Class 11- Chapter -4 Sole trading concern

 

 

Forms of Business

Businesses can be classified based on their ownership and management control. Broadly, there are Private Enterprises, Public Enterprises, and Joint Enterprises.

 

1. Private Enterprises

These are businesses owned, managed, and controlled by private individuals or groups.
The main aim is usually profit maximization, though some may also have service motives.
They operate under the rules and regulations of the government but are not owned by it.

a) Sole Proprietorship (Sole Trading Concern)

• Meaning: A business owned, managed, and controlled by a single person.
• Capital: Provided by the owner, sometimes with small loans.
• Liability: Unlimited — the owner’s personal assets can be used to pay debts.
• Merits: Easy to start, quick decisions, full profit to owner.
• Demerits: Limited capital, unlimited liability, uncertain continuity.
• Example in Nepal: Small tea shop in Simara, tailoring shop, grocery store.

 

b) Partnership Firm

• Meaning: A business owned by two or more persons (up to 50 in Nepal for general business, as per law) who agree to share profits and losses.
• Formation: Based on a Partnership Deed.
• Capital: Contributed by all partners.
• Liability: Generally unlimited for all partners.
• Merits: More capital than sole proprietorship, shared responsibility, more expertise.
• Demerits: Risk of conflict, profit sharing, unlimited liability.
• Example in Nepal: Small-scale construction firm jointly owned by friends, travel agency partnership.

 

c) Joint Stock Company

• Meaning: A legal entity formed under the Company Act, owned by shareholders who invest capital through the purchase of shares.
• Separate Legal Entity: Company and owners are legally separate.
• Liability: Limited to the value of shares owned.
• Management: Handled by a Board of Directors elected by shareholders.
• Types:
• Private Company – Maximum 101 shareholders in Nepal, cannot invite public to buy shares.
• Public Company – Can invite the public to buy shares.
• Merits: Large capital, limited liability, transferability of shares.
• Demerits: Complex formation, high regulation, possibility of conflict between owners and managers.
• Example in Nepal: Ncell (private), Nepal Telecom, Chaudhary Group companies, NIC Asia Bank (public).

 

d) Cooperative Society

• Meaning: A voluntary association of people formed for their mutual benefit, usually with the principle of "service before profit".
• Ownership: Members jointly own and manage the society.
• Capital: Contributed by members, profits distributed according to rules.
• Merits: Democratic control, service motive, mutual help.
• Demerits: Limited capital, slow decision-making, risk of mismanagement.
• Example in Nepal: Milk producers’ cooperatives, savings and credit cooperatives, multipurpose cooperatives.

 

2. Public Enterprises

• Meaning: Businesses owned and operated by the government to provide essential goods and services or to control vital sectors of the economy.
• Objective: Service to the public and social welfare, though profit may also be earned.
• Features:
• Government ownership and control
• Funded by public money
• Operates under government policies and rules
• Merits: Service-oriented, large resources, stability.
• Demerits: Political interference, inefficiency, slow decisions.
• Examples in Nepal:
• Nepal Electricity Authority (NEA)
• Nepal Oil Corporation (NOC)
• Nepal Airlines Corporation

 

3. Joint Enterprises

• Meaning: A type of business jointly owned and operated by both the government and private sector.
• Purpose: Combine public resources and private efficiency.
• Capital: Contributed jointly — sometimes government holds majority shares, sometimes private sector does.
• Merits: Combines benefits of both public and private sectors, shares risk, attracts investment.
• Demerits: Possible conflict between government and private owners, political influence.
• Examples in Nepal:
• Nepal Telecom (government-majority but publicly listed)
• Hydropower projects developed with both private and government investment

 

 

Sole trading concern

A sole trading concern (also called sole proprietorship) is a type of business that is owned, managed, and controlled by a single person.

The owner invests the capital, makes all the decisions, keeps all the profits, and bears all the losses alone. There is no legal separation between the owner and the business — in the eyes of the law, they are the same.

It is the simplest and oldest form of business organization and is very common in Nepal for small-scale businesses like tea stalls, tailoring shops, stationery stores, vegetable sellers, or small grocery shops.

Example (Nepal):
A woman in Simara running her own pickle-making business from home is a sole trader. She decides the price, manages sales, and keeps all profits herself.

 

Characteristics of sole trading concern

A sole trading concern (sole proprietorship) is a business owned, financed, and controlled by one individual. The owner and the business are legally the same person—profits belong to the owner, and so do the risks. Following s are the features of sole trading concern

 

1) Sole ownership

• Meaning: One person provides the capital, owns all assets, and is the single claimant of profits.
• Why it matters: Ownership concentration makes goals simple and control tight.
• Example: A small stationery shop in Simara bazaar owned entirely by one person.

