A Sole Trading Entity: The type of industrial organization is determined according to the needs of the industry. If the business requires less capital and easier management, sole proprietorship is an appropriate form of organization.
In the case of large amounts of capital and complex transactions, it is convenient to do business through forms of organization like partnership firms, joint ventures, cooperative societies, government enterprises, joint sectors, etc. The major types of industrial organizations are as follows.
Industrial Unions
The terms industrial organization and business organization are often used interchangeably. However, the concept of industrial organization is used only in relation to industries. In order to clarify the meaning of the concept of industrial organization, it would be appropriate to consider both the words (industrial and organization) in this concept separately. First, let us consider the word ‘industrial’.
You are very familiar with the word ‘industry’. We associate the term industry with the activity of manufacturing or producing goods. That is, we call the activity of producing goods an industry. The word Industrial is derived from the word Udyog. The word industrial is used as an adjective for the word industry. Industry seems to be too narrow if it is taken to mean only the production or manufacture of goods. Therefore, the term industry would be appropriate to include the production of goods and all activities connected with production.
Now let us consider the word organization. The term organization is used in many senses. But you have to understand the word organization in relation to industry. Let us also analyze the meaning of the word organization in management science. For this, management expert Prof. Schulze defines scholarly.
‘Organization is the coordinated integration of labor, raw materials, machinery and space for the purpose of achieving a specific objective’.
This shows that the collective organization of factors required for the production of a product is called. It will be easy to define the word industrial organization after seeing the meaning of both words industrial and organization.
Definition
“The act of combining the various factors of production ie labor, land, capital and the means of combination, etc. is called the industrial organization”.
Here we are only thinking about industries. Industrial organization is mainly concerned with production. Many factors have to be coordinated to produce a product. Production has to be started by assembling labor, capital, machinery, raw materials, equipment, space, etc. While manufacturing, one has to pay attention to the minimum cost of production. For this, it is important to make full use of available resources.
Now we will study the various types of industrial organizations in detail.
A sole trading entity
Sole Trade has a very ancient history. It would not be an exaggeration to say that monopolistic trade has been going on since the beginning of human civilization. Only the form of this single trade varied. Trade has started with ‘single trade’. With the passage of time, as per the improved techniques in trade, the need for new trade organizations was felt and accordingly new trade organizations came into being.
These trade associations came to be known as ‘sole traders’, individual traders, or ‘entrepreneurs’. A sole trader assumes full responsibility for the business. He himself raises the capital required for the business. A sole trader takes the help of a relative or friend while raising capital. If the business makes a profit, the entire profit goes to the sole trader.
Similarly, in case of loss, the entire loss has to be borne by the sole trader. A sole trader’s business liability is unlimited. That is, no distinction is made between the private property of a sole trader and the property of a business. A sole trader’s private assets can also be used to pay off business debts.
A sole trader has to obtain a ‘license’ if required to start trading. That is, a sole trader must be aware of the legal aspects. Running a sole trader does not require a lot of legal formalities. But the fulfillment of essentials is mandatory.
‘From this, we can see that a sole trader has to do a lot of work and all that work is the sole responsibility of the sole trader.
Now let us study some important definitions of ‘Sole Trade’
Definition
R. Dawar: ‘A sole trader is a person who runs a business on his own without a partner. A sole trader raises all the capital himself and runs the business himself. He can employ paid servants to help him work in the business.
According to Dawar a sole trader, without the help of a partner; Does business because taking a partner in business changes the type of organization. As the business expands, the sole trader hires salaried employees to help. L. H. Honey: ‘A sole trader is a form of organization where one person is responsible for the entire business, the same person directs the business and the same person is also responsible for the success of the business.’
According to Honey, a sole trader is not only responsible for the management of the business organization but also for the profit and loss incurred by the business.
James Stephenson: ‘A sole trader is a person who runs the entire business by himself. A sole trader is not only the owner of the capital in the business, but he is the organizer and manager of the business and he receives the entire profits of the business and bears the entire losses of the business.
