Dissolution refers to the termination of the legal life of a business. The following circumstances may lead to the dissolution of a sole proprietorship:
- Death or insanity of the owner.
- Transfer of the business to another person- this transfers the rights and obligations of the business to the new owner.
- Bankruptcy of the owner- this means that the owner lacks the financial capability to run the business.
- The owner voluntarily decides to dissolve the business e.g due to continued loss making.
- Passing of a law which renders the activities of the business illegal.
- The expiry of the period during which the business was meant to operate