2) Sole management & control

• Meaning: The owner runs daily operations, hires workers, buys/sells, fixes prices, etc.
• Advantages: Fast decisions, close supervision, and flexible responses to customers.
• Risk: Depends heavily on the owner’s skills and time.
• Example: A tailor who decides designs, delivery dates, and fabric suppliers on the spot.

3) Independent decision

• Meaning: No need to consult partners or a board. The owner’s judgment is final.
• Advantages: Saves time; suited for markets where quick changes (price/stock) are needed.
• Caution: Wrong decisions directly hit the owner’s pocket.

4) Undivided risk & responsibilities

• Meaning: The same person bears all business risks and performs all core responsibilities.
• Implication: Clear accountability—creditors and customers know who is responsible.
• Example: If a momo stall delays an order, the owner alone must handle refunds or complaints.

5) Unlimited liability

• Meaning: If business assets can’t pay debts, the owner’s personal assets can be used.
• Upside: Creditors may trust the business more (they have a bigger safety net).
• Downside: Financially risky—ill‑judged borrowing can threaten personal property.

6) Lack of legal (separate) existence

• Meaning: The business is not a separate legal entity from the owner.
• Effects:
• No “perpetual succession” (the business usually ends with the owner’s death/insolvency).
• Contracts are in the owner’s name; lawsuits, taxes, and licenses are tied to the person.
• Example: A home‑based pickle business sells under the owner’s personal name.

7) Limited area of operation

• Meaning: Typically small‑scale, local markets due to limited capital and capacity.
• Why common: Easier to manage quality and relationships when the owner is hands‑on.
• Example: A local tea shop serving the surrounding neighborhood and nearby factories.

8) Maintain secrecy

• Meaning: Financial records, recipes, supplier lists, and margins can be kept private.
• Benefit: Competitive advantage—competitors don’t easily learn your “formula”.
• Trade‑off: Lack of external scrutiny can also hide inefficiencies or weak bookkeeping.

9) No sharing of profit or loss

• Meaning: 100% of profit belongs to the owner; 100% of loss is also the owner’s burden.
• Motivation: Strong personal incentive to work hard and reduce waste.
• Risk: Income can fluctuate widely with seasons and local demand.

10) Limited area of operation (already covered) & “Limited scope for expansion”

• Reality behind the point: Because capital and management are one person’s, expanding beyond a locality is difficult without converting to a partnership or company.
• Typical growth path: Start as sole trader → add staff → formalize processes → consider partnership/company for bigger capital.

 

Quick Pros & Cons

Strengths

• Easy to start and close (few legal formalities)
• Quick decisions; personalized customer service
• Full control and full profit
• Privacy of business information

Limitations

• Unlimited personal liability (high financial risk)
• Limited capital and managerial capacity
• No separate legal entity; uncertain continuity
• Hard to scale beyond local market

 

Suitable Examples (local context)

• Tea/coffee stall near Jagadamba/Hulas gate
• Tailoring/boutique shop in neighborhood market
• Mobile repair corner, photocopy & stationery shop
• Home‑based food items (achar, sweets), tuition/coaching center

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Reasons / Advantages of Starting Sole Trading Concern

A sole trading concern has many benefits for small entrepreneurs, especially in places like Simara or other local markets where quick decisions, low capital, and personal relationships are important.

 

1) Easy to establish

• Meaning: Very few legal formalities are required. Often, just local registration (if needed) is enough.
• Benefit: Anyone with small capital and knowledge can start quickly.
• Example: Opening a tea stall near Jagadamba factory within a day after arranging materials.

 

2) Adequate secrecy

• Meaning: Business matters like profits, costs, suppliers, and strategies are private.
• Benefit: Competitors can’t easily copy methods or pricing.
• Example: A tailor not revealing the source of unique fabric designs.

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3) Quick decision

• Meaning: The owner can act immediately without asking partners or a board.
• Benefit: Saves time and helps in urgent situations.
• Example: A momo shop instantly changing the menu when customers request new flavors.

 

4) Sole ownership of profit

• Meaning: All profits belong to the owner.
• Benefit: Encourages hard work since rewards are personal.
• Example: A photocopy shopkeeper enjoying all the earnings during exam season rush.

 

5) Close relation with customers

• Meaning: Direct contact builds trust and loyalty.
• Benefit: Customers get personalized service; owner gets repeat sales.
• Example: A small grocery remembering customers’ preferred brands.

 

6) Flexibility in operation

• Meaning: Easy to adjust to market changes.
• Benefit: The owner can change products, services, prices, or hours without delay.
• Example: A street food vendor shifting from selling tea in the morning to snacks in the evening.

 

7) Effective management and control

• Meaning: One person controls everything, avoiding confusion or conflict.
• Benefit: Smooth workflow and quick problem-solving.
• Example: A mobile repair shop managed entirely by the owner.

 

8) Easy to dissolve

• Meaning: Business can be closed anytime without complex procedures.
• Benefit: Low exit cost and less mental stress if the business isn’t profitable.
• Example: Shutting down a seasonal ice cream stall after summer ends.

