Encyclonomic WEB*pedia: PROPRIETORSHIP

PROPRIETORSHIP:
A business organization that is owned and operated by one person. The owner and the business are legally considered one and the same. As such, the owner receives any and all profit and is responsible for any and all debts, what is termed unlimited liability. A proprietorship is one of the three basic forms of business organization. The other two are partnership and corporation. A large number of proprietorships exist in the economy, but they tend to be relatively small operations.
A proprietorship exists when a person IS the business firm. The person (the owner, the proprietor) is ultimately responsible for the operation of the firm and often owns or supplies many of the resources used for production, including labor, capital, land, and certainly entrepreneurship. This means that a proprietor has unlimited liability for the debts of the business. The debts of the business are the debts of the owner.
A proprietorship essential results when a person decides to independently engage in production, that is, to exert the entrepreneurship resource.
When little Stu Stankovilla earns a little extra spending money during the summer months painting house numbers on mailboxes, then he has a proprietorship business.

When Dan Dreiling works as an independent contracting installing drywall in newly constructed homes, then he has a proprietorship business.

When Becky Carpenter sells furniture that she fabricates in her garage at craft shows around the state, then she has a proprietorship business.
In fact, proprietorship was the original form of business organization (preceding partnerships and corporations by several millennia). Og, an innovative cro-magnon, might have launched the first proprietorship when he began carving stone wheels that he could then trade to other cave dwellers for mastodon meat, sabertooth skins, and burning logs.
Phil the Gardener
One example of a proprietorship provided by the robust economy of Shady Valley is Phil Gardener, the zucchini grower. Phil owns and controls all of the resources used to produce zucchinis--the property, the tools and equipment, and his labor. Phil has a section of his backyard, between the swing set and the koi pond, set aside for zucchini production. He tills the land, plants the sends, plucks the weeds, and harvests the crop. He shares these duties with no one. He is THE guy in charge of growing zucchinis.
Most important, he shares the profits (and losses) with no one. If a worldwide shortage of zucchinis drives the price higher, then Phil enjoys greater profit. Then again, the downside is that Phil also incurs all losses. If a zucchini blight wipes out his zucchini crop for the year, then Phil incurs a loss.
Complete Control
A key feature of proprietorship is that ownership and control of the business rests in the hands of a single person. The proprietor has the authority to make the decisions that are deemed best for the business, which are also best for the owner. There are no complex administrative layers of authority, conflicting goals, or miscommunication, such as commonly found in corporations.
If Phil wants to wait an extra day before harvesting zucchinis, the decision is his. He need not seek approval from a supervisor who might be more interested in buying a bigger desk than growing zucchinis. He controls the business. Should his decisions be good, he reaps the reward. Should his decisions be bad, he incurs the loss.
A Lot of Liability
Complete control means a proprietorship also has unlimited liability. The owner of is responsible for any and all debts of the business. In addition to the assets and wealth of the business, the personal assets and wealth of the owner can be used to pay off debts.
Suppose, for example, that Phil comes out on the losing end of a lawsuit filed by dozens of customers sickened by a deadly pesticide applied to his zucchinis. As a proprietor, Phil is personally liable for the damages. Any and ALL of Phil's assets could be used to pay the damages, including those totally unrelated to the zucchini business. Phil might have to sell the speed boat and motor home that he won on the TV game show. He might have to cash in the 10,000 shares of OmniConglomerate, Inc. corporate stock that he received as a birthday present from Winston Smythe Kennsington, III.
Small Time Operators
With unlimited liability and complete control of the business, proprietorships tend to engage in small-scale production. The size of the business is limited by the wealth of the owner. Proprietorships are more likely to operate small stores than large factories.
The small scale of operation means that industries populated by proprietorships tend to be relatively competitive. And with greater competition comes the greater likelihood of efficiency. In the real world, industries with proprietorships would tend to fall in the relatively efficient market structure category of monopolistic competition.
However, on the downside, small operations means proprietorships are less likely to take advantage of economies of scale and engage in low-cost mass production. Moreover, proprietorships seldom have access to the resources needed to develop and distribute product innovations.
The Other Two
Proprietorship is one of three basic types of business organization. The other two are partnership and corporation.
Partnership: A business owned and operated more or less equally by two or more people. Like proprietorship, the owners and the business are legally considered one and the same. As such, each owner also has unlimited liability, which means that any owner is held personally responsible for any and all debts of the business, including those of a partner. This form of business is common for professional-types, including lawyers, accountants, dentists, and physicians.

Corporation: A business established through ownership shares (or corporate stock). A corporation is considered a distinct legal person, that can be sued, forced to pay taxes, etc., comparable to a human person. Unlike proprietorships and partnerships, a corporation exists separately from its owners. As such, the owners have limited liability. Owners cannot be held personally responsible for corporate debts. The owners can only lose the value of their ownership shares, but no more.
Check Out These Related Terms...
     | legal business organizations | partnership | corporation | firm | company | enterprise | ownership liability | limited liability | unlimited liability | business objectives | profit maximization | natural selection | plant | factory | industry |
Or For A Little Background...
     | business | production | production cost | supply | entrepreneurship | microeconomics | private sector | institution | ownership and control |
And For Further Study...
     | business sector | political views | corporate profits | second estate | free enterprise | laissez faire | limited resources | short-run production analysis |
Recommended Citation:
     PROPRIETORSHIP, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: December 16, 2025].