Stephenson emphasizes capital in business. A sole trader has to perform both the role of organizer and manager. Similarly, the sole trader is solely responsible for the success of the business. Peterson and Polman: ‘A sole proprietorship is a business that is owned and managed by a single person.
This person is solely responsible for the profits and losses of the business. In this definition, business ownership is given priority. Similarly, it is clear that only one person is responsible for the success of the business. After studying all these definitions we can say that, ‘A sole trader runs a business based on his own resources.
Read More:- Debt-Free Dreams – Ensure Your Debt Advice Brings Maximum Benefits
The organization and management of the business is done by the sole trader and the entire responsibility of the profit and loss incurred in the business lies with the sole trader.
After studying the above definitions we can state some salient features of a sole trader. The salient features of a sole trader organization can be stated as follows.
A person’s imagination
In a sole trader organization, the idea of starting a business belongs to a single person. Accordingly, the person prepares a business plan and tries to implement that plan. A sole trader himself undertakes the task of organizing the elements necessary to achieve the business objectives. If the scope of the business is large, a sole trader may hire a salaried servant to help him.
Inspiration from business:
The entire profit made in the business accrues to the sole trader alone. Similarly, he has to bear the loss alone. This suggests that the performance of a sole trader is directly related to remuneration. That is, the more work a sole trader does, the more he gets paid. Motivated by higher remuneration, the sole trader works harder and as a result, earns higher profits. If a sole trader does more work; His business may expand.
Unlimited liability of the business
A sole trader’s business liability is unlimited. A sole trader is solely responsible for the entire loss incurred by the business. No distinction is made between private property and business property of a sole trader. If the business incurs large losses and incurs many debts, the personal assets of the sole trader are used to pay off the debts.
Business Confidentiality
There is a secret to successful business. Important decisions in the business should not be understood by others as competitors are created in the business if this trick is understood by others. In sole trading, all important decisions are taken by the sole trader alone. So the decision taken by the sole trader can remain confidential. Important information is not known to others so the secret of business success remains confidential.
Management and control of business
All strategic business decisions are taken by the sole trader. These decisions are also implemented by the sole trader. That is, the entire management of the business is done by a sole trader. A sole trader has his own control over all business activities. If the scope of the business is very large, the sole trader hires salaried employees. However, the entire business is controlled by the sole trader.
Limited area of business
A sole trader does business only in a certain area. Because a sole trader has limitations in terms of raising capital, management, control, etc. A sole trader cannot raise a large amount of capital because he is alone. Can’t manage an expanding business. A sole trader’s scope of business is limited due to limitations such as not being able to control the extended business.
There is no difference between business and owner
Both sole trader and sole trader business cannot be separated. Because the sole trader owns the business. In a sole proprietorship, the business does not have a separate existence from the owner. Divorced for some reason from the sole trader business. (Deceased, insane, insolvent, etc.) then the business has to be closed.
Legal existence of sole trading business
All the provisions of the Companies Act, of 1956 have to be followed if a joint stock company is to be formed. If a partnership firm is to be formed and do business, the provisions of the law ‘Partnership Act, of 1932’ have to be followed. However, setting up a sole trader does not have to follow any legal provisions. Because no single trade law has been enacted. A sole trader can set up a business as per his wish. Similarly, he can close the business as per his wish.
A sole trader must obtain a license to start a certain business. For businesses that are required by law to be licensed, a sole trader must obtain a license before starting a business. If a sole trader wants to start a liquor shop, he must get a license. A distinction cannot be made between sole proprietorship and sole proprietorship. Because a sole trader is everything to a business. Single trader means single trade in the equation. So if a sole proprietor goes out of business for some reason (insolvency, insanity, death, etc.) the business ceases. A sole trader or business has no separate existence from a sole trader.
