Sole Proprietorship

Professor &
Lawyer
Puttu Guru
Prasad
Senior Faculty for
Management
Studies - VVIT
 Sole Proprietorship
Sole means SINGLE

Sole proprietorship means,

A single person
Owns Manages and Controls
THE BUSINESS
 Main features of Sole Proprietorship
a) Easy Formation- (Easy to form) -
Minimum LEGAL and other FORMALITIES.

b) Single Ownership
Single person owns all assets and bears all risks.
c) No sharing of PROFIT or LOSS
Profit and loss goes only to the owner.

d) One mans capital

money for the business comes from THE OWNER
e) One mans CONTROL
OWNER takes decisions alone.

f) Unlimited Liability
In case of loss, business assets and personal properties of the owner is
used to pay liabilities.(responsibilities)

Bank took Vijay Mallya's cars

Main Features:
Easy formation

Single Ownership

No sharing Profit or Loss

One mans capital

One mans control

Unlimited Liability
 Advantages of Sole Proprietorship

a) Easy to form and wind up(close)

Minimum legal formalities and less capital
needed.

b) Direct motivation
Hard work leads to more profits.

c) Quick decision and prompt action

Owner takes decision alone.
 Advantages of Sole Proprietorship

d) Better Control
Since one man manages everything

e) Maintenance of Business secrets

Maintenance of Business secrets
Owner manages everything, so he keeps the plans to himself.

f) Close personal relation

Owner has close contact with customers and employees.

g) Provides self employment

Owner is self employed and creates jobs for others
Increases employment so reduces unemployment and poverty.
 Disadvantages of Sole Proprietorship

A. Limited Capital : Only owner gives capital for

business.
B. Limited Size : Single person manages
business
C. Unlimited Liability : In case of loss personal
properties of owner is used pay
liabilities.
D. Lack of continuity : Comes to an end when owner
dies.
E. Lack of managerial expertise :
Owner may not be expert in all
areas of business.
 Match the following:
1. Ease of formation a. Owner takes decision alone

2. Single Ownership b. Money for business comes from one owner

3. No sharing of profit or loss

c. Minimum Legal formalities

4. One mans capital d. In case of loss personal properties sold to pay

5. One mans control e. Profit and loss goes to owner

6. Unlimited Liability f. Single person owns all assets and bears all
risks.
 Test yourself.
1. Sole means __________.

2. Sole Partnership means a single person ___ ____and

_____the business.

3. Give 5 features of sole proprietorship.

4. Give 5 advantages of sole proprietorship?

5. Give 4 disadvantages of sole proprietorship?

Partnership
 Partnership
It is a
relationship
with two or
more
persons.

They join
hands to form
a business
organisation,

The main
objective is
to earn
profit.
 Features of Partnership
1. Members :
Banking :Minimum 2 Maximum 10

other businesses :Minimum 2 Maximum 20

2. Agreement:

-Capital given by each partner

-Profit loss sharing ratio
-Salary/commission payable to
each partner

-Time of Business
-Nature and place of business

-Name and Address of partners

-Duties and powers of partners
-Other details
 Features of Partnership
2. Agreement :
1. Capital given by each partner
4. Time of Business

5. Name and Address of

2. Profit and loss sharing ratios partners and the firm

6.Duties and Powers of

3.Salary or commissions payable partners
to partners
7. Nature and place of
Business

8. Other details
3. Lawful business: as per law

4. Sharing of Profit : as per agreement

5. Unlimited Liabilities: In case of loss, personal properties

of partners can be used to pay liability.

6. Voluntary registration: Not compulsory but better to do

it.
 Features of Partnership
7. Principal agent relationship:
When a partner deals with other parties in business,
The partner acts a s an agent of his other partners
Then the his other partners become the principal.
8. Continuity of business:
Firm ends if a partner:
- dies
- becomes bankrupt
- becomes mad
- decides
 Advantages of a Partnership
BASE
A. Easy to Form

B. Availability of large resources :

C. Balanced Decision

D. Sharing of losses
 Disadvantages of Partnership

Limited capital :(max no, only 20 people, so capital is

limited)
Unlimited Liability : In case of loss, the personal properties of
the partners are used to pay liabilities
Uncertain life: :Firm ends if one partner dies, goes
bankrupt, mad or decides to end
partnership.
Non transferability of Shares: Shares cannot be transferred to
outsiders without asking other partners.
 Effect of Non-registration

Firm cannot take any action in a court of law against

any other party for settlement or adjustment of
claims.

