A Sole Proprietorship is a business or an organisation owned, controlled and managed by one person. It is a very simple business structure that one can own.
It is very popular among small-scale businesses as there is no complexity and time-consuming method to form it. This business can be started using one's name or having a trading name registered with his local authority.
It is the easiest and cheapest form of business to start with. It is the sole right of the person to start or end his business as he is the ultimate owner of that business.
Sole-Proprietorship mean:
Operating a general store, a beauty salon, etc., as a sole proprietorship is an example.
Following are the sole proprietorship advantages:
(1) Minimum Compliances
There is no specific registration done to start a sole proprietorship. It is only recognised by registrations done for government filing and tax registrations. Their compliance is limited to filing goods and service tax, if eligible.
(2) Quick Decision Making
A sole proprietor is the sole owner of their business, and being the sole owner, he has not discuss making decisions with anyone so that decisions can be taken quickly. Quick decision-making helps the business to grow faster. As in a company, many people are involved before making any decision.
(3) Confidentiality of Information
Any law does not demand the publication of financial statements of the proprietorship business. In this type of business, confidentiality can be retained.
(4) Inexpensive
A sole-proprietorship is inexpensive compared to a company, as minimal compliance has already been discussed in the above points. Example of Sole Proprietorship i.e.; you do not need to hire an auditor as it is not required. That is why small merchants and traders opt for it.
(5) Easy to close
Proprietors and sole proprietors are the same things when it comes to legal requirements. So, there is not much formality one needs to go through to close a sole proprietorship. The only requirement is to cancel all the tax registrations.
Following are the sole proprietorship disadvantages:
(1) Limited Resources
Sole proprietor put their resources into the business. They have limited financial resources and the amount of credit they can get from banks or financial institutions.
They also cannot sell shares to raise money for the business. It is difficult for them to arrange the capital requirements and keep the business going. This is also the reason why generally; these businesses remain small.
2) Skills and Experience
The owner starts their business believing in his skills and expertise, which might be true. Still, no one practically possesses all the skills and expertise required to run a business smoothly and effectively.
There is a limited amount of time to do things correctly. Limited resources mean he cannot hire competent people to help him; as a result, a business may suffer from mismanagement and poor decisions.
(3) Unlimited Liability
The main demerit of having a sole-proprietorship business is its unlimited liability. It means the proprietor's personal property could be sold off to pay the debt of the creditors.
Thus, making this business too risky to opt for. As in the case of companies, their liability is limited to the number of shares they own. That is why only a few opt for a sole proprietorship, as anyone is not financially capable enough to take that risk.
(4) No economies of scale
Large business organisations enjoy large economies of scale. Economies of scale mean to produce more with less production cost.
As one of the Features of Sole Proprietorship, it is difficult to achieve such an objective with limited capital and expertise. So, it becomes challenging for sole proprietors to compete in the market.
A sole proprietor can be registered under the following laws:
Registration of Sole Proprietorship is not necessary. It is at the discretion of the owner to get the registration. But it is beneficial for it to get registered as it gets recognized in the market. Also, banks insist to get a registration to open a bank account of the business. But as per the law, it is not mandatory, but it is beneficial to get registered.
A sole proprietor who wants to start a business can get established under the Shops and Establishment Act if they own a shop and the shop is their place of business.
But the shop does not include:
A sole proprietor can register under GST if he trades in goods or services. GST registration is a great method to get identified under GST. Every business registered under GST must collect taxes, deposit them to the concerned government, and file GST returns. So you can also check out the Sole Proprietorship Taxes to file your return.
A sole proprietor can get itself registered under MSMED Act as well. Under Udyam Registration, proprietorship businesses can register to avail of benefits of the various schemes introduced by the Ministry of MSME.
COMPLIANCES REQUIREMENT
A sole proprietorship is a business or an organisation that is owned, controlled and managed by one person.
A business can always to choose to convert itself from sole-proprietorship to partnership or company or Limited liability partnership. The procedure a little time consuming and required few more documents that what was required for partnership but it 100% possible. Now a days, it has become very common to for sole-proprietorship to convert into partnership or OPC at a future stage.
There is no particular registration to be done to start a sole-proprietorship nor it is mandatory to get registered. A sole-proprietor can be registered under :
But, now sole-proprietor needs to get registered under one or the other act as bank requires a legal proof to open the bank account of the sole-proprietor in the name of the business.
Any individual who is a citizen of India and who is willing to start the business can do so by incorporating a sole-proprietorship. No special qualification or condition to start a sole-proprietorship.
No, registration of sole-proprietorship is not mandatory. However, it can obtain registration under Shops and Establishment act, GST Act or MSMED Act. These registrations will give it recognition and it will be easy to open a bank account as bank demand proof of the business to open a bank account.
By separate legal entity we mean that business has a separate identity from that of its members. In case of sole-proprietorship if the business is sold, then proprietor personal property can be sold to clear the debts of the banks, financial institutions and creditors. So, no, Sole proprietorship is not a sperate legal entity.
To start a sole-proprietorship there is no minimum capital requirement.
No, A minor cannot start a sole-proprietorship business. A minor is the person below the age of 18 years and he cannot start a business of its own as its liability is unlimited.
No, it is not mandatory to have a sole-proprietorship financial accounts audited. However, under GST Law/ Income Tax Law if the business crosses the threshold limits than it may need to get audited.
Yes, NRI are also allowed to start a sole-proprietorship. However, such business needs to follow the guidelines and restrictions as stated out in FDI rules.
Yes, sole-proprietorship can be started from one’s home.
Yes, a sole-proprietorship can start any business (except illegal business) even Import-Export business by obtaining Importer Exporter Code.
You can protect the name of your Sole Proprietorship Firm or your brand name by applying for Trademark registration. For more details, you can visit or contact at– www.onlinexbrl.com.
It generally takes 7-10 days for registration of sole-proprietorship. However, the time taken for registration generally depends on the government authorities under which the sole-proprietorship is going to get itself registered.
You can protect the name of your Sole Proprietorship Firm or your brand name by applying for Trademark registration. For more details, you can visit or contact at– www.onlinexbrl.com.
Yes, a sole-proprietorship can start any business (except illegal business) even Import-Export business by obtaining Importer Exporter Code.
It generally takes 7-10 days for registration of sole-proprietorship. However, the time taken for registration generally depends on the government authorities under which the sole-proprietorship is going to get itself registered.