Information About Sole Proprietorship

A sole proprietorship refers to a business or organization that is controlled, owned, and managed by one individual. This is a very basic type of business structure one can own. Because it is simple and quick to set up, it is popular with small businesses. You can start your own business or register your trade name with the local authority.

This is the easiest and most cost-effective way to start a business. As the owner of the business, it is the sole decision of the individual to decide when and how to open or close his business.

Sole Proprietorship Definition

It is owned and managed by one person.

“Single-proprietor” is a synonym for “only owner”.

The proprietor has full control over profits and the ability to make them.

The personal liability of the proprietor is unlimited

Example: running general stores, beauty parlors, etc.

Sole Proprietorship Advantages

Here are some of the major advantages of sole proprietor business:

(1) Minimum Compliance

To start a sole proprietorship, there is no specific registration. Only registrations for tax filings and government filings can make it valid. If they are eligible, their compliance is limited to the filing of GST.

(2) Quick Decision Making

The sole proprietor is the owner of the business. He does not have to talk about decisions with anyone. This allows him to make decisions quickly. The business can grow quicker by making quick decisions. There are many people involved in making decisions before any business can grow.

(3) Confidentiality of Information

Publication of financial statements for the proprietorship business is not required by law. This type of business can be kept confidential this is also the one of the best sole proprietorship characteristics.

(4) Inexpensive

As there is less compliance, forming a sole can be more affordable than a company. You don’t need an auditor, so you don’t have to. This is why traders and small merchants choose it.

(5) It’s easy to close

When it comes to legal requirements, sole proprietors and proprietors are the same. There is no formality required to close to forming a sole. All tax registrations must be canceled.

Limitations of A Sole Proprietorship

These are some of the most important limitations of a sole proprietorship:

(1) Limited Resources

The sole proprietor invested their capital into the business. They are limited in their financial resources and can only get a small amount of credit from banks or financial institutions. They cannot also sell shares to raise funds for the business. They find it difficult to raise capital and keep the business afloat. These businesses are often small because of this.

(2) Skills, Experience

Although the owner may believe in his abilities and expertise, it is unlikely that anyone has all the skills or expertise necessary to run a business efficiently and effectively. It takes a lot of time to accomplish the tasks correctly. He has limited resources and cannot hire qualified people to assist him. As a result, his business could suffer from poor management and poor decisions.

(3) Unlimited Liability

A sole proprietorship business has a limited liability. This means that the owner’s personal property could be sold to pay creditors. This makes this business risky. Like companies, their liability is limited by the share they have.

Because of this, to form of business sole is not an option for everyone.

(4) No economies of scale

Large businesses enjoy large economies of scale. Economies are the ability to produce more at a lower production cost. It is hard to achieve this goal as a sole proprietor with limited capital and limited knowledge. It can be difficult for sole proprietors to compete in the market.

Registration For Sole Proprietorship

It is not necessary to register a sole proprietor business. The owner can choose to register. It is advantageous for the business to be registered so that it can be recognized on the market. Banks require that registration be obtained to open a bank account for the business. Although it is not required by law, it is beneficial to register.

The following laws allow sole proprietors to be registered:

1. Shop and Establishment Act in the state where the business is established

2. If the turnover is more than INR 20 lakhs, you can apply for the Goods and Service Tax Act

3. Udyam/MSME Registration under MSMED Act

Registration under Shop and Establishment Act

If they have a shop and the shop is their business, a sole proprietor can establish a business under the Shops and Establishment Act.

The shop does not include:

• Where a wholesale and retail business can be done
• Where services are provided
• Warehouse, office, storeroom, godown

Registration under the Goods and Service Act

If a sole proprietor trades in goods or services, he can register under GST. GST registration is a great way to be identified under GST. Each business that is registered under GST must collect taxes, deposit them to the relevant government, and file GST returns.

Registration under MSMED Act

An individual start a sole proprietorship may also register under the MSMED Act. To avail of the advantages of sole proprietor of various schemes offered by the Ministry of MSME, proprietorship businesses can register under Udyam Register

Required To Register Under Any Of The Above-Mentioned Act

1. PAN card for the owner

2. Aadhar card for the owners

3. Passbook copy or bank account statement in the name and business

4. Any trade name used by the business

5. Dealing in goods and services

6. The proof of address of the business. If the owner of the property is not available, an electricity bill must be presented (not older than 2 months). If the premises are rented or leased, a rent/lease agreement must be submitted along with the electricity bill (not earlier than 2 months).

Compliance

1. Filing an income tax return

2. GST Return Filing – Monthly, quarterly, and annually if GST Registration is taken

3. If you are subject to Tax Audit, you will need to file TDS returns and deduct TDS.