1. PERFORMANCE OF
SOLE Trader
{A CASE STUDY ANALYSIS}
NAME-reshma rivonkar
ROLL.NO-C11-350
DATE-06/09/2013

2. Chapter 1:
Meaning
Features
Advantages and disadvantages
Sources of finance available to sole trader
Procedure of registration
Tax benefits of choosing a sole
proprietorship

3. SOLE TRADER
MEANING
A sole trader, also known as the sole proprietor or simply
a proprietorship, it is a type of business entity that is owned
and run by one individual and in which there is no legal
distinction between the owner and the business. One person
starts the business, manages the business and shares the
profit or loss in it.
The owner receives all profits (subject to taxation specific to
the business) and has unlimited responsibility for all losses
and debts. Every asset of the business is owned by the
proprietor and all debts of the business are the proprietor's.
It is a "sole" proprietorship in contrast with partnerships. A
sole proprietor may use a trade name or business name
other than his or her legal name.

4. What is a Sole trader or Sole
Proprietor Form of business?
The sole trader is the oldest and most popular type of
business. It is a form of business where there is only one
owner who manages and controls the business. A sole
proprietorship is a type of business entity which legally has
no separate existence from its owner. Hence, the limitations
of liability enjoyed by a corporation and limited liability
partnerships do not apply to sole proprietors. All debts of the
business are debts of the owner. It is a "sole" proprietor in
the sense that the owner has no partners.
A sole proprietorship essentially means a person does
business in his or her own name and there is only one
owner. A sole proprietorship is not a corporation; it does not
pay corporate taxes, but rather the person who organized the
business pays personal income taxes on the profits made,
making accounting much simpler. A sole proprietorship need
not worry about double taxation like a corporate entity would
have to.
A sole proprietor may do business with a trade name other
than his or her legal name. In some jurisdictions, for example
the United States, the sole proprietor is required to register
the trade name or "Doing Business As" with a government
agency. This also allows the proprietor to open a business
account with banking institutions.

5. Features of Sole Proprietorship
The salient characteristics or features of sole proprietorship
are:
1. Formation and Closure: Sole proprietorship is very easy to
start as no legal formalities are required to start it (though in
some cases, one may require a license). There is no separate
law that governs sole proprietorship. It can easily be
dissolved (or closed) when the sole trader is interested. So,
there is ease in formation as well as closure of business.
2. Liability: The liability of the owner (i.e. sole proprietor) is
unlimited. It means that the owner is personally liable for
payment of debts if assets of the business are not sufficient
to meet all the debts. In other words, his personal property
may be sold to pay business debts in case the debts exceed
the assets of the firm.
3. Sole Risk Bearer and Profit Recipient: Sole proprietor is
the sole owner who is responsible for all the business affairs.
Any risk of failure of business is borne all alone by him.
Similarly, if the business is successful, he receives all the
business profits which become a direct reward for his risk
bearing.
4. Control: Sole proprietorship is a one man show, i.e. right
to run the business and to make all the decisions, lies
absolutely with the sole proprietor. He can carry out his
plans without any interference from others.

6. 5. No Separate Entity: A sole proprietorship has no legal
existence, i.e. in the eyes of the law , no distinction is made
between the firm and the proprietor. As a result, owner is
held responsible for all the activities of the business.
6. Lack of Business Continuity: As owner and business are
one and the same entity, death, physical ailment or
insolvency of the proprietor has a direct and harmful effect
on the business. It may even lead to closure of the business.
ADVANTAGES OF SOLE TRADER
If entrepreneur starts sole proprietor form of business, then
he has the following advantages.
1-Easy formation:
The formation of sole proprietorship business is very easy
and simple. No legal formalities are involved for setting up
the business excepting a license or permission in certain
cases. The entrepreneur with initiative and certain amount of
capital can set up such form of business.
2-Direct motivation :The entrepreneur owns all and risks all.
The entire profit goes to his pocket. This motivates the
proprietor to put his heart and soul in the business to earn
more profit. Thus, the direct relationship between effort and
reward motivates the entrepreneur to manage the business
more efficiently and effectively.

