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Old 03-08-2011, 09:32 AM
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Exclamation Introduction to business notes

INTRODUCTION



CONCEPT OF BUSINESS


Literally, the word “business” means the state of being busy. Generally, the term business includes all human activities concerned with earning money. In other words, business is an activity in which various persons regularly produce or exchange goods and services for mutual gain or profit. The goods and services produced or purchased for personal use are not included in “business”.

DEFINITION


1. According to L. H. Haney

“Business may be defined as human activities directed toward providing or acquiring wealth through buying and selling of goods.”


2. James Stephenson says that:

“Every human activity which is engaged in for the sake of earning profit may be called business.”


3. In the words of B. W. Wheeler

“An institution organized and operated to provide goods and services to the society, under the incentive of private gain” is business.



CHARACTERISTICS

Following are the essential characteristics of a good business:

1.
Capital

Capital is the lifeblood of every business. It is the most essential and important element of business. In case of deficiency, loans can be taken from various financial institutions.

2.
Creation of Utility

Utility is an economic term referring to that characteristic of a certain commodity, which can satisfy any human need. Business creates utility, which gives benefit to the entire society as well as the businessmen.

3.
Dealing in Goods and Services

Every business deals with sale, purchase, production and exchange of goods and services for some consideration.

4.
Employment

Business is a good source of employment for its owners as well as for other people, for example, employees, agents, transporters etc.


5.
Islamic Process

Business is an Islamic way of earning living. Income from business is known as profit, which is RizqeHalal. The Holy Prophet Muhammad himself did prosperous business.

6.
Motive

The motive of business is to earn profit. Otherwise it will not be termed as business.

7.
Organization

Every business needs an organization for its successful working. A proper organization is helpful in the smooth running of business and achieving the objectives.

8.
Productions or Purchase of Goods

A businessman deals in production or purchase of goods. These goods are supplied to the people. So, it is necessary that more goods should be produced so that demand of people may be fulfilled.

9.
Regular Transaction

Business has a nature of regular dealings and series of transactions. So, in business, only those transactions included which have regularity and continuity.

10.
Risks and Uncertainty

Business involves a large volume of risk and uncertainty. The risk element in business keeps a person vigilant and he tries to ward off his risk by executing his policies properly.

11.
Sale or Transfer for value

Another characteristic of business is the sale or transfer of goods for value.

12.
Social Welfare

Business does not only satisfy the producer, but also the consumer when products are offered for sale at low prices in markets.





NATURE OF BUSINESS

The following points state the nature of business in brief:

1.
Economic Activity

Business is an economic activity as it is concerned with creation of wealth through the satisfaction of human wants.

2.
Human Activity

Business is an economic activity and every economic activity is done by human beings. Thus, business is one of the most important human activities.

3.
Social Process

Business is run by owners and employees with the help of professionals and customers. Thus, business is a social process.

4.
System

Business is a systematic arrangement of various elements, which leads to the attainment of particular objective, according to a wellestablished plan.


COMPONENTS AND SCOPE OF BUSINESS


BUSINESS

The word “Business” includes all human activities concerned with earning money. In other words, business is an activity in which various persons regularly produce or exchange goods and services for mutual gain or profit.


COMPONENTS OF BUSINESS

Business bears the following components:

  • Industry
  • Commerce

INDUSTRY


Industry is connected with the production and preparation of goods and services. It is a place where raw material is converted into finished or semifinished goods, which have the ability to satisfy human needs or can be used in another industry as a base material. In other words, industry means that part of business activity, which is concerned with the extraction, production and fabrication of products.


KINDS OF INDUSTRY

1. Primary Industry

2. Secondary Industry


1. PRIMARY INDUSTRY

Primary industry is engaged in the production or extraction of raw materials, which are used in the secondary industry. Primary industry can be divided into two parts:

(a) Extractive Industry

(b) Genetic Industry

(a)
Extractive Industry

Extractive industries are those industries, which extract, raise or produce raw material from below or above or above the surface of the earth. For example, fishery, extraction of oil, gas and coal etc.

