A ‘sole proprietorship’ or simply known as ‘proprietorship’, is a form of business entity owned, controlled and managed by one natural person There is no legal distinction between the owner and the business. The owner is solely responsible for the functions of his business and the liability therein is unlimited.
It is the most simple and common form of business- the local kiryana/grocery shops in our locality, general stores, small cafes and restaurants (solely owned by a single person), handlooms and all the small shops we see around us are nothing but, sole proprietorship.
The owner solely bears the loss and enjoys the profit. He has direct control over all the business transactions and he is solely liable for debt, loans, and taxes etc. At present, there is no statutory provision for registration and regulation of ‘Sole Proprietorship’. But, compliance with tax registrations like service tax, VAT, shop establishment, MSME etc. is required.
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Easy to start and has minimal regulatory compliance, no need to file an application for registration to ROC. To register a sole proprietorship, one needs to choose name, open bank account and take license for various services including service tax, VAT, Shops & Establishment license, PAN, and so on. Once these licenses are obtained, the business can be commenced with the sole proprietorship.
It is simplest to form such business. Owner being the sole decision-maker, the whole management lies with him with few formal requirements. It is more than simple to distribute profits and losses and he can, at any time, change the business structure, and whenever needed, he can also sell his business, etc. Sole proprietor is not required to file annual reports or legal documents as required by some other business structures
Owner is not required to file separate tax returns as income from business is his personal income and he pays taxes according to his individual tax rates.
Proprietor is personally liable for all the debts and obligations of business and at the same time, he is liable for the acts of his employees or whomever he hires to assist in his business.
Sole proprietor is also the sole financer of his business and cannot attract any investment from investors placing him at a disadvantageous position as compared to other types of businesses. He has to rely on his personal assets and loans to initially finance his business.
There is no direct mechanism provided by the Government of India for the registration or incorporation of a Proprietorship and that is why, most of proprietorship businesses are still unregistered in India. The existence of a proprietorship is established only by tax registrations and other business registrations that a proprietorship is required to have as per the rules and regulations.
However, it is too easy and uncomplicated to register for licenses online with various departments like sales tax department, import-export department and so on. It can be registered with a hassle-free process available online. Total number of days required for this process is 7-21 days.
Sole proprietorship requires minimum legal formalities and it is easy to start. The ownership and management wholly lies in the hands of the proprietor. Therefore, it accelerates the decision-making process and execution of the same promptly.