A sole proprietorship firm refers to a form of business organisation that is owned and controlled by a single owner. In the eyes of the law, no distinction is made between the sole trader and his business, as the business does not have an identity separate from the owner. The owner is held responsible for all activities of the business.

The merits of sole proprietorship include quick decision making, as the sole proprietor enjoys considerable freedom in making business decisions without consulting others, leading to timely capitalisation of market opportunities. There is a sense of accomplishment as working for oneself provides personal satisfaction and instils confidence in one's abilities. The ease of formation and closure is another merit, as sole proprietorship requires minimal legal formalities and is the least regulated form of business.

However, the limitations include unlimited liability, where the owner has unlimited liability and creditors can recover their dues not merely from business assets but also from personal assets of the proprietor. Limited managerial ability is another limitation, as one person may not excel in all areas of management and may not be able to employ talented employees due to limited resources. The lack of business continuity means that death, insanity, imprisonment, physical ailment or bankruptcy of the sole proprietor may cause closure of the business.