Sole Trading Concerns

Published by: BhumiRaj Timalsina

Published Date: 19 Jan 2022

Sole Trading Concerns in Accountancy of Grade-9, Reference Note

Sole trading is the oldest and simplest form of business organization. It is a business organization, in which an individual contributes the whole amount of capital, manages the business himself or herself, bears all the risks alone, enjoys all the profits and suffers all the loss. He alone plays a role of manager, owner, controller, decision maker, and risk bearer. He uses his own skills, intelligence, knowledge and capability for successful operation and management of the enterprise. He is free to hire and fire his employees and looks after the daily activities of the business. The following are some of the main definitions of a sole trading concern:

"A person who establishes and manages a business for his own account and risk is known as a sole proprietorship business." - A.N. Agarwala

"A sole proprietorship is a business with whose ownership and management are vested in one person. The individual assumes all risk of losses and failure of the enterprise and receive all profits from its successful operation." -Peterson and Plowman


Following are the main characteristics of a sole trading concern:

  1. Sole investment
    The owner contributes the whole amount of capital in his business. He invests the entire capital either from his private property or by borrowing from the relatives, friends and financial institutions.
  2. Sole management
    The owner manages whole activities of the business. He makes plans for his business, implements them and controls the daily activities for the attainment of the organizational goal. He is the supreme judge of the business in which nobody interferes his decisions.
  3. No profit sharing
    The owner enjoys the whole amount of profit and bears the whole amount of losses of the business. The owner alone bears the entire risk of the business.
  4. Limited operation
    The resources of the sole trading concern are limited. Due to the limited resources, it cannot produce goods in a large scale. Its business activities are restricted to limited geographical areas.
  5. Independence
    The sole trading concern is an independent organization. The owner of the business is free to make all sorts of decisions as per his judgment. He is the supreme judge for all the matters relating to the business. Such independence of the owner enables to make quick decisions necessary for exploiting business opportunities.
  6. Unlimited liability
    The liability of the owner is not limited to his investment. If the business suffers from losses and its properties are insufficient to meet its debts, the owner has to sell his private property to clear his business debts. The owner bears entire risks of the business.


The following are the main advantages of a sole trading concern:

  1. Easy to start and dissolve
    A sole trading concern can be established and dissolved easily. There are limited and simple legal formalities to start and close the business. The owner can start his business after getting it registered and close the business at his will by giving written information to the concerned authorities or office of Government of Nepal.
  2. Quick decision
    The sole trader is the supreme judge of the business and makes all types of decisions immediately. He is free to make decisions in matters relating to the objectives, capital, price, product and employees as per the situation. Quick decisions are very important to grab business opportunities.
  3. Secrecy
    A sole trading can maintain the secrecy of the business completely. The owner of the business is not required to share the secrets of the business. The business is not required to publish financial statements like profit and loss account and balance sheet. Secrecy is a strong tool to meet and beat the competitors in the market which ultimately leads the business to achieve its goal.
  4. Incentive
    A sole trader enjoys the whole amount of profit of the business alone. It can motivate him directly to work hard and to manage the activities of the business efficiently. He always tries to maximize profit with his best efforts. There is a direct relationship between efforts and rewards.
  5. Personal relation
    A sole trader plays the role of an owner as well as a manager. He can easily maintain and develop personal and business relations with all concerned parties like customers, suppliers, employees and government. Such sound personal and business relation helps for increasing the goodwill of the business. Such personal relation is the key for the success of the business of the business.
  6. Economy
    The owner himself act as the manager as well as employees, which helps to keep the office and administrative expenses at the minimum. It is an economical form of business organization.


The following are the main disadvantages of a sole trading concern:

  1. Limited capital
    The capital of a sole trading concern is limited due to the investment of savings and borrowings of the owner. Such limited capital is insufficient for large-scale production and distribution of goods and services.
  2. Loss in absence
    A sole trading concern may suffer due to the absence of the owner. Due to the personal and business matters, the owner may remain absent frequently. The representative and employees may not take care of the customers seriously. They may not carry out the daily activities of the business honestly, consequently, it results in loss to the business.
  3. Unlimited liability
    The liability of a sole trader is not limited up to his invested capital. The owner must pay the liability of the business even by selling his private properties if the assets of the business is not enough.
  4. Limited managerial skills
    A sole trading concern is managed by the single owner who may not have adequate managerial skills and technical abilities. A combination of capital, managerial skills and technical ability may not be found in one person. Further, due to limited resources, it cannot appoint the professional managers. Hence, the management of a sole trading concern may be ineffective.
  5. Absence of separate legal status
    A sole trading concern has no legal status. It has no corporate life. The business and the owner are inseparable from one another due to which the life of the business is not permanent. The life of the business is directly connected with the life of the businessman. The death or lunacy or insolvency or disability of the owner leads the business to an end.
  6. Uncertain life
    The life of a sole trading concern is not permanent due to the lack of separate legal status. The life of the business is closely connected with the life of the owner. The business can terminate at anytime due to death, lunacy, insolvency of the owner. The termination of the business brings negative impact in the society. Due to the uncertain life the business loses public confidence.