Explain characteristics of a Sole Proprietorship firm. 

Formation and closure

• Hardly any legal formalities are required to start a sole proprietary business though in some cases one may require a license.
• There is no separate law that governs sole proprietorship.
• Closure of the business can also be done easily.
• Thus, there is ease in formation as well as closure of business.

Liability

• Sole proprietors have unlimited liability.
• This implies that the owner is personally responsible for payment of debts in case of the assets of the business are not sufficient to meet all the debts.
• In such situations, owners personal possessions such his home car and other assets could be sold for purpose.

Risk Bearing

• The risk of failure of business has to be born alone by the sole proprietor.
• However if the business is successful, the proprietor enjoys all the benefits.
• He receives the entire profit which becomes a direct reward for his risk bearing.

Control

• The right to run and take decisions with respect to the business lies absolutely with the sole proprietor. He can carry out his plans without any interference from others.

No Separate Entity

• In the eyes of the law no distinction is made between the sole trader and his business, as business does not have an identity separate from the owner.
• As a result the owner is held responsible for all the activities of the business.

Continuity

• Since the owner and business are one and the same entity, the death, insanity, imprisonment, physical ailment or bankruptcy of the sole proprietor will have a direct and detrimental effect on the business and may even cause closure of the business.