(b)
Genetic Industry

Genetic industries are those, which are engaged in reproducing and multiplying certain species of animals and plants. For example, poultry farm, fishing farm, diary farm, plant nurseries etc.

2.
SECONDARY INDUSTRY

These industries use raw materials and make useful goods. Raw material of these industries is obtained from primary industry. Secondary industry can be divided into three parts:

(a) Constructive Industry

(b) Manufacturing Industry

(c) Services Industry

a)
Constructive Industry

All kinds of constructions are included in this industry. For example, buildings, canals, roads, bridges etc.

b) Manufacturing Industry


In this industry, material is converted into some finished goods or semifinished goods. For example, textile mills, sugar mills etc.

c) Services Industry


These industries include those industries, which are engaged in providing services of professionals such as lawyers, doctors, teacher etc


COMMERCE



Commerce is the second component of business. The term “commerce” includes all activities, functions and institutions, which are involved in transferring goods, produced in various industries, from their place of production to ultimate consumers.

In the words of Evelyn Thomas:
“Commercial occupations deal with the buying and selling of goods, the exchange of commodities and distribution of the finished goods.”

In simple words, “trade and aids to trade” is called commerce.


SCOPE OF COMMERCE

The scope of commerce can be explained as:

1. Trade

2. Aids to Trade


1.
TRADE

Trade is the whole procedure of transferring or distributing the goods produced by different persons or industries to their ultimate consumers. In other words, the system or channel, which helps the exchange of goods, is called trade.

TYPES OF TRADE


There are two types of trade:

(a) Home trade

(b) Foreign Trade



(a)
Home Trade


The purchase and sale of goods inside the country is called home trade. It is also known as ‘domestic’, ‘local’ or ‘internal trade’. Home trade has two types:

(i) Wholesale Trade

(ii) Retail Trade


(i)
Wholesale Trade

It involves selling of goods in large quantities to shopkeepers, in order to resale them to the consumers. A wholesaler is like a bridge between the producers and retailers.

(ii)
Retail Trade

Retailing means selling the goods in small quantities to the ultimate consumers. Retailer is a middleman, who purchase goods from manufacturers or wholesalers and provide these goods to the consumers near their houses.

(b)
Foreign Trade

Trade or exchange of goods and services between two or more independent countries for their mutual advantages is called foreign trade. It is also called international trade. Foreign trade has two types:

(i) Import Trade

(ii) Export Trade


(i)
Import Trade

When goods or services are purchased from other country it is called import trade.

(ii)
Export Trade

When goods or services are sold to any other country it is called export trade.

2.
AIDS TO TRADE

Trade mans biting and selling of goods, whereas, aids to trade means all those things which are helpful in trade.

a) Banking

b) Transportation

c) Insurance

d) Warehousing

e) Agents

f) Finance

g) Advertising

h) Communication


(a)
Banking

In daily business routine, commercial banks and other financial institutions help the seller and the buyer in receiving and the buyer in receiving and making payments.

(b)
Transportation

The goods which are manufactured in mills and factories, reach the consumers by different means of transportation like air, roads, rails, seas etc.

(c)
Insurance

The transfer of goods from one place to another is not free from risk of loss. There is a risk of loss due to accident, fire, theft etc. The insurance companies help out the traders with this problem through insurance policy.

(d)
Warehousing

The manufacturers today, produce goods in large quantity. Therefore, a need for warehouses arises in order to store the manufactured goods.

(e)
Agents

They are the persons who act as the agents of either buyer or seller. They perform these activities for commission.

(f)
Finance

A large amount is needed to set up an industry. Financial institutions provide longterm finance to the producers. The producers alone are unable to manufacture goods without financial help.

(g)
Advertising

The consumer may sometimes, not know about the availability of goods in the market. The producer must sell his goods in order to remain in business. Advertisement is an easy way to inform the large number of customers about the goods. This can be done through TV, newspapers, radio etc.


(h)
Communication

The producers, wholesalers, retailers, transporters, banks, warehousekeepers, advertisers and consumers live at different place. This post office, telephone and other similar media is very useful for promotion of trade and industry.


