Sole Trading Concern
Concept of a sole trading concern
The sole trading concern is that concern which is owned, managed, controlled and invested by a single person. It is also called sole proprietorship or individual proprietorship or single entrepreneur or one-man business. It has been in operation since the birth of human civilization.
A sole trader makes a total investment to establish the business, enjoys all profit and bears the total risk of the business. He controls the business by applying his own knowledge, skill, ability. He may run his business alone or may obtain help from his family members or employees. The sole trader has to bear unlimited liabilities of the business.
The sole trading concern is the oldest form of business. It is the most commonly used business organization. It is easy to start and close. A small amount of capital is enough to establish it. The sole trader plays the role of all that is an owner, manager, controller, risk bearer and a decision-maker. Thus, it is a popular form of business organization.
Some popular definitions of sole trading concern are as follows:-
According to Peterson and Plowman, “A sole proprietorship is a business unit whose ownership and management vested in one person. This individual assumes all the risk loss or failure of enterprises and received all profits from its successful operation.”
According to A.N Agrawal, “A person who establishes and manages a business for his own account and risk is known as a sole proprietorship business.”
According to the private firm registration Act 2054, “Any firm, company or concern set up by a person for caring an industry or commerce or export trade under a personal or impersonal name.”
From the above meaning and definition, it is clear that sole trading concern is a one-man business enterprise that is invested, managed, operated and by a single person. He set up his business with his own resources, manages himself and claims all the profits by bearing all risks and losses.
Characteristics of a sole trading concern
The major characteristics of sole trading concern are explained as follows:
1. Single ownership:
A single person starts and owns the sole trading concern. The owner contributes total resources in the business. He may borrow from the relatives, friends and banks to manage the total capital of the business. He can appoint some work to help him in the business. But, the final responsibility lies only with the sole trader.
2. Sole management and control:
The entire management and control of the business remain in the hand of a single person. He manages and controls total affairs of the business. He makes plans for his business implements them and controls the day to day activities of his business. Nobody interferes in his operation and decision making.
3. No profit-sharing:
A sole trader enjoys the whole amount of profit generated from the successful operation of his business. He also bears the total amount of loss himself if a loss occurs in the business. Efforts of a sole trader and his rewards in terms of profit have a direct relationship which motives the sole trader to increase efficiency.
4. Unlimited liability:
The liability of sole trading concern is unlimited. It means the liability of a sole trader is not limited up to the investment. The property of the business is not enough to pay the debts of outsiders in case of heavy loss, the sole trader will have to pay his debt even from his private property. Hence, the owner of sole trading concern is fully liable to the overall liabilities of the business.
5. No separate legal existence:
A sole trading concern has no separate legal existence. There is no difference between the owner and his business organization. It means sole trading concern refers to the sole trader and sole trading concern has some legal status. The death of the owner, his lunacy and insolvency leads the business to an end.
6. Limited operation:
A sole trading concern is finance, organized and managed by a single person. It has limited resources and managerial skills. An individual effort to manage business is limited. Therefore, sole trading concern has limited operations.
A sole trading concern is an independent organization. The owner is free to start, expand, and close his business. He can take the decision of the business according to his ability. He is the supreme judge of all the business matters. This freedom of the owner enables him to make quick decisions and grab the market opportunities.
8. Nominal legal formalities:
The sole trading concern has easy and few legal formalities. One can easily commerce and dissolve the sole trading concern. There are regulations regarding the formation and operation of these types of business in any country. However, the law has made provision for the compulsory registration and renewal of the sole trading concern in our country. This procedure is very simple and easy.
Advantages of Sole Trading concern:
A sole trading concern has many advantages, merits, and benefits which are explained as follows:-
1. Easy to commence and dissolve:
A sole trading concern can be easily establish and close. It has very few, simple and less costly formalities for its establishment. A simple registration procedure with the concerned department of the government is enough. Similarly, sole trader can dissolve his business whenever he wants.
2. Quick decision:
The owner of sole trading concern has full control over the operation of his business. He does not have to consult anybody to take business decisions. So, decision making is quick which enables the owner to grab the business opportunities.
The secrecy of business matter is key to achieve the goals. The plans and policies and other important factors of the business should not be known by the competitors. Due to one man’s ownership, business secrecy can be maintained easily. Moreover, it is not required to publish any financial statement in the newspaper which helps to maintain tight business secrecy.
The sole trading concern is flexible in nature. The owner has a great degree of flexibility to run its business. It can be adjusted as per the environmental change in business. For example, he can easily invest additional capital or withdraw a part of the capital for personal use. Such flexibility helps him to take benefits of favorable situation.
5. Personal supervision and control:
A sole trader is also the manager of his business. He himself supervises the work of staff and controls the performance. Such personal supervision and control assures less chance of irregularities and frauds from the staffs.
6. Direct motivation:
The efforts of sole trader and his reward have direct relationship. He enjoys the total profit of business alone. It provides more incentive to work have to the owner. It also directly motivates him for hardworking and efficient management of the business.