7. 3-Better control:
The entrepreneur takes all decisions affecting the business.
He chalks out the plan and executes the same. His eyes are
on everything and everyone. There is no scope for laxity.
This results in better control of the business and ultimately
leads to efficiency.
4-Promptness in decision-making:
When the decision is to be taken by one person, it is sure to
be quick. Thus, the entrepreneur as sole proprietor can arrive
at quick decisions concerning the business by which he can
take the advantage of any better opportunities.
5-Secrecy:
Each and every aspect of the business is looked after by the
proprietor and the business secrets are known to him only.
He has no legal obligation to publish his accounts. Thus, the
maintenance of adequate secrecy leaves no scope to his
competitors to be aware of the business secrets.
6-Flexibility in operations:
The sole proprietorship business is undertaken on a small
scale. If any change is required in business operations, it is
easy and quick to bring the changes.
7-Scope for personal touch:
There is scope for personal relationship with the
entrepreneur and customers in sole proprietorship business.
Since the scale of operations is small and the employees
work under his direct supervision, the proprietor maintains a
harmonious relationship with the employees. Similarly, the
proprietor can know the tastes, likes and dislikes of the
customers because of his personal rapport with the
customers.

8. 8-Inexpensive formation and management:
The cost of formation of a sole proprietorship is the
minimum because no cost is involved in its formation
excepting the license fee in certain cases. The management
of the business is also inexpensive as no specialists are
normally appointed in various functional areas of the
business which is the added advantages.
9-Free from Government control:
Sole proprietorship is the least regulated form of business.
Regulated laws are almost negligible in its formation, day-to-
day operation and dissolution.
10-Easy dissolution:
Like that of formation, the dissolution of the sole
proprietorship is also very easy. Since the proprietor is the
supreme authority and no regulations are applicable for
closure of the business he can dissolve his business any
time he likes.
11-Socially desirable:
New and small entrepreneurs can take up business on small-
scale basis. There will be no scope for concentration of
wealth in few hands. Sole proprietorship continues its
operation in almost each and every area of business activity
and caters to the need of the society. Further, it provides
ample opportunities for large-scale self-employment for rural
and less skilled personnel. Thus, it is socially desirable.

9. DISADVANTAGES OF SOLE TRADER
The sole proprietorship business is not free from criticism. It
suffers from certain limitations and drawbacks, because of
its very nature and scope of operations. These points may be
duly taken care of while entrepreneur adopting this mode of
business.
1-Limited resources:
The financial resources of any small entrepreneur as an
individual are limited. He mainly finances from his own
savings or borrows from financial institutions, friends and
relatives as per his capacity. Thus, limited resource is the
major drawback of this form of business.
2-Limited managerial capability:
Modern business requires updated managerial skills in each
and every sphere of activity. We cannot hope a single
individual to possess all the managerial talents necessary to
carry on a business efficiently. The limited financial
resources of the sole proprietorship are a hindrance to hire
the services of managers with expertise in different areas,
thereby the growth of the business.
3-Unlimited liability:
Since the liability of the sole proprietor is unlimited, the
private properties of the proprietor are also at risk. When the
business fails, the private properties of the owner are utilized
to pay off the business debts. Thus, the entrepreneur must
have to look this aspect carefully.

10. 4-Uncertainty of continuity:
The continuity of the business is uncertain because the
business may come to an end due to the incapacity or death
of the proprietor. Even if at all the business passes on to the
successor of the proprietor, it is unlikely that they may
possess the business acumen like that of the proprietor. The
discontinuance of the business is a social loss.
5-Less scope for economies of large-scale:
The economies of large-scale operation are enjoyed only by
a large-scale enterprise, which the sole proprietorship
business normal lacks. Therefore, there is less scope for
availing the economies of large-scale.
6-Not suitable for large-scale business:
The limited financial resources, limited managerial capability
of the proprietor, risk to the private property etc. makes the
so proprietorship business unsuitable for large-scale
business. This system of business cannot afford for large-
scale operation
7-Difficult to maintain personal contact:
Even though there is scope for personal touch in sole
proprietorship business, it is unlikely to happen when the
business is undertaken in different areas. It is not so easy on
the part of the proprietor to have personal contact with
customers and suppliers at the same time.

11. Sources of finance available to a
sole trader
As the size of business is small, finance needed is also
limited;
1-Use of personal savings
This means the surplus money available with the proprietor
himself. He uses his own savings for starting business. Such
savings may be limited but bay be adequate to meet the
initial financial needs of his business. A small retailer can
start and manage business with his own savings.
2-Loan from relatives and friends
With the expansion of business, a proprietor may need more
capital for his growing business. Here, bank loan may not be
available. Naturally, he has to take loans from his relatives
and close friends for short duration (for example, loan before
festival season which can be repaid after the season is over).
Such loan carries interest but the rate may be low and the
proprietor can pay such interest out of the seasonal profits
made.
3-Loan from Indigenous bankers
Sole proprietor can also take temporary loan from
indigenous banker operating in his area. Such loan will be for
short duration and the loan will carry high interest rate.
Repayment and all will be decided as per negotiations with

