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Sole Proprietorship
What is Sole Proprietorship?
A sole proprietorship is a type of business that is not registered or incorporated, and it is operated entirely by a single individual. In this structure, there is no legal distinction between the business and the owner. The owner receives all profits from the business but is also fully responsible for any debts, losses, and liabilities that it incurs.
Key Features of Sole Proprietorship
- Single Ownership: Only one owner can be there in a sole proprietorship. A sole proprietor owns and operates the company and has complete control over all decisions.
- No Separate Entity: The business and the owner is a single entity. Liabilities, debts and assets are directly tied to the owner.
- Unlimited liability: The owner is fully responsible for all business debts and obligations. Personal assets may be used to cover business liabilities.
- Minimal Compliance: The sole proprietorship is not governed by any specific law. Compliance requirements are lower compared to other business structures.
- Ease of Formation and Closure: Starting and operating the business is simple without formal registration, depending on the type. Dissolving the business is straightforward since it does not involve complex legal procedures.
- Taxation: The income generated by the business is taxed as the owner’s personal income under the Income Tax Act of 1961.
- Business Name: The business name may or may not be registered; however, it must not infringe on any existing trademarks.
- Limited Scope for Expansion: Dependent on the owner’s financial capacity and resources. Securing external funding can be difficult.
Advantages of Sole Proprietorship
- Ease of start: Having a sole proprietorship offers minimal paperwork, low setup costs, and ease of maintenance.
- Complete Controls: The sole proprietor has full control and decision-making authority over the business. As the only owner, you can run it as you wish.
- Low Cost: There is no need to pay fees for incorporation or compliance with statutory requirements.
- Tax Benefits: You do not need to separate taxes for your business; any profit you make is treated as personal income.
- Privacy: There is no requirement to disclose financial or operational information.
Procedure to Start Sole Proprietorship in India
- Choose Business Name: Choose a distinctive and suitable name for your business without the similarity of the existing business name.
- Obtain Necessary Registrations:
- GST Registration (if turnover exceeds ₹20 lakh or inter-state supply is involved).
- Shops and Establishment Act License (for certain states).
- Udyam Registration (optional, for small and micro-businesses under MSME benefits).
- FSSAI Registration (for food-related businesses).
- Open a Bank Account: To open a current account, please provide your business name and the necessary documentation.
- Pan and Tan: Use your personal PAN for taxation; a TAN is required for tax deductions at source (TDS).
- Maintain Basic Accounting Records: You can keep the transaction records of business, tax and operational purposes