Introduction:
Sole proprietorship is a proprietorship business and its one of the oldest and easiest form of Business Structure to
start in India. A proprietorship is a type of business that is owned, managed, and
controlled by one person – who is popularly known as proprietor. As the
proprietorship and proprietor are one and the same, it is very easy to start and
there are very minimal compliance requirements to do business under
Proprietorship. In this article we shell look in to the formation of Proprietorship
business, its legal requirements , advantages and disadvantages for starting
Proprietorship business.
Table of Contents
Section 1: What is a Proprietorship Business?
A proprietorship business, often referred to as a sole proprietorship, is a business
structure where a single individual have full ownership, control, and responsibility
for the operations, decisions, and outcomes of the business.
The main features of Proprietorship business are
1 Sole ownership,
2.Direct decision making,
3.Minimum legal formalities,
4.Unlimited liability,
5.Simplicity in operation.
Section 2: Who is a sole proprietor?
A sole proprietor is the sole owner of the proprietorship business. Hence, a
business will be carried forward by making new bank account( Current Account )
for the business and GST registration will be done by using PAN and Aadhar of the
proprietor. The proprietor is completely responsible for all the assets and
liabilities of the business.
Section 3: Sole Proprietorship Registrations & Licenses
Requirements
To start a proprietorship business in India, the proprietor must have PAN and
Aadhar. The proprietor must obtain
1.GST registration,
2.MSME registration and
3.Open a bank current account
In some states, the proprietor will also have to obtain Shops & Establishment Act
registration.
In addition to the basic requirements above, if the proprietor willing to do Import
and export business he needs to obtain IEC Code ( Import and Export Code).
Section 4: Advantages of Proprietorship
Easy registration: Proprietorship does not have any formal incorporation
or dissolution process. However, to operate a business, the proprietor may
have to obtain certain registrations and licenses
- Minimum compliance: As most proprietorship are only registered with
government departments like Income Tax & GST, the compliance burden
will be lower, as compare to , entities like LLP or Company are registered
with the MCA. - Suitable for Small business: As there are no partners, shareholders, or
directors, the proprietor can easily operate this business with minimal
documents and consent requirements. Hence, this type of business
structure is best suited for very small businesses. - Quick Business decision: In a proprietorship, the business owner takes all
business decisions. There is no consent or approval required from any other
person. Hence, a proprietor can normally take quick decisions regarding his
business affairs. - Complete control: As sole proprietorship is owned only by the proprietor.
He/she has complete control over the assets, revenue, expenses and all
business operations.
Disadvantages of Proprietorship
- Financing: This type of business structure relies solely on one persons
savings and borrowings. As there are no other persons are involved in this
type of business structure, raising funds from banks will be very hard
- Unlimited liability: If a proprietor is unable to pay business loans or taxes,
in a proprietorship – the personal assets of the business owner can be
attached or encumbered. Hence, in this type of business structure – the
proprietor will be held personally liable until all the liabilities are Paid off. - Growth: A proprietorship has various restrictions in terms of fundraising,
liability and business continuity, so the growth is limited.
Section 5: What are the Compliances for Proprietorship?
There are few compliance required form Proprietorship
- GST Return Filing: GST return must be filed every month and quarter as per
the scheme under which the business is registered - Income Tax Filing: The business owner of a proprietorship will have to file
personal income tax return using form ITR-3 or ITR-4. - TDS Returns: In case the proprietorship is having employees or purchasing
goods/services beyond a certain threshold – tax must be deducted at source
and TDS returns must be filed every quarter.
As we conclude this comprehensive guide to proprietorship businesses,
remember that this ownership model serves as a stepping stone to greater
possibilities. In this article we have learned about the What is Proprietorship,
advantage and disadvantages, legal requirements to form a proprietorship
business and GST and Income tax Compliance related to sole proprietorship
business. Hope this article will be helpful.
Disclaimer: The content and views stated in this article is solely for informational
purposes.
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