A sole trader’s business liability is unlimited. If the business goes bankrupt for some reason, if the assets of the business are not sufficient to pay the debts of the business, such debts are paid from the private assets of the sole trader. That is, no distinction is made between business assets and private assets of a sole trader.
Advantages of sole trading
There are many advantages of sole trading. Some of the specific benefits are explained as follows –
Easier to set up and close a business
Starting a business through this form of organization is extremely easy. If a person wants to do business then that person starts business immediately. Because of the single trade.
The organization type does not have to meet any legal requirements. But if the business is to be carried on through other forms of organization; (Partnership Number, Joint Stock Corporation, Co-operative Societies, etc.) Many legal aspects have to be fulfilled. Starting a business through a sole trade organization requires less ‘expertise’ than other organizations. Similarly, the cost also comes down.
It’s as easy as starting a business through a sole proprietorship. It is also easy to close the business. If a sole trader wants to close the business, he can close the business immediately. A sole trader does not have to comply with any legal provisions to close the business.
Easier to raise capital required for business
A sole trader has complete control over a single trade or business. So sole traders try to build and enhance their reputation in the market by providing maximum good services. When a sole trader has a good reputation in the market, it becomes very easy to raise capital. Institutions providing capital are ready to provide capital based on reputation.
The sole responsibility of the sole trader lies with the sole trader. That is, the liability of a sole trader is unlimited. As the liability of the sole trader is unlimited, the capital-providing institutions feel more secure in providing capital. Even if the business incurs losses, the private assets of the sole trader can recover the loans given by the capital-providing institutions. A sole trader tries to repay the loan installments on time due to unlimited liability. Because the reputation of a sole trader in the market depends on it.
Business flexibility
Only a small-scale business or manufacturing industry is carried on by a single trade organization. Because raising the capital required for a large-scale enterprise is beyond the reach of a sole trader. A sole trader can make changes to his business as and when required. Similarly, it can also change the strategic decision in a business or industry.
Consumer preferences regarding luxury goods are constantly changing. Therefore, the sole trader organization type is very convenient for industrial organizations that manufacture or distribute luxury goods. Because the strategic decision of production and distribution of goods can be changed as per the preferences of the customers.
Such changes do not have to comply with any statutory provisions. There is also no need to spend much on product changes. That is why the Single Trade Organization is said to be flexible.
Important business decisions can be kept confidential
Privacy is very important in small businesses. Since the sole trader makes all the business decisions himself, it is possible to maintain the confidentiality of those decisions. Due to this, important business decisions are not known to the competitors and the number of competitors does not increase.
Unlike a joint stock company, a sole proprietorship is not legally bound to publish accounts. Therefore, other businessmen do not get information about the financial status of the sole trader. That is, the financial status of the sole trader also remains confidential.
Proper control of the business
Timely decision-making is of utmost importance in any business. In a sole trader organization, since the sole trader owns everything, he alone makes all the decisions. So there is no delay in decision making and decisions are taken on time. Due to the timely decision-making, proper control of the business can be maintained.
Direct relationship with customers
As a sole trader is responsible for every transaction in the business, decisions are made with utmost care. So it was effectively controlled.
A business run by a sole proprietorship is small-scale. So there is a direct relationship between the sole trader and the customers. Due to the direct relationship with the customers, the sole trader understands the preferences of the customers. The production or distribution of goods can be changed according to the preferences of the customers. A change in the consumer’s expectations of the goods leads to large sales of the goods. As a result, the business gets huge profits.
There are no legal restrictions on sole trading
No separate law has been made for a single trade. Starting a business through a sole trader does not have to fulfill legal provisions. A sole trader does not have to submit any business-related information to any authority. That is, there is no legal obligation to submit the information. If a sole trader wants to close his current business and start another business; A sole trader can decide accordingly. There is no statutory requirement for such a change. A sole trader business does not have to pay tax as a business.
Inspiration comes from business
All profits accrued to the sole trader organization accrue to the sole trader alone. No other person shares in this profit. The more effort is put into the business, the more the profit increases. This is a kind of motivation for the sole trader. Due to this motivation, the sole trader maximizes the work in the business and hence makes more profit in the business.