QUALITIES OF A GOOD BUSINESSMAN


The modern business is very complex. Due to scientific and technological development, changes are taking place very fast in every business field. Following are the basic personal skills or qualities which a good businessman must possess:

1.
Ability to Plan

A businessman, if he wants to shine in business, must have the ability to plan and organize it.

2.
Activator

He had to activate his workers. If he activates his workers then this is good for business.

3.
Bold or Courage

Courage is a great asset of a businessman. A good businessman should be a courageous and bold person. May be his some angry decisions gave him loss in future, so he has to be courageous and be bold.

4.
Cooperation

A good businessman should have to cooperate with his workers. With the help of

cooperation with his workers he can run his business well.

5.
Courtesy

Courtesy is to business what oil is to machinery. It costs nothing but wins a reputation. So businessman has to win the heart of everyone with his polite manners.

6.
Decision Making

A good businessman should be a good and quick decision maker. Quick decision of a businessman is an important asset of businessman. And businessman has to know that his quick decision will give him benefit or not.

7.
Discipline

A good businessman should have to care about the discipline of the business. If he doesn’t care about the discipline then nobody (who concern to his business) obeys the discipline and business can’t go well.

8.
Evaluator

A businessman has to check himself that how he is working. This thing can make the business good in progress.

9.
Foresight

A good businessman must have the quality of foresight. He must keep in touch with the business world. He should move about and see what is going on for he has to estimate new wants and new inventions for creating fresh demands.

10.
Honesty

A businessman should be honest in dealing with others. Honesty of a businessman helps him in his business.

11.
Hardworking

A businessman must be hard working. Without have working no business can be successful. If the owner is not hard working then other workers of the business can’t be hardworking.

16. Personality

A businessman should have a graceful personality because it can impress his customers. If his personality is not good or not graceful then his business can’t go well.

17.
Quick Decisions

A businessman has decisionmaking power. He decides on all matters in the best interest of the business. A businessman must have technical knowledge, judgment power and intelligence to take sound and quick decisions.

18.
Responsibility

A successful businessman should have to realize his responsibilities. If he doesn’t do his duty then his business can’t go well.

19.
Reviewer

A good businessman has to review his mistakes, which he committed in the past, and try his best never to do it again in his life.

20.
Sound Financial Management

Sound financial management is an important factor for successful business. Without it no business can go well. So a business must possess good financial position.

21.
SelfConfidence

A good businessman should have selfconfidence. Without selfconfidence he can’t make quick decisions and business suffers a lot.

22.
Tact

A good businessman should be a tactful person. He has to handle persons or his customers very tactfully. It helps to earn profit in future.

23.
Technical Skills

A good businessman must have the knowledge about technical skills. He should have complete command of specialized knowledge in his field, which he has to perform.

12.
Initiation

The business world is moving at a very fast speed. A businessman should have the ability to take initiative by producing new things and new methods of marketing the products and services.

13.
Knowledge

A good businessman should have knowledge of his business. It should be supplemented by the knowledge of trade, finance, marketing, income tax, etc.

14.
Leadership

Leaders are not made, they are born; but the businessman has to get some qualities of a leader. With the help of leadership a businessman can control his business and workers.

15.
Negotiator

If a businessman is a good negotiator, then he can run his business well, because without good communication he can’t impress his consumer.






ORGANIZATIONAL BOUNDARIES AND ENVIRONMENTS

All businesses, regardless of their size, location, or mission, operate within a larger external environment.

External environment
:

Everything outside an organization’s boundaries that might affect it.

a. Organizational Boundaries
:

that which separates the organization from itsenvironment. Today boundaries are becoming increasingly complicated and hard to pin down.

b. Multiple Environments
:

include economic conditions, technology, political
legal considerations, social issues, the global environment, issues of ethical and social responsibility, the business environment itself, and numerous other emerging challenges and opportunities.

