4. Sole Proprietorship
There are three basic legal business forms that can be chosen when starting up a new business:
- Sole proprietorship,
- Partnership and
- Corporations
Forms of Business Organizations:
Case breakdown:
Sashi (played by Sridevi) individually runs her sweets (Ladoo) business. She gathers ingredients and makes laddoo (Indian Sweet) and delivers it to her clients. This is an example of a Sole proprietor business.
Her expenses of the business would include raw material (Ghee, flour, sugar, etc), transport and delivery cost, and anything she earns (revenue) above this cost would be her profit (bottom line) from the business.
Features:
- The sole proprietorship is the oldest, most common, and simplest form of business organization. A sole proprietorship is a business owned and managed by one person.
- One of the most important characteristics of a sole proprietorship is that the owner is inseparable from the business. Here, let’s take the example of the same case, let’s assume that one of Sashi’s (Sridevi) clients’ falls sick after eating her Ladoo and sues her for Rs. 10,00,000 of damages. If the client wins the case then Sashi would have to pay damages from the business, if that doesn’t cover it, then she will have to sell her personal assets. This is because Sashi and her business are inseparable. Sashi is solely responsible for the legal and financial requirements of the business.
- Another feature of a sole proprietorship is that taxes on a sole proprietorship are determined at the personal income tax rate of the owner.
Real-Life Example:
IKEA is a famous sole proprietorship. Ingvar Kamprad is the founder of Ikea and is worth an estimated €65.5 billion.
The IKEA Concept started with the idea of providing a range of home furnishing products that are affordable to the many people, not just a few. It is achieved by combining function, quality, design, and value – always with sustainability in mind.
In 2019, IKEA revenue is close to 45.4 billion US dollars.
Let’s look at some advantages of Sole Proprietorships:
