Business Units & Sole Proprietorship

Business entities can be broadly categorized into two classes: the private sector, also known as private enterprise, and the public sector, referred to as public enterprise. The private sector comprises business enterprises owned and controlled by private individuals, while the public sector encompasses enterprises owned and controlled by the government. Under the private sector, there […]

Business entities can be broadly categorized into two classes: the private sector, also known as private enterprise, and the public sector, referred to as public enterprise.

The private sector comprises business enterprises owned and controlled by private individuals, while the public sector encompasses enterprises owned and controlled by the government.

Under the private sector, there are five main forms of business units:

  1. Sole Proprietorship: A business owned and controlled by a single individual, also known as a sole trader or one-man business.
  2. Partnership: A business structure involving two or more individuals who share ownership and responsibilities.
  3. Private Limited Liability Company: A company where ownership is in the hands of private individuals, and liability is limited to the extent of their investment.
  4. Public Limited Liability Company: A publicly traded company with shares available for public ownership, also with limited liability for shareholders.
  5. Co-operative Society: A business entity formed by a group of individuals who cooperate to meet common economic, social, and cultural needs.

 

Public enterprises, or public corporations, are owned, controlled, and financed by the government.

Factors influencing the choice of business unit structure include the amount of capital available, the entrepreneur’s personal abilities and experience, the type of business, market size, risk level, personal motives, and government policies.

 

Sole Proprietorship is a business structure where one person provides all the capital, bears all the risks, and takes full responsibility for the firm. Key features include ownership, management, and control by a single individual, unlimited liability, non-existence as a separate legal entity, and lack of perpetual existence.

 

Advantages of Sole Proprietorship include easy setup, low capital requirements, easy management, fast decision-making, flexibility, sole profit enjoyment, privacy, and a sense of ownership pride. However, disadvantages include challenges in raising capital, unlimited liability, non-separate legal entity status, sole risk-bearing, limited scope for expansion, lack of continuity, limited decision-making scope, and difficulties in facing competition.

 

Sources of capital or finance for a Sole Proprietorship include personal savings, loans from friends/relatives, bank loans and overdrafts, trade credits, retained profits, grants from friends/relations, government grants/loans, and other credit facilities like hire purchase.

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