It is known as sole proprietorship or sole trader also. Under this system only one natural person owns the firm. He/she only takes the decisions relating to all matters relating to the business. Basically, there is no difference between the owner and business firm. The owner controls all the activities of the firm and he is personally liable for all the liabilities of the firm. For example Mr. X started a business and the name of business firm is M/s X Enterprises and Mr. X only is the owner of M/s X Enterprises. In this case, this firm shall be called as proprietorship firm and the proprietor of this firm will be Mr. X. Legally there is no difference between Mr. X and M/s X Enterprises. Mr. X is the owner of all the assets of M/s X enterprises and he is liable for all the liabilities of M/s X Enterprises personally.

Characteristics of  Proprietorship Firm:- We can describe the characteristic  of proprietorship firm as below:-

  • The proprietor receives whole profit of the business subject to the income tax.
  • Single person is the owner of the business.
  • The capital is contributed by the single person only.
  • The owner is personally liable for all business liabilities.
  • After the death of proprietor, there is no existence of the business.
  • The PAN number of proprietor will be used as the PAN number of business firm.
  • The proprietor can take all the decisions relating to business himself/herself.
  • Income tax return is submitted in name of proprietor not in name of the business firm.

After keeping in mind the above characteristics, we can say that the proprietorship firm is useful for small business only. Though, the proprietor can appoint staff for assistance but there is a limit of controlling the staff also by a single person.

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