Promptness in the decision-making process
If more than one person is involved in the decision-making process, there is a delay in decision-making. In a sole trader organization, all decisions are taken by the sole trader. That is, only one person makes the decision. So every decision is taken promptly. Timely decision-making helps the business to be profitable.
No administrative costs
A sole trader has sole control over the sole trader. All strategic business decisions are taken by the sole trader and also implemented by the sole trader. Due to the small nature of the business, it is possible for a sole trader to supervise and control all the business transactions. Being a small-scale business does not require much technical knowledge.
Disadvantages of Single Trading
We have studied the advantages of a single trade. Just as there are advantages to a single trade union. Likewise, there are some disadvantages. A brief explanation of these disadvantages follows.
Unlimited liability
Unlimited liability adversely affects business development. If the sole trader suffers losses for some reason and the sole trader has to close the trade, the personal assets of the sole trader are also used to pay the debts of the trade. That is, no distinction is made between business property and the personal property of the merchant. This is called the unlimited liability of a sole trader. Due to this unlimited liability, the sole trader is reluctant to take any risk for the development of the business.
Limited financial resources
All the capital required for trading is raised by the sole trader alone. He takes the help of friends and relatives to raise capital. The capital raising of a sole trader is limited. Although there is scope for business development, there are limits to the capital formation of a single business. Therefore, trade cannot develop. In such cases, the sole trader tries to seek the help of financing institutions. However, financing institutions require a large amount of collateral as security.
As a sole trader has few assets, he cannot give a large amount of mortgage. Hence, financing institutions refuse to provide financing. As a result, the development of single trade is stunted.
Limited scope for employee development
Due to the small nature of the sole trader, a sole trader cannot offer many concessions to his employees. Employees are also underpaid due to the dire economic conditions of sole trading. Due to all these limitations, skilled workers are not eager to come to the sole trader for employment. There is also uncertainty as to how long a single trade will last. So employees are constantly looking for job opportunities outside.
Limitation on managerial skills
Today’s business world is becoming very complex. Business coverage is also increasing. Managing this complex business becomes difficult for a single trader alone. Because a single trader does not necessarily have the knowledge of all the aspects required for trading. It is not possible for a sole trader to take the help of a professional manager to run the business smoothly. Because the remuneration to be paid to professional managers is very high and the financial situation of a sole trader is not feasible for him. This affects the development of trade.
Unstable existence of trade
A sole trader’s liability is unlimited. That is, no distinction is made between personal property and business property of a sole trader. Similarly, if the sole trader dies or becomes unable to carry on the trade due to some reason, the trade has to be discontinued. This affects the customers and creates inconvenience.
The amount of risk in trading is high
A sole trader has to make all decisions regarding the business alone. Since there is only one person making decisions, there is a possibility of error in decision-making. In other types of business organizations, more than one person makes decisions together. (For example, Partnership Firm, Joint Stock Corporation, Co-operative Society, etc.) Hence, there is less chance of error in decision-making. That is, a sole trader has to accept a large amount of risk.
No bulk purchase benefits
Due to the small nature of single trade, the purchase of goods is also on a small scale. Discounts, loan discounts, etc. are not available on small-quantity purchases. Although monopolistic trade has some disadvantages, it is not possible to eliminate monopolistic trade through forms of organization. A sole proprietorship is a very useful form of organization for small-scale businesses.
Although many large trade associations participate in modern trade, a single trade association survives because-
A single trade organization type is very useful for the local market of goods. The prices of goods are constantly changing. It is necessary to take an immediate decision in this regard. It is convenient to conduct this type of trade through a single trade association.
In some trades, the skill of the salesperson is very important. The goods have to be sold according to the preferences of the customers. A single trade organization is appropriate for trade in such goods.
This analysis shows that the sole trader is a very useful form of organization.
Share