THE ECONOMIC ENVIRONMENT

Economic environment
—Conditions of the economic system in which an organization operates.

c.
Economic Growth

i.
Aggregate Output and Standard of Living

1. Business cycle
—Pattern of shortterm ups and downs
(expansions and contractions) in an economy

2. Aggregate output
—Total quantity of goods and servicesproduced by an economic system during a given period

3. Standard of living—Total quantity and quality of goods andservices that a country’s citizens can purchase with the currency used in their economic system

ii. Gross Domestic Product


Gross domestic product (GDP)
—Total value of all goods and servicesproduced within a given period by a national economy through domestic factors of production

Gross national product (GNP)
—Total value of all goods and servicesproduced by a national economy within a given period regardless of where the factors of production are located

1. Real Growth Rate
—the growth rate of GDP adjusted forinflation and changes in the value of the country’s currency.

2. GDP per Capita
—GDP per person and reflects the standardof living.

3. Real GDP—GDP calculated to account for changes incurrency values and price changes versus Nominal GDP, GDP measured in current dollars or with all components valued at current prices.

4. Purchasing Power Parity
—Principle that exchange rates areset so that the prices of similar products in different countries are about the same.

iii. Productivity
—Measure of economic growth that compares howmuch a system produces with the resources needed to produce it.

There are a number of factors which can inhibit the growth of an economic system including:


1. Balance of Trade
—the economic value of all the productsthat a country exports minus the economic value of imported products.

a. Trade Surplus
—A positive balance of trade resultswhen a country exports (sells to other countries) more than it imports (buys from other countries).

b. Trade Deficit
—A negative balance of trade resultswhen a country imports more than it exports.

c. National Debt
—Amount of money that a governmentowes its creditors.

d. Economic Stability

Condition in an economic system in which the amount of money available and the quantity of goods and services produced are growing at about the same rate.
Factors which threaten stability include:

i. Inflation—Occurrence of widespread price increases throughout an economic system
Measuring Inflation: The CPI—Measure of the prices of typical products purchased by consumers living in urban areas

ii. Unemployment—Level of joblessness among people actively seekingwork in an economic system. Unemployment may be a symptom of economic downturns.

1. Recessions and Depressions


Recession
—Period during which aggregate output, asmeasured by real GDP, declines

2. Depression
—Particularly severe and longlasting recession

e.
Managing the U.S. Economy

i. Fiscal policies
—Government economic policies that determine howthe government collects and spends its revenues

ii. Monetary policies
—Government economic policies that determinethe size of a nation’s monetary supply

iii. Stabilization policy—Government policy, embracing both fiscal andmonetary policies, whose goal is to smooth out fluctuations in output and unemployment and to stabilize prices

iv.
Three Major Forces

1.
The information revolution will continue to enhance productivity across all sectors of the economy, most notably in such informationdependent industries as finance, media, and wholesale and retail trade.

2.
New technological breakthroughs in areas such as biotechnology will create entirely new industries.

3. Increasing globalization will create much larger markets while also fostering tougher competition among global businesses; as a result, companies will need to focus even more on innovation and cost cutting.

v. Projected Trends and Patterns
—there are a number of projectionsfor the near future. Sudden changes in environmental factors, such as war, can alter these projections.

THE TECHNOLOGICAL ENVIRONMENT


Technology has a variety of meanings, but as applied to the environment of business, it generally includes all the ways by which firms create value for their constituents.

f. Product and Service Technologies—the technologies employed for creatingproducts (both physical goods and services) for customers. Although many people associate technology with manufacturing, it is also a significant force in the service sector.

g. Business Process Technologies
—are used not so much to create products asto improve a firm’s performance of internal operations (such as accounting, managing information flows, creating activity reports, and so forth). They also help create better relationships with external constituents, such as suppliers and customers.

i. Enterprise Resource Planning
—Largescale information system fororganizing and managing a firm’s processes across product lines, departments, and geographic locations


BUSINESS ORGANIZATION & SOLE PROPRIETORSHIP



Business organization is an act of grouping activities into effective cooperation to obtain the objective of the business.

In the words of L. H. Haney


“It is more or less independent complex of land, labour and capital, organized and directed for productive purposes but entrepreneurial ability.”