12. the indigenous banker. The formalities in granting the loan
also limited.
4-Credit facility from commercial/ co-operative bank
Sole proprietor can also take temporary loan from the local
co-operative or commercial bank. It may be in the form of
overdraft facility or cash credit arrangement. Here, the
proprietor has to pay higher interest rate and security (for
loan) acceptable to bank. Banks provide credit facility to all
types of business organisation’s including sole proprietor.
5-Trade Credit
This temporary credit facility is available to sole proprietor
provided, he is running business in an orderly manner and
supplier has favorable opinion about the proprietor the
benefit of cash discount will be available only when the
payment for goods purchased is made within the time
limited.
Procedures of registration of sole
trading concern
Sole proprietorship allows you to run and own your business
as an extension of your personal finances rather than as a
separate entity. If you want to establish a small firm in India
without the complications of corporation formation and
registration, a sole proprietorship will allow you to do so.
Sole proprietorships are the most common type of business
in India because of the easy procedure for establishing them.

13. Registration
Sole proprietorship firms in India do not submit company
registration to the national government. National company
registration is only required of corporations. You may wish
to form a sole proprietorship rather than a corporation
simply to avoid the complicated bureaucracy of national
registration.
Depending on the state and city that your firm operates in,
you may be required to register with local government. Most
local governments do not require registration, but some do,
so check your local government's commerce website or visit
the local commerce building to find the procedure you
should follow.
Although your sole proprietorship firm does not need to
register as a company with the Indian government, you may
wish to submit an employer registration. Employer
registration is an optional service that allows you to use the
government's infrastructure to search for employees. If you
are having trouble finding employees, this is a valuable
resource.
Taxes
India taxes the profit from your sole proprietorship as
personal income, and you do not need to complete any
additional forms to pay these taxes. Depending on the nature
of your business, though, you may need to pay additional
types of taxes, which you will have to complete registration
for. Sales tax is the most common example of this. To
register your business as a goods provider you must visit
your local government commerce building and complete a
short form.

14. Local Laws
The national government tries to remain hands-off for sole
proprietorships to encourage the creation of new
businesses, but you must always thoroughly check the local
business laws before establishing a sole proprietorship in
India. The procedures for registration of the firm can vary
greatly between different cities. In addition, many local laws
limit the types of business that can be done by sole
proprietorships, and which apply additional taxes to sole
proprietorships.
The impact of local laws can change drastically depending
on the type of sole proprietorship that you are running. A
goods dealer in a storefront should expect different
regulations and taxes than a consultant operating from his
home. Be sure to check the rules relevant to your business.
Tax Benefits of Choosing a Sole
Proprietorship As Your Business
Structure
Before starting a business, it is worthwhile to consult a tax
accountant or business attorney. If you are unsure of the
best type of legal structure for your business, you may need
a professional to help you determine the most advantageous
way to set up your business.
Every type of business structure offers specific tax
advantages and disadvantages. Here are some of the tax and
financial benefits to establishing your business as a sole
proprietorship:

15. 1-Easier Tax Returns to File:
Tax returns for sole proprietorships are the simplest to
prepare, are filed on the sole proprietors (business owner’s)
tax returns. If you can prepare your personal tax returns,
chances are pretty good you can easily prepare your own
business taxes for a sole proprietorship. Filing tax returns on
sole proprietorships involves preparing a simple, one- to
tow-page IRS form; the Schedule C. In most cases, you do
not even have to provide lengthy data and the income and
expenses you list on a Schedule C are fairly crude.
2-Free from Mandatory outside Audits:
If you do not have to pay someone to do your business taxes
for you, the savings could easily amount to several hundred
dollars. You will also not have to pay for an independent
audit, which can run into the thousands of dollars.
3-No Tax Penalties for Dissolving the Business:
if you wish to dissolve the company, there are any special
requirements to do so. In other types of business structures,
there are legal requirements that govern how you close out a
business. Some of these requirements can have tax
implications that are not imposed on sole proprietorships.
4-You Can Steer Money to Drive Your Own Deductions:
As a sole proprietor you own and manage your business.
This means you determine spending, borrowing, and reap all
the profits yourself (unless you have investors).You can hire
and fire and determine salaries of employees. Having this
freedom to make decisions indirectly affects your taxes
because you can make any adjustments in cash flow and
payroll needed to keep your business finances in check. For

16. example, if your profits are high and you need more tax
write-offs, you alone get to decide how to off-set your
income.
5-Big Tax Savings on Healthcare Reimbursement
Arrangements:
Savvy sole proprietors can also use Healthcare
Reimbursement Arrangements (HRAs) to get access to
healthcare with the added benefits of double tax deductions.
6- Boss Your Kids Around and Get Tax Deductions For It!
Sole proprietors can hire their own minor children and not
pay any payroll taxes until they turn 18. There are some
restrictions, but they are few. Other employees typically
trigger payroll taxes of at least 7.65% of wages paid.
No matter what type of business structure you form you will
have to report your salary, profits and losses, and other
financial information on tax returns. An advantage to forming
a sole proprietorship is that although your business income
counts as your personnel income, any losses your business
takes may also be deductible for you. Business deductions
for a sole proprietorship generally can reduce your personal
taxes as well.

