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Form of Business Enterprise


If one look around, one will find that a small shop is owned and run by a single individual who performs all function. But, in big businesses, it may not be possible for a single person to perform all function.

Therefore, in such cases two or more persons join hands to finance and manage the business properly and share its profit in line with how it was agreed upon . Thus, business organizations may be owned and managed by a single firm or a joint stock company. Such arrangement of ownership and management is termed as a form of business organization (McHugh, 2007).

A business organization usually takes the forms of sole proprietorship, partnership, joint stock company and cooperative society. However, we have excluded joint stock company for now to learn in detail the exact nature of sole proprietorship, partnership and cooperative society forms of business enterprise .

Sole proprietorship

The term ‘sole’ means single and ‘proprietorship means ‘ownership ‘ (Vela, 2006). Therefore, only one person is the owner of the business enterprise. This means, that a form of business organization in which a single individual owns and msnsges The business, takes the profits and bears the losses, is known as sole proprietorship form of business enterprise. A type of business unit where one person is solely responsible for providing the capital and bearing the risk of the enterprise, and for the management of the business (Collins, 2007).

Thus, sole proprietorship ‘from of business enterprise refers to a business enterprise exclusively owned, managed and controlled by a single person with all authority , responsibility and risk. It is very simple to establish a sole proprietary concern. Any person who is willing to start a business and has the necessary resources can set up this form of business enterprise. To start and operate the business in this form, practically does not require any legal formalities to be fulfilled (Abdellatif, Sawsen, Sami, Younes, 2016).

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In some cases like restaurant, chemist shop etc. how ever, permission from the competent authority is required to be obtained before starting the business. Similarly, setting up a factory may involve taking permission from government authority. But, formation of business unit as such does not involve any complexities.

Features of sole proprietorship Form of Business Enterprise

The following are some of the feactures of sole proprietorship otherwise refrered to as one man business in Nigeria:

Single Ownership

The sole proprietorship form of business enterprise has a single Owner who himself /herself starts the business by bringing together all the resources.

No Separation of Ownership and Management

The owner himself /herself manages the business as per his /her own skill and intelligence. There is no Separation of ownership and management as is the case with company form of business enterprise .

Less Legal Formalities

The formation and operation of a sole proprietorship form of business enterprise does not involve any legal formalities. Thus, its formation is quite easy and simple.

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No Separate Entity

The business unit does not have an entity separate from the owner. The businessman and the business enterprise are one and the same, and the businessman is responsible for every thing that happens in his business unit.

No Sharing of Profit Loss

The sole proprietor enjoys the profits alone. At the same time, The entire loss is also borne by him. No other person is there to share the profits and losses. He alone bears the risks and reaps the profits.

Unlimited Liability

The liability of the sole proprietor is unlimited.In case of loss, if his business assets are not enough to pay the the business liabilities, his personal property can also be utilized to pay off the liabilities of the business.

One_Man Control

The controlling power of sole proprietorship business always remains with the owner. He/she runs the business as per his /her own will.

Merits of sole proprietorship form of Business Enterprise

This form of business ownership has the following merits:

Easy to Form and Wind Up

It is very easy and simple to form a sole proprietorship form of business enterprise. No legal formalities are required to be observed . Similarly, the business can be wind up any time if the proprietor so decide .

Quick Decision and Prompt Action

As started earlier, nobody interferes in the affairs of sole proprietary enterprise. So he/she can take quick decisions on the various issues relating to business and accordingly prompt action can be taken.

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Direct Motivation

In sole proprietorship form of business enterprise, The entire profit of the business goes to the owner. This motivates the proprietor to work hard and run the business efficiently.

Flexibility in Operation

It is very easy to effect changes as per the requirements of the business. The expansion or curtailment of business activities does not require many formalities as in the case of other forms of business enterprise.

Maintenance of Business Secrets

The business Secrets are known only to the proprietor. He is not required to disclose any information to others unless and until he himself so decides. He is also not bound to publish his business accounts.

Personal Touch

Since the proprietor him self handles everything relating to business, it is easy to maintain a good personal contact with the customers and employees. By knowing the likes, dislikes and tastes of the customers the proprietor can adjust his operations accordingly. Similarly, as the employees are few and work directly under the proprietor, it he helps in maintaining a harmonious relationship with them, and run the business smoothly.

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