SCOPE OF BUSINESS ORGANIZATION


The scope of business organization can be defined as under:

1.
SOLE PROPRIETORSHIP




According to D.W.T. Stafford


“It is the simplest form of business organization, which is owned and controlled by one man”


Sole proprietorship is the oldest form of business organization which is owned and controlled by one person. In this business, one man invests his capital himself. He is all in all in doing his business. He enjoys the whole of the profit. The features of sole proprietorship are:

  • Easy Formation
  • Unlimited Liability Ownership
  • Profit
  • Management
  • Easy Dissolution



2. PARTNERSHIP

According to Partnership Act, 1932


“Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.”


Partnership means a lawful business owned by two or more persons. The profit of the business shared by the partners in agreed ratio. The liability of each partner is unlimited. Small and medium size business activities are performed under this organization. It has the following features:

  • Legal Entity
  • Profit and Loss Distribution
  • Unlimited Liability
  • Transfer of Rights Management
  • Number of Partners


3.
JOINT STOCK COMPANY

According to S. E. Thomas


“A company is an incorporated association of persons formed usually for the pursuit of some commercial purposes”


A joint stock company is a voluntary association of persons created by law. It has a separate legal entity apart from its members. It can sue and be sued in its name. In the joint stock company, the work of organization begins before its incorporation by promoters and it continues after incorporation. The joint stock company has the following feature:

  • Creation of Law
  • Separate Legal Entity
  • Limited Liability
  • Transferability of shares Number of Members
  • Common Seal


4.
COOPERATIVE SOCIETIES

According to Herrik


“Cooperation is an action of persons voluntarily united for utilizing reciprocally their own forces, resources or both under mutual management for their common profit or loss.”



Cooperative Societies are formed for the help of poor people. It is formed by economically weak persons of the society. In this form of organization, all members enjoy equal rights of ownership. The features of cooperative society are as under:

  • Easy Formation
  • Protection of Mutual Interest
  • Limited Liability
  • Equal Distribution of Wealth Equal Rights


5.
COMBINATION

According to J. L. Hanson


“Combination is the association, temporary or permanent, of two or more firms.”


Business combinations are formed when several business concern undertaking units are combined to carry on business together for achieving the economic benefits. The combination among the firms may be temporary or permanent. The salient features of business combination are:

  • Economy in Production
  • Effective Management
  • Division of Labour
  • Destructive Competition

IMPORTANCE OF BUSINESS ORGANIZATION

The following points elaborate the role of business organizations:

1.
Distribution

Another benefit of business organization is that it solves the problems of marketing and distribution like buying, selling, transporting, storage and grading, etc.

2.
Feedback

An organization makes possible to take decisions about production after getting the feedback from markets.

3.
Finance Management

It also guides the businessman that how he should meet his financial needs which is very beneficial for making progress in business.

4. Fixing of Responsibilities

It also fixes the responsibilities of each individual. It introduces the scheme of internal check. In this way chances of errors and frauds are reduced.

5.
Minimum Cost

It helps in attaining the goals and objectives of minimum cost in the business.

6.
Minimum Wastage

It reduces the wastage of raw material and other expenditures. In this way the rate of profit is increased.

7.
Product Growth

Business organization is very useful for the product growth. It increases the efficiency of labor.

8.
Quick Decision

Business organization makes it easy to take quick decisions.

9.
Recognition Problems

Business organization makes it easy to recognize the problems in business and their solutions.

10. Reduces the Cost


Business organization is useful in reducing the cost of production as it helps in the efficient use of factors of production.

11. Secretariat Functions


It also guides the businessman about the best way of performing the secretarial functions.

12. Skilled Salesmen


It is also a benefit of the business organization that it provides the skilled salesmen for satisfying various needs of the customers.

13. Transportation


It is another benefit is that it guides the businessman that what type of transport he should utilize to increase the sales volume of the product.


PRE
REQUISITES OF BUSINESS


Following are the main prerequisites of a successful business:

1.
Selection

The first and most important decision before starting a new business is its selection. If once a business is established, it becomes difficult to change it. One should make a detailed investigation in the selection of business.

