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“Entrepreneurship can be a lonely road, especially for sole proprietors”.

Most of the person are being afraid of their boss and this fear abstains a person to grow mentally, therefore, all they want is to become their own boss for a great sense of satisfaction and achievement.

As the name suggests, it is the form of business which is owned and managed by a sole person (i.e. individual human being).

In other words, A Sole Proprietorship is an unincorporated business which is  owned and managed by one individual.

Here, we will discuss in detail everything about Proprietorship business and who are liable to take registration and its procedure in detail.

Meaning of Sole – proprietorship

Sole proprietorship is a small business which is managed by a single individual. There are some other features of this kind of business which are as follows:

  • It is the oldest and simplest form of business for doing business activity. 
  • The owner enjoys sole control of the business profits.
  • It is not a legal entity, therefore a person who owns the business is personally responsible for its debts (liabilities/losses). In fact, the owner and his business is considered as a single entity.
  • The reporting of all business income and losses shall be clubbed with the personal income tax return of the proprietor.
    The business itself is not to be taxed separately.
  • Unlike OPC, there is no requirement to appoint nominee in this type of entity and also does not require any shareholder, partner or director.

Which entity should go for Sole Proprietorship Business?

Mainly, this kind of business format is not suitable for somebody with large business turnovers as there are some risks involved.

Instead, proprietorships are best suitable for small businesses and those with a low investment.

Advantages of Sole proprietorship business

  • Sole Proprietorships are Easy to Establish and Manage, because there is no requirement to comply with so much compliances as is the case with Companies/LLPs, etc.
  • The cost of setting up/winding up these businesses is low in comparison to other form of businesses. However, it is not compulsory requirement to obtain any kind of registration to establish proprietorship business.
    The owner of the business has sole control over both business as well as finance. Therefore, the owner will be responsible for all the activities and transactions of the business.
  • In Proprietorship structure of business organization, there is no legal requirement to maintain business records or publish any kind of financial accounts or any other documents to the public.

Disadvantages of Sole proprietorship business

  • Unlimited liability: This means you are personally liable for all debts of the company. It is the biggest disadvantage in this kind of business.
  • Fund Requirement: It is difficult to raise investment capital/loans for the business from banks/financial institutions/Venture Capitalist. Because due to single person managing the business the financial institutions hesitate in making advances to the proprietorship businesses.
  • No Going Concern: The life cycle of a sole proprietorship is limited to some extent to its owner. If the owner is incapacitated in any way it has a negative effect on the business, and it may even lead to the closure of the business. A sole proprietorship cannot carry on without its proprietor.

How to register your business as a sole proprietorship? – Procedures

Step 1: Applying for Necessary Documents like AADHAR (if not have)/PAN Card.

Step 2: Name the business. However, it is not compulsory because one can operate their business with their individual name also. But assignment of a name not only provide an identity to business unit but also distinguishes it from others.

Step 3: Open a bank account in the name of the business. The account can be open by submitting-

  • Rent agreement (if taken on lease or rent) or ownership document (if Owned) for business place.
  • Utility Bill of the business place
  • Income Tax Returns of the Proprietor.
  • Other KYC document of proprietor as well as business.

Registration for Sole Proprietorship Business

Although sole proprietor doesn’t require any specific registrations, but it is advised to obtain few registrations to make his business function smoothly.

  • Registering as SME It is highly recommended to get registered as Small and Medium Enterprise (SME) under the MSME Act. This will provide immense benefit of availing loan for the business and the government also runs various schemes for SMEs where loans are provided at the concessional rate of interest.
    The application can be filed electronically. However, it is not compulsory to register as an SME.
  • Obtain Shop and Establishment Act Registration – This license is neither mandatory at all places and in all cases, nor required to be obtained compulsory by the business establishment but it is required to be obtained according to the local law requirement.
    It is issued by the State Labour department and is issued on the basis of the number of employees in the Establishment.

    Every shop and establishment needs to register itself compulsorily under this Act within 30 days of commencement of work (if required by local laws).

  • GST Registration If the Annual Turnover of the business exceeds the limit specified in GST Act, 2017 then there is a requirement to obtain GST Registration for the business.

For registering under GST, you need the following documents –

A. PAN card, Photo and AADHAR Card of the proprietor
B. Proof of business place (Electricity bill/ rent agreement)
C. Bank statement copy (first page for verifying bank account number, address and IFSC code)

What are the Compliances required?

  •   File Income Tax Returns annually as a sole proprietor.
  •   File GST Return if you are registered under GST.
  •   Deduct TDS and file TDS return if liable for Tax Audit.