17. Chapter 2
A CASE STUDY

18. ROHINI GENERAL STORES
Rohini General Stores is a FOOTWEAR shop started in the
year 1980.
It is situated near the station road, Curchorem Goa. The
owner of this shop is Mr. Kishor R. Kudalkar. It is a
showroom for footwears. Initially in the year 1980 , he
invested his own capital of Rs.80,000 to start the business.
He has registered his shop with municipality and sales tax
registered in curchorem , Income tax office South Goa. He
does not have any godown. He buys goods from R.K Traders
, Vinayak Traders ,R.K Footwear , etc.
He sells footwear products like paragon, vikeshi, Bata,
Lancor, Action and so on.
He buys goods on 1 month credit basis. Whatever old stock
remains he sells it. He has employed 3 workers in the shop
and pays them Rs.5000 p.m. He insured his goods against
fire. Type of insurance is United Fire. He sells goods at a
profit margin of 15-20 %. He has one fix person as
accountant and he’s being paid Rs. 5000 p.m
Before he had a garment shop. He closed down that
business and he started a footwear shop. Now he is doing a
good business. So far he has not expanded his business of

19. footwear. His shop is situated near the market area hence he
is able to grab more customers. He has many competitors
like Sitara shop , Shoe Palace.
He gives his customers 10 days to exchange their goods
after which he does not accept.
He is purchasing good quality footwear and has variety of
choices and therefore more customers get attracted towards
his shop. His working hours is from 9.00 a.m to 8.00 p.m.
During festival season he is providing discount on his
footwears. During festivals like Raksha Bandan , Ganesh
chathurthi etc he is also keeping other items such as rakhi’s
,fire crackers and so on in order to earn more income.
The owner of the shop was not ready to give the accounts so
he orally told me his yearly accounts. He purchases
Rs.1,80,000 worth of goods. His yearly turnover comes to
Rs.21,00,000 per annum.

20. According to the oral information given by him ,
I have tried to prepared his Profit and loss account
Profit and loss a/c
Particulars Rs Particulars Rs
ToOpening stock
ToPurchases
To Freight and
coolies
To G.P
4,00,000
18,00,000
14,000
1,86,000
By sales
By closing
stock
21,00,000
3,00,000
24,00,000 24,00,000
To printing and
stationery
To salary
To travelling
To electricity
To insurance
To telephone
To accountant
charges
To N.P
15000
5000 p.m
8000
8000
2000 p.m
200 p.m
5000
1,42,800
By G.P 1,86,000
186000 186000

21. INTERPRETATION:
The given account is appearing in the books of Rohini
General stores.The given account is a profit and loss
account
The business had a opening stock of Rs.4,00,000. He
purchased 18,00,000 worth of goods during the year and paid
14,000 as freight and coolie charges.
He made a yearly turnover of Rs 21,00,000
And had a closing stock of Rs 3,00,000
His gross profit is quite satisfactory.
He paid expenses like printing and stationery, salary,
travelling, electricity charges , insurance ,telephone, and
accountant charges.
His net profit for the year is 142800
Overall, the business has made profits which means it is
working in efficient manner

22. CONCLUSION AND SUGGESTIONS:
“Innovation distinguishes between a leader
and a follower.”
The Owner of Rohini General Store is truly a leader and not a
follower. He made a right decision to close down the
garments shop because he was not earning much in that
business, so he believes in innovations and hence he went
into a different line of business.
The owner said, “I don't know if I am a good or a bad
entrepreneur. All I know is that when I believe in something I
fight for it.
It is concluded that sole proprietorship is a popular form of
business among other form of business units due to it’s :
Complete secrecy of information
Undivided profit
Self control

23. Reference :
Personal interaction with Mr. Kishor Kudalkar
http://en.wikipedia.org/wiki/Sole_proprietorship
http://www.preservearticles.com/201101153393/advanta
ges-and-disadvantages-of-sole-proprietor-form-of-
business.html
http://www.ehow.com/way_5380794_procedure-
proprietorship-firm-registration-india.html
http://womeninbusiness.about.com/od/taxinformation/a/
6-tax-solprops.htm
http://studycorner.in/index.php/features-of-sole-
proprietorship/