2.
Feasibility Report

A person should prepare the feasibility report about the business to be started. This report will provide the facts and figures whether business is profitable or not.

3.
Nature of Business

There are various types of business like manufacturing, trading and services. The businessman should decide that what type of business he would like to start.

4.
Demand of Product

The businessman also keeps in view the demand of the product which he wants to sell. If the demand is inelastic, the chances of success are bright. If the demand of a product is irregular, seasonal and uncertain, such business should not be started.

5.
Size of Business

The Size of business means the scale of business. The size of business depends upon the demand of commodity in the market and organizational ability of entrepreneur. The determination of size of business is an important decision of a person.

6.
Availability of Capital

Availability of capital is an important factor in the business. Capital is required for the purchase of land, machines, wages and raw materials. A businessman must decide that how much capital he can arrange.

7.
Business Location

A businessman has to select the place where he wants to start his business. He should select that place where raw material, cheap labour and transportation facilities are available. He should also check the location of business competitors.

8.
Government Policy

The businessman should also carefully consider the policies of government before starting a new business. Some areas are declared as ‘tax free zones’ and for some particular businesses the loan is provided without any interest.

9.
Availability of Raw Material

Availability of Raw material is essential to produce the goods at low cost. Sometimes the raw material is to be imported which may create problem for him. So a businessman must keep this factor in mind.

10. Availability of Machines


Availability of new machines is also an important factor for a business. A businessman must see whether these machines are easily available inside the country or not. If these are to be imported then it may create the problems for him.

11. Availability of Labor

Skilled and efficient labor is essential to run the business in profit. But if efficient and skilled labor is not available where business is going to be started then it will not be profitable.

12. Means of Transportation

Quick and cheap means of transportation are essential for low cost of production and high profit rate. A businessman must keep in view this factor.

13. Power Resources

There must be availability of power resources like water, oil, coal and electricity. So businessman must keep in view this factor.

14. Hiring Employees

A businessman must hire the efficient and competent employees in the business. The proper training must be given to employees.

15.
Product Pricing




A businessman must decide the price of his product. In the beginning the price must be low. He must keep in view that whether he will cover cost of his product and other expenses with such price.

FUNCTIONS OF BUSINESS

Following are the main functions of a business:

1. Production

Production of goods and services is the first main function of the business. The production must be regular. The goods and services must be produced in such a way which can satisfy human needs.

2. Sales

The sale is another important function of the business. Sales are of two types:

Cash sales Credit sales

The sale must be regular and at reasonable price. It is very difficult job because there is

hard competition in each market.



3. Finance

It is also an important function of the business to secure finance. Finance is required for establishment and expansion of business. There are two sources of raising funds:

(a) Owner’s Capital

(b) Borrowed Funds

4. Management Function

“To do things efficiently and effectively” is known as management. The functions of management are:


Planning



Organizing



Leading



Controlling



Staffing




The management also provides direction for all subordinates.

5. Innovation

In this era of competition, for the survival of business, innovation is essential. The businessman must try to find new techniques of production because the business may not sell present output in future.

6. Accounting

Another function of the business is to maintain its records properly. To record the business activities is called accounting. With proper accounts, the owner can know the actual performance of business and chances of fraud are reduced.

7. Marketing

According to Harry Henser

“Marketing involves the design of the products acceptable by the consumers and the conduct of those activities which facilitate the transfer of ownership between seller and buyer.”

Through marketing, goods are moved from producers to consumers. It is an important function of the business. This function includes buying, selling, transportation, product designing and storage, etc. The concept of marketing mix is very important in marketing. It includes four Ps:

Product Price
Place

Promotion

8. Quality Improvement

Quality of product must be improved to increase the sale. If quality of product is poor then business may suffer a loss.

9. Motivation

Motivation is very essential for increasing the efficiency of employees. Motivation encourages the employees to give their best performance.

