall not be registered in the name of such owner of the firm for one year if the department cancels it once.