 

9) Maintain social prestige

• Meaning: Running your own business improves social recognition and respect.
• Benefit: Boosts personal status in the community.
• Example: A local bakery owner becoming well-known for delicious cakes in the neighborhood.

 

Summary Table

Advantage	Key Idea	Local Example
Easy to establish	Simple start, few formalities	Tea stall near factory
Adequate secrecy	Information kept private	Tailor’s fabric source
Quick decision	No need to consult others	Momo menu change
Sole ownership of profit	All earnings for owner	Photocopy shop
Close relation with customers	Builds loyalty	Grocery shop
Flexibility in operation	Can adapt quickly	Street food vendor
Effective management	Single control	Mobile repair shop
Easy to dissolve	Close anytime	Seasonal ice cream stall
Maintain social prestige	Improves respect	Bakery owner

 

Demerits / Disadvantages of Sole Trading Concern

Although a sole proprietorship is simple and quick to start, it also comes with several limitations—especially when competing with larger businesses.

 

1) Limited capital

• Meaning: The owner has to rely on personal savings or small loans.
• Impact: Difficult to expand or buy expensive machinery.
• Example: A Simara furniture shop owner can’t buy modern cutting machines due to high cost.

 

2) Unlimited liability

• Meaning: If the business can’t pay its debts, the owner’s personal property (house, land, savings) can be used.
• Impact: Increases personal financial risk.
• Example: If a dairy shop owner can’t repay a milk supplier, the supplier can demand payment from the owner’s personal assets.

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3) Uncertain duration

• Meaning: The business may stop if the owner dies, becomes sick, or faces a big loss.
• Impact: No guaranteed long-term stability.
• Example: A sweet shop closes after the owner falls seriously ill.

 

4) Limited public relation

• Meaning: Small businesses often lack wide publicity and brand recognition.
• Impact: Hard to compete with big or chain stores.
• Example: A local grocery store can’t advertise like a large supermarket.

 

5) Impractical decision

• Meaning: One person may make wrong choices due to lack of experience or advice.
• Impact: Poor decisions directly harm the business.
• Example: Buying slow-moving products in bulk that later go unsold.

 

6) Difficult to obtain loan

• Meaning: Banks prefer lending to partnerships or companies with more security.
• Impact: Growth is restricted.
• Example: A boutique shop being refused a bank loan because it’s a sole proprietorship.

 

7) Lack of specialization

• Meaning: The owner handles all tasks—sales, accounts, purchasing—often without expertise in each area.
• Impact: Quality of work can suffer.
• Example: A bakery owner good at baking but poor in marketing loses customers to better-promoted shops.

 

8) Limited opportunity to staff

• Meaning: Fewer resources mean fewer jobs.
• Impact: Business growth and employment creation are low.
• Example: A momo stall employing only one helper despite high demand.

 

 

 

 

 

Summary Table

Disadvantage	Key Idea	Local Example
Limited capital	Small funds limit growth	Furniture shop
Unlimited liability	Personal assets at risk	Dairy shop debt
Uncertain duration	Ends with illness/death/loss	Sweet shop closure
Limited public relation	Less publicity and reach	Grocery vs supermarket
Impractical decision	Wrong choices harm business	Unsold stock
Difficult to obtain loan	Bank hesitation	Boutique loan refusal
Lack of specialization	No expert in all areas	Bakery losing to competitors
Limited opportunity to staff	Few job positions	Small momo stall

 

Procedure of Registration of Sole Trading Concern

Although in many places a sole trading concern can start without compulsory registration, registration provides legal recognition, helps in business credibility, and is often required for tax, licensing, or loan purposes.
The common registration procedure generally involves the following steps:

 

a) Submission of application form

• Process:
  The owner must fill out a prescribed application form available from the concerned local government office (such as the municipality, ward office, or the Department of Cottage and Small Industries in Nepal).
• Contents of form:
• Name of the business
• Address of the business
• Nature/type of business activity
• Name, address, and citizenship details of the owner
• Proposed start date
• Example: A person in Jeetpursimara applies at the municipal office to register a tailoring shop.

 

b) Payment of registration fee

• Process:
  After submitting the application, the owner must pay the required registration fee. The amount depends on local government rules and may vary with business size or capital.
• Purpose of fee:
  Covers administrative costs for processing the registration.
• Example: Paying NPR 500 as a small business registration fee at the local office.

 

c) Obtain registration certificate

• Process:
  Once the application and payment are verified, the concerned authority issues a registration certificate.
• Importance:
• Serves as proof that the business is legally registered.
• Required for opening a business bank account, applying for loans, or getting tax/VAT numbers.
• Example: Receiving a framed registration certificate for display in the shop as proof of authenticity.

 

In short:

1. Fill in and submit the registration application form.
2. Pay the prescribed registration fee.
3. Collect the official registration certificate from the authority.