Starting a sole proprietorship, it's good to consult with a legal or financial advisor to understand the implications for your specific business and personal situation. Additionally, you should be aware of any local regulations and requirements that may apply to sole proprietorships in your area. A sole proprietorship is one of the simplest forms of business structures, where an individual operates and owns a business as a single entity.
Sole proprietorship also known as sole tradership, individual entrepreneurship or proprietorship is one of the oldest and easiest Business Structures to start in India which is owned, managed, and controlled by one person - who is the proprietor. It is one of the most popular types of business in the unsystematic sector among the merchants and small traders as it involves very minimal compliances.
Registration is not required for a sole proprietorship business as it is identified through alternative registrations, such as, GST registrations. Hence, a business will be carried forward by making a new bank account for the business and GST registration will be done by using PAN and Aadhar of the proprietor. As a sole proprietorship is not a separate business entity there is no requirement to obtain proprietorship PAN card. The PAN card of the business owner is used for the proprietorship.
However, the liability of a sole proprietorship business is unlimited and it also doesn’t have perpetual existence.There is no legal distinction between the owner and the business entity, So a proprietorship cannot have other partners or shareholders.
A sole proprietor is the sole owner of the proprietorship business and has a legal and exclusive ownership of the business. The proprietor is completely responsible for all the assets and liabilities of the business.
A sole proprietor can undertake any type of business activity across any sector and industries. However, some activities such as banking, insurance, financial services, lending, defence, telecommunication requires specialised approval. In such cases, a company is mandatorily required to obtain various approvals from the Government. Hence, proprietorship business structure only works for business activities that are small scale in nature.
What are the advantages of sole proprietorship?
A sole proprietorship is required to obtain following registrations and licenses-
Experts at Fincrat Expert will file the registration application with the GST Department, MSME Department and other relevant authorities.
Following are the advantages of Sole Proprietorship:
No registration
There is no requirement of any formal incorporation or dissolution process for a sole proprietorship. However, to operate a business, the proprietor has to obtain certain registrations and licenses to adhere with the laws and regulations of India.
Lower compliance
The compliance burden is lower as the proprietorships are only registered with government departments like Income Tax & GST, unlike the LLP or Company which are regulated by the Ministry of Corporate Affairs where they need to file various statutory returns and be audited by a Chartered Accountant every year.
Simple and Easy to operate
As there are no partners, shareholders, or directors, the proprietor can easily operate this business with minimal documents and consent requirements. Hence, this type of business structure is best suited for small businesses.
Business decision
In a proprietorship, the business owner takes all business decisions. There is no consent or approval required from any other person. Hence, a proprietor can normally take quick decisions regarding his business affairs.
Complete control
As sole proprietorship business is owned by the sole owner and he has complete control over the assets, revenue, expenses and all business operations.
Difficult to raise funds
As the sole proprietorship business solely relies on one person’s savings, borrowings and credit history, raising funds from various other sources is difficult for a proprietor.
Personal liability
Proprietor will be held personally liable for all the liabilities of the sole proprietorship, if he is unable to pay any business loans or taxes. The personal assets of the business owner can also be encumbered.
Business continuity
The sole proprietorship will be automatically dissolved by the death or disability of the business owner. Hence, there will be no business continuity.
Many restrictions in growth and expansion
A proprietorship has various restrictions in terms of fundraising, liability and business continuity. Hence, only very small businesses that are in the unorganised sector operate as proprietorship.
The following compliances are applicable on a sole proprietorship:
Income Tax Filing
Form ITR-3 and ITR-4 are required to be filed by the business owner of a proprietorship to file personal income and business income with the income tax regulations.
GST Return Filing
A proprietorship with a GST registration is required to file a GST return every month and quarter as per the scheme under which the business is registered.
TDS Returns
In case the proprietorship is having employees or purchasing goods/services beyond a certain threshold - tax must be deducted at source and TDS returns must be filed every quarter.
In addition to the above, various other compliance requirements may be applicable to the proprietorship based on industry and location.