Class 11 Business Studies Lesson 3.1

Concept of sole trading concern:

Sole trading concern is the oldest and simplest form of business organization, It is a business organization in which an Individual invests all the capital required, manages and control the business himself, bears all the risk alone, enjoy all its profit or suffers all the loses. He alone play the role of an honor, manager, controller, decision maker and risk bearer. The proprietor uses his own skills, intelligence, knowledge, and capability for the successful operation and management of the firm. It is also called proprietorship, sole proprietorship, sole ownership, individual enterprises and sole trader.

According to A. N. Agrawal, “A person who established and manages a business for his own account and risk is known as sole proprietorship business.”

Features / Characteristics of sole trading concern

a) Soul Investment: The owner contributes the whole amount of capital in his business. He invest the entire capital either from his private property by borrowing from relatives or banks

b) Sole management: The owner manage and controls whole affairs of business. He makes plan for the business implement them and controls its daily activities.

c) Sole risk taking: Sole trading business organization in which individual invests, manages capital and controls the business. So, if business loss at that time, the owner himself bears the whole risk of business.

d) No Separate legal entity: Since a sole proprietorship is not legal entity, the owner & the business have the same legal status in the eyes the law. Therefore, the life of business is in the hands of owners.

e) Unlimited liability: The liability of the owner is not limited to his investment. If the business suffers from loses and its properties are insufficient to meet its debts. The owner has to clear business days from his private property.

f) Independence: A Sole trading concern is an independent organization. The owners of the business is free to make all sorts of decisions as per the judgement. He is the supreme judge for all the business matters.

g) Limited operation: The resources of sole trading concern are limited. Due to the limited resources it cannot produce goods in a large scale. Its business activities are restricted to limited geographical area.

Advantages of al sole trading Concern.

a) Easy to start and close: A sole trading concern can be established & closed easily. There are limited and simple legal formalities to start a business.

b) Quick decision: The sole trader is completely free to take decisions and to implement them. The quicker the decision the better it is for meeting the benefit of opportunity. Since a sole trader can take business decisions by himself, decisions are quick and timely.

c) Secrecy: In a sole trading concern it is easy to maintain secrecy in business. The owner will not leak out business secrets due to fear of competitors.

d) Incentive: The sole trader alone receives all the profit of business and he alone has to bear all risk and loses. There is direct relationship between effort and reward. It provides incentive to work hard efficiently and honestly.

e) Personal relations: A soul trader play the role of an employee as well as manager. He can easily maintain and develop personal and business relations with all concerned parties like customers, suppliers, employees, money lenders and government. These relation helps in improving the image and goodwill of business.

f) Flexibility: In Soul trading the owner has a much greater degrees of flexibility to run his business. For example, he can easily put additional capital or withdraw a part of take other similar decision as per the changing business need situation.

g) Economy: The owner himself work as the manager and an employee of his business. Thus, he can save some of office and administrative expenses and attain economy of operation.

h) Social benefit: A sole trading concern provides various benefits to the society. It helps to solve unemployment of problem by offering employment opportunities to the people and also utilize the ideal resources.

Disadvantages of Sole Trading.

a) Unlimited liability: The sole trader has unlimited liability. He is personally responsible for business debts. His private assets can be used to pay debts. The failure of business can ruin him financially.

b) Limited capital: The personal resources of sole trader are limited. His borrowing Capacity is also limited. Business expansion is difficult. Good business opportunities may be lost.

c) Limited skills: Sole trading is one man show. The owner may lack business skills and experience. He cannot be expert in all except of business.

d) Uncertain life: Sole trading has uncertain life. The owner is the business in sole trading. Bad health or death of owner leads to end of business. There is no stability and continuity in sole trading.

e) Limited expansion: There is limited scope for expansion in sole trading. The capital and management are limited, large scale operations are not possible, specialiazation is lacking.

f) Loss in absence: Long absence of owner from business con cause losses. There it nobody in charge to manage and control the business. Employees may not take in interest in business, chance of leakage and fraud increase.

g) Limited opportunity: A sole trading concern offers limited opportunities to the limited scope of expansion and development of the business. Its employees get limited opportunity for trading, higher studies, career development, attractive salary and other benefits.

Registration and renewal of sole trading concern in Nepal.

The private firm registration act 2014 B.S. has provisions for registration and renewal of sole trading concern in Nepal. It treats sole trading concern as a private firm. A sole trading concern must be registered before it can start legal business in Nepal. Only Nepali citizen can registered a sole trading concern. If the sole trading Concern is an industry it should be registered in the department of industry. If the sole trading concern is an industry then it should be registered in department of commerce. The private form registration act 2014 sets the following procedures for the registration of a sole trading concern in the Nepal.

a) Application: An application should be submitted in the prescribed form to the concerned government department. It should include The following information:

Name and address of the sole trading concern
Name and address of owner, including names of father and grand father.
Objective and nature of business.
Other information as required.
Attachments required with the application are:Copy of citizenship certificate of the owner.
Receipt of registratIon of owner.

b) Registration fee payment: Payment of registration fee is another stage of firm registration. Generally, amount of registration fee should be deposit in the Nepal Rastra Bank in the account of department. The bank voucher should be submitted in the concerned department with application form.

c) Certificate of Registration: After necessary inquiries the concerned department issue a certificate of registration. It can refuse registration if the proposed registration seems in-appropriate. The certificate of registration authorized a sole trading concern to conduct legal business in Nepal.

Renewal of sole trading concern: All the registered private firms must be renewed each year. The application for renewal with renewal fee should be submitted to the conjoined deportment. The renewal of firm must be done within 35 days of new fiscal year. If the firm is not renewed within the prescribed a fine of Rs 750 will be charged by Nepal government. Prohibition the export import transactions & bank account of any non-registered and non-renewed firm through notice.

Important Questions for exam:

i) What is sole trading concern Explain the disadvantage of sole trading concern.
ii) What is sole trading concern ? Describe the procedure of registration & renewal of sole trading concern in Nepal.
iii) Explain the characteristics of sole trading concern.
iv) What is sole trading concern? Explain its advantages