In case of dispute among partners, firm cannot take

action in a court of law for settlement of claims
 Limited Liability Partnership (LLP)

Features:
1. LLP shall be a separate legal entity.
LLP will have a perpetual succession.

(perpetual succession is the continuation of a

corporation's or other organization's existence
despite the death, bankruptcy, insanity, change in
membership or an exit from the business of any
owner or member, or any transfer of stock,etc.)
FEATURES..

2. Agreement
If there is an agreement between LLP and the
partners,
the rights and the duties of the partners will be
as per the agreement.
If there is no agreement,
the rights and duties are as per the LLP Act 2008
3. In case of Loss -
In case of loss, the assets of the LLP are used to pay
the liability.

The liability of the partners are limited to their

contributions.

4. Members-
The LLP shall have at least two partners and
also have two designated Partners.
At least one of the designated partners should be
resident in India.
Designated Partner shall be:

Responsible for the doing of all acts, matters and things as are
required to be done by the limited liability partnership including
filing of any document, return, statement and the like report
pursuant to the provisions of this Act and as may be specified in
the limited liability partnership agreement.
Joint Hindu Family Business
Joint Hindu Family Business refers to a business which is owned by the
members of a joint Hindu family.

It is formed under Hindu family Law

and is governed by the law of succession.

Its a form of business in which

the family possesses
some inherited property.

The Karta The eldest member of the family.

The coparceners The other male members

 Characteristics of a Joint Hindu Family

a. Membership by birth : Male child

b. Management : Eldest member of the family the Karta- manages

the business.

c. Liability : the Karta has unlimited liability

d. No maximum limit : No limit to the number of coparceners.

Membership limited to three successive
generations.

e. Minor members : A male child at the time of birth becomes a

coparcener.

f. Unaffected by death : Business continues even after the death of a

coparcener.
 HUF
Fill in the blanks by choosing a suitable word(s) :
(i) HUF stands for
____________________________________
(ii) ___________ successive generations can simultaneously
inherit
the ancestral property.
(iii) Members of Joint Hindu Undivided family are known as
__________
(iv) Oldest member of the Joint Hindu Undivided family is
known as
______
(v) _________ has unlimited liability.
 i. The sole proprietor may not be able to raise adequate __________
for the expansion of business.

ii. The life of the business depends on the life of the _____________ .

iii. Due to limited financial resources and limitation of the expertise of

the owner, the business may lack professional _____________ .

iv. The business is suitable for simple business where ________ skill is
required.

v. Sole proprietorship best caters the needs of customers where the

market for the product is __________ and __________________ .
i. Himanshi is running a business in sole-proprietorship. Due to loss in business she decided to
wind up her business. On the day of winding up the assets are worth Rs. 5 lakhs and liabilities
(all creditors) are worth Rs. 10 lakhs. Himanshi has her personal property of Rs. 600000. How
much do you think the creditors will get at the time of winding up of business?
(a) Rs. 5 Lakhs (b) Rs. 10 lakhs
(c) Rs. 7 lakhs (d) Rs. 11 lakhs.

ii. Limitations of sole Proprietorship do not include.

(a) Limited Capital (b) Lack of Continuity
(c) Unlimited size (d) Lack of Managerial Expertise.

iii. Indian Partnership Firms are governed by Indian Partnership act

(a) 1932 (b) 1956
(c) 2008 (d) 1912

iv. Characteristics of JHF do not include

(a) Membership by birth (b) Unlimited Liability of Karta
(c) Unaffected by death (d) Youngest Member of family is Karta.

v. Members of Joint Hindu Family are known as:

(a) Partners (b) Members
(c) Coparceners (d) Owners