Significant Sole Proprietorship Features in India

Sole proprietorship features are that it’s the business setup in which one individual starts their entity with capital available at hand, and there is no requirement of a huge amount of money to start the business.

There is only one person behind the business, he /she is wholly responsible for running the business. A sole proprietor means a single operator of the business operation, but it doesn’t mean that proprietor cannot hire employees to run the business.

Several things can make it a profitable business, for the person who doesn’t have the investment to set up huge business enterprises.

Sole Proprietorship Features, Merit, And Demerits –

One of the best sole proprietorship features is that starting with fewer capital investments is easy. Several features are associated with it, which make sole proprietorship advantages more valuable to the person to begin to start it but along with it.

There are also some demerits because it is often said that every coin has two sides, let’s have a glance at Sole proprietorship: features, merits and demerits.

Features of sole proprietorship

If you wish to visit the details of this business structure you can check out the features of sole proprietorship pdf online. Let’s have a look below at some of the features.

•   Lack of formalities –

There is no separate regulatory body or governing law behind the sole proprietorship business. No law even makes it mandatory for getting the registration done of sole proprietorship business, there is no law under which it had to be made compulsory registered specifically, hence we can say that proprietorship sole is loosely governed because they fall under the unorganized sector of the economy.

• Liability is unlimited –

One of the sole proprietorship features is that there involves the owner’s unlimited liability. Proprietorship is something in which all the financial, legal, and other dealings made during the business cast personal responsibility on the person who owes it.

So that means if the business entity is unable to satisfy the demand of the business, the liabilities fall upon the proprietor of the business. His/her private assets can be auctioned or sold to repay the money owed by the entity while doing business.

• Threat of income-

The owner of the proprietorship is the sole bearer of the threat of income generation from the business, if the business goes on to profit it’s the individual profit of the owner, and when income generation stops, and it goes to losses, it must be borne by the proprietor only.

Sole proprietorship features that the management and related control are in the hand of one person, therefore the threat of income generation, needs to be borne by one person alone.

• No separation of identification –

One of the most distinguishing features is that commercial enterprise in a sole proprietorship is considered as one identity, meaning thereby there is no difference between the owner and entity in the eye of the law.

So, we can simply put it that proprietors can be charged for all business-related transactions and affairs

Explain 5 features of sole proprietorship above you check them out.

• Continuity of business –

As we had already mentioned above commercial enterprises and sole proprietors are considered the same person in the law, without any distinction being made. Sole proprietorship features are that it wholly depends upon the individual owner, and there is no continuity of the business after the death or incapability of the person.

2.  Merits and demerits of sole proprietorships

    Merits -

• The sole proprietor is the only decision maker because complete management goes into his hands. there is no need to consult outside anybody to make changes in the enterprises.
• There is a quick decision-making process and freedom and flexibility involved.
• Law does not require form the proprietorship to make his financial statement public to anybody.
• It offers confidentiality, of business-related affairs.
• The owner of the enterprise drives the maximum output from the business is the sole proprietorship features and there is no sharing of the profit with others, therefore the hard work he puts into the business is reciprocated to him in terms of incentives.
• Sole proprietor is his/her boss, he does not work for anybody and therefore he/she is not responsible to anybody.

Demerits –

• It involves the limitless personal responsibility of the owner. if the entity went into debt it would be the whole sole responsibility of the owner to pay it off.
• There is limited capital investment in the business.
• The cash that he can borrow from personal resources is of limited nature.
• An incapable proprietor can have a terrible impact on the business functioning, he needs to be an all-rounder in business dealing otherwise it can make the situation worse.
• Sole proprietorship features that it has the restricted potential of earning outcomes as compared to another form of business functioning.

Formation & Closure of Sole Proprietorship business –

The formation process of the sole proprietorship is not very complex. The one who desires to start a sole proprietorship firm or entity can do it with less income investment.  He needs to select the name of the business and if he wants he can apply for the trademark of the name or logo of his business. 

Usually, these businesses are not very huge enterprises, these are small-scale entities managed and owned by one individual.  A sole proprietorship features those unlimited liabilities of the owner of all the debts of the entity he formed.

To make it better to understand, let’s take the sole proprietorship examples – local shops and establishments such as grocery shops, clothes houses, freelance content writers, consultants and graphic designers and artists, and website owners all are included in the sole proprietorship businesses.

The sole proprietor can close his /her business whenever he wants to do so. He /she need not report to anybody while closing the business. There are no such things as compliance and reporting but must have a record of accounts and income tax filing while choosing to close the firm /entity.

If someone has taken the registration of GST, Shops, establishments, MSME, and other related affairs, the proprietorship needs to formally close all the registration before announcing the closure of the organization. Sole Proprietorship features also include an easy formation and closing process.

Characteristics of Sole Proprietorship 

• A sole proprietorship is a kind of business in which there is only one person.
• He takes the profits as well as the debts of the business.
• It is the most flexible form of business structure.
• There is no special law that regulates its affairs.
• It falls under the unorganized sector of the country.
• There are no investors as such involved in such kind of business.
• Sole proprietor can hire some of the employees for himself /herself to run the business, but that does not change the nature of the business as being a sole proprietor this is special sole proprietorship features.
• It’s an unincorporated entity, there is no separate identity of it apart from the sole proprietor.
• Whereas partnership firms are governed by the partnership act, a sole proprietorship does not have specific regulating law behind it.
• There is unlimited liberty involved in it.
• Less capital investment.

These are some of the proprietorship characteristics of sole entities /firms.

Working of sole proprietors –

The sole proprietors do not require any paperwork, the sole proprietor’s designation is automatic, and it comes into existence as soon as the work is started.  

For instance, if someone starts getting freelance contracts then he /she will be considered as the sole proprietor as there is no difference between you and your work, both are taken as same.  Sole Proprietorship features working as an individual owner.

A sole proprietorship can be converted into another form of business which might be an LLC or corporation. The conversion does require permission.

The proprietors will report the business income and related expenses in the schedule C form of the personal income tax returns.

The working of the sole proprietor is like the entity both the individual personality and the entity are associated with each other. The business is carried in the name of the proprietor but in some cases, a fictitious name is also adopted by the entities /firms/organizations.

Difference Between sole proprietorship features and One Person Company-

Initially, a sole proprietorship is the only business opportunity available to persons who want to start their business but these days you have the option of one person company.

The one-person company concept allows a single person to run the company which is limited by the shares. The sole proprietorship is run by one person without a distinction made between the owner and the business.

One personal company offers limited liberties for the owners, it has a separate legal entity, and the company must be incorporated under the companies act. Whereas a sole proprietorship is an unincorporated entity without separated legal entities and with unlimited companies.

One-person companies offer perpetual succession whereas sole proprietorships come to end on the wishes and death or incapability of the proprietor.

We can say lastly that there are a lot of major differences between the sole proprietorship features and a one-person company.

Concluding Remark –

We can state that sole proprietorship is a good business option for those who want to start it with a little investment. This business has its advantages and disadvantages of which one must be aware before setting up the business with this. 

Most of the people and starts ups are nowadays working on sole proprietorship bases because their formation and closing processes are not complex. There are no formalities involved in the proprietorship business.

Registration is not required or mandatory, but for some beneficial purposes, you can get registration under some acts that are of our use.