A Sole Proprietorship form of business organisation is where a business is managed by a single person. Generally, it does not require any registration as such. Any individual who wants to start a business with less investment can choose this type of business form.
The control of the business is solely in the hands of the single proprietor/owner. A single person who wants to start a business from home or on a premise with a minimum amount can opt for this form of business type.
The investment for the sole proprietorship business will be done by the single proprietor. He bears all the losses of the business and enjoys all the profits. He controls the business as well as manages it. He can appoint persons for conducting the business, but the ownership will rest solely with him.
Many local businesses such as grocery stores, parlours, boutiques, retail stores, etc., can be established as a sole proprietorship firm. Even small traders and manufacturers can establish a sole proprietorship firm.
Who can opt for Sole Proprietorship?
Any person who wants to start a business with less investment can opt for this type of business form. It can be started in a time span of 10-15 days. Also, the control in the business is solely in your hands.
Advantages of Sole Proprietorship
Less compliances
The sole proprietorship business can be started easily by just one person. There is minimum compliance that is required to be adhered to get it incorporated. This form of business is economical as it is relatively less expensive to start than a company or LLP.
Control of the business
The sole proprietor will have complete control over the business. He will look after all the aspects of the business. Since only one person is running the business, secrecy can be maintained.
Quick decision making
The sole proprietor takes all decisions of the business. The decision making rests with a single person. Thus, the decisions can be taken quickly and immediately without the need for consulting anyone.
Disadvantages of Sole Proprietorship
Unlimited liability
There is an unlimited liability on the sole proprietor. He is personally liable for all the transactions he enters in the business. If any loss occurs, he will have to bear the whole loss out of his personal estate.
No perpetual succession
There is no perpetual succession which means it can come to an end if something happens to the sole person taking care of the business. It can shut down at any time. This makes the business unreliable and difficult to gain public trust for entering into agreements or contracts to expand the business.
Difficult to raise funds
Since a single person manages the business, it is not easy to raise capital. The capital of the business is from the investments put in by the sole proprietor. The sole proprietorship firm has no separate legal entity status from the owner. As it can come to an end at any time and there is no separate entity, it is difficult to obtain funds from third parties.
Registration of Sole Proprietorship
The procedure for incorporating a sole proprietorship firm is-
- Applying for PAN card.
- After obtaining a PAN card, or if the proprietor already has a PAN card, the next step is to keep a name for the sole proprietorship business.
- The next step is to open a bank account in the name of the business. All the transactions of the business will be through this bank account.
- Though no specific registration is required for starting a sole proprietorship firm, certain basic registrations are required to be obtained by a sole proprietorship firm for doing business. The basic registrations required by a sole proprietorship are-
- The proprietor needs to obtain the Registration Certificate under the Shops and Establishment Act of the state in which the business is located.
- The sole proprietorship should also register for GST if the business turnover exceeds Rs.20 lakh.
- The sole proprietorship can also register as a Small and Medium Enterprise (SME) under MSME Act, though it is not mandatory, it is beneficial to be registered under the same.
Documents Required for Sole Proprietorship
The documents required for registration of Sole Proprietorship are-
- Aadhaar Card.
- PAN Card.
- Registered Office proof.
- Bank Account.
Checklist required for Sole Proprietorship
- PAN Card of the proprietor.
- Name and address of the business.
- Bank Account in the name of the business.
- Registration under the Shop and Establishment Act of the respective state.
- Registration under GST, if the business turnover exceeds Rs.20 lakhs.
What are the Compliances required?
As a sole proprietor, you must file Income Tax Return annually. Also, you need to file your GST Return if you are registered under GST. A sole proprietor should also deduct TDS and file TDS return if liable for Tax Audit.
Timelines for Sole Proprietorship Registration
The Sole Proprietorship requires opening a bank account in the name of the business, a Certificate of Registration under the Shop and Establishment Act of the respective state and GST Registration. The registration process takes approximately 10 days, subject to departmental approval and reverts from the respective department.