10. Research


Research is also an important function of any business. Research is a search for new knowledge. By research, business becomes able to produce improved and new goods. The research is of two types:

Basic Research

Applied Research

11. Public Relation

It is very important function to make friendly relations with public, in this way sales volume is increased.

SOLE PROPRIETORSHIP


Sole Proprietorship and its Characteristics


Sole proprietorship is a simple and oldest form of business organization. Its formation does not require any complicated legal provision like registration etc. It is a smallscale work, as it is owned and controlled by one person, and operated for his profit. It is also known as “sole ownership”, “individual partnership” and “single proprietorship”.

DEFINITION

Following are some important definition of sole proprietorship:

1. According to D.W.T. Staffod

“It is the simplest form of business organization, which is owned and controlled by one man.”

2. According to G. Baker

“Sole proprietorship is a business operated by one person to earn profit.”

CHARACTERISTICS



Following are the main characteristics of sole proprietorship:



2.
Easy Dissolution


The sole proprietorship can be easily dissolved, as there are no legal formalities involved in it.

3. Easily Transferable

Such type of business can easily be transferred to another person without any restriction.

4. Freedom of Action

In sole proprietorship, single owner is the sole master of the business; therefore, he has full freedom to take action or decision.

5. Formation

Formation of sole proprietorship business is easy as compared to other business, because it dos not require any kind of legal formality like registration etc.

6. Legal Entity

In sole proprietorship, the business has no separate legal entity apart from the sole traders.

7. Legal Restriction

There are no legal restrictions for sole traders to set up the business. But there may be legal restrictions for setting up a particular type of business.

8. Limited Life

The continuity of sole proprietorship is based on good health, or life or death of the sole owner.

9. Management

In sole proprietorship, the control of management of the business lies with the sole owner.

10. Ownership

The ownership of business in sole proprietorship is owned by one person.

11. Profit

The single owner bears full risk of business, therefore, he gets total benefit of the business as well as total loss.

12. Size

The size of business is usually small. The limited ability and capital do not allow the expansion of business.

13. Success of Business

The success and goodwill of the sole proprietorship is totally dependent upon the ability of the sole owner.

14. Secrecy

A sole proprietorship can easily maintain the secrecy of his business.

15. Unlimited Liability

A sole proprietor has unlimited liability. In case of insolvency of business, even the personal assets are used by the owner to pay off the debts and other liabilities.

ADVANTAGES OF SOLE PROPRIETORSHIP

Following are the advantages of sole proprietorship:

1. Contacted with the Customers

In sole proprietorship a businessman has direct contact with the customer and keeps in mind the like and dislikes of the public while producing his products.

2. Direct Relationship with Workers

In sole proprietorship a businessman has direct relationship with workers. He can better understand their problems and then tries to solve them.

3. Easy Formation

Its formation is very easy because there are not legal restrictions required like registration etc.

4. Easy Dissolution

Its dissolution is very simple because there are no legal restrictions required for its dissolution and it can be dissolved at any time.

5. Easy Transfer of Ownership

A sole proprietorship can easily be transferred to other persons because of no legal restriction involved.

6. Entire Profit

Sole proprietorship is the only form of business organization where the owner enjoys 100% profit.

7. Entire Control

In sole proprietorship the entire control of the business is in the hands of one person. He can do whatever he likes.

8. Flexibility

There is great flexibility in sole proprietorship. Business policies can easily be changed according to the market conditions and demand of people.

9. Honesty

The sole master of the business performs his functions honesty and effitively to make the business successful.

10. Independence

It is an independent form of business organization and there is no interference of any other person.

11. Personal Satisfaction

As all the Business activities are accomplished under the supervision of sole owner, so he feels personal satisfaction that the business is running smoothly.

12. Prime Credit Standing

A sole proprietor can borrow money more easily because of unlimited liability.

13. Quick Decisions

Sole proprietor can make quick decisions for the development and welfare of his business and in this way can save his time.

14. Personal Interest

A sole proprietor5 takes keen intere4st in the affairs of business because he alone is responsible for profit and loss.


Last edited by usmanstar; 06-08-2011 at 09:57 AM.
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