7. Easy to get loan:
A sole trader has personal relations with large number of people. He can easily convince other people to provide loan to him. Moreover, his liabilities being unlimited, credited feel secured for extending credit to the sole trader. This benefits leads to expand and diversify the business in the market.
The owner himself works as the manager of his business. He employees limited number of staff only for essential activities. Family members can be used for personnel job in sole trading concern. Thus, he can save some office and administrative expenses and attain economy of operation.
9. Social benefits:
Sole trading concern has a number of social benefits. It provides a reliable means of livelihood and self-employment opportunities. It also gives employment to other people of the society. The sole trader earns better status in the society. He can involve himself in social service, provide employment, give donations and sponsor social functions ultimately. It provides benefits to the society.
Disadvantages of sole Trading Concern:
The major disadvantages of sole trading concern are explained as follows:-
1. Limited capital:
The sole trading concern has limited capital. It is due to the investment of single owner. Due to lack of enough capital, business cannot be extending to a large scale. On the other hand, It difficult to get enough loan being a single person. Therefore, borrow capital is limited in sole trading concern.
2. Limited managerial ability:
There is only one person to manage and control the entire business in the sole trading concern. One man may not be perfect and master of all matters. Thus, such managerial skill may lead business to wrong direction.
3. Loss in absence:
The sole trader may not be frequently regular in the business due to so many reasons. In his absence, the staff may not work properly. There may be heavy losses due to a lack of quick and perfect decisions in the absence of the manager of a sole trader.
4. Unlimited liability:
The sole trader does not have limited liability. He is liable to discharge all the debts of the business. He may have to sell his personal property to bear the liability in case of insolvency.
5. Uncertain life:
Existence of sole trading concern depends upon the life of a sole trader. If he dies untimely, the sole trading business comes to an end. It may be run by his family members. But these members may not be able to handle properly or may not interest and the knowledge on the business matter.
6. Limited scope for expansion:
Due to one man ownership and limited capital, the sole trader cannot expand his business to a large scale.
7. Limited scope for opportunity:
Due to limited capital the sole trader cannot provide different kind of opportunities to the staff such as; – training, higher study, attractive salary, bonus, etc. and cannot grab the opportunities of modern technology.
Registration and renewal of sole trading concern in Nepal:
In Nepal, a sole trading concern must be registered under the private firm registration Act, 2014 BS. This acts provides the guidelines for the registration and renewal procedure in sole trading concern in Nepal.
Sole trading concern related to the industry is registered in the district office with the department of industry. If the business is related to trade it is registered in the district office with the department of commerce. And, if the business is related to cottage and rural industry than it should be registered in the district office with the department of rural and cottage industry. No private firm is allowed to operate its activities without registering itself with the concerned government office. It is required to obtain the certificate of registration from the concerned department to conduct its business.
As per the private firm registration act, 2054 BS. The following procedures are necessary for the registration of a sole trading concern in Nepal.
A. Filling an application:
Filling an application is the first step in the registration procedure of a firm. A person wishing to establish a sole trading concern should fill up an application form. The application form can be obtained from the concerned department by paying rs. 100. The person should mention all the particulars clearly, collectedly and honestly. The application form contains the following particulars.
- Name of the private firm
- Address of the firm
- Objectives of the firm and goods and services to be offer
- Name and address of an applicant along with the name of his father and grandfather
- Other particulars as prescribed by the government.
After the completion of the above details, the application form should be submitted along with the attested copies of the citizenship certificate and a recommendation letter from the federation of the Nepalese chamber of commerce and industries (FNCCI).
B. Deposit of fees:
The concerned authority verifies the application form filled by the applicant. If the particulars mentioned in the application are found correct and reasonable, the concerned authority instructs the applicant to pays the registration fees. Registration fees must be deposited in the account of concerned department maintain Act Nepal Rashtriya Bank. The voucher for registration fees should be attached along with the application form. The amount of registration fees depends upon the amount of capital invested. The number of registration fees will be in accordance with the notice published by the government Nepal Gazette from time to time. Currently, the number of registration fees and renewal fees are as follows:-
|1.||Capital up to Rs 100000||700||300|
|2.||Capital Rs 100000 to 300000||2500||500|
|3.||Capital Rs 300000 to 500000||4000||800|
|4.||Capital Rs 500000 to 1000000||7600||1200|
|5.||Capital Rs 1000000 to 5000000||10100||1700|
|6.||Capital more than Rs 5000000||15100||2300|
(Source: Nepal Gazettes)
C. Certificate of Registration:
After making payment for the registration fees, the application and supporting documents are scrutinized (checked) by the concerned department. If the official authority is satisfied with all the information of the applicant, he issues the certificate of registration. This certificate of registration authorizes a sole trading concern to conduct legal business in Nepal.
Renewal procedure of sole Trading concern in Nepal:
Sole trading concerned should be renewed after the completion of three fiscal years. Duration of 35 days will be provided for renewing after the completion of three fiscal years. The proprietor should file an application for renewal in the concerned department. Prescribe renewal fees should be along with the application. The amount of renewal fees also depends upon the amount of capital invested. If the firm is not renewed within the prescribed time, the concerned authority automatically cancels the registration of sole trading concern. The number of renewal fees was presented in the previous table.