Introduction to Sole Proprietorship
A sole proprietorship is one of the oldest forms of business, also known as an individual entrepreneur or proprietorship or sole trader is a business entity that is unregistered and is owned, managed and controlled by a single person is called as its sole proprietorship. This is one of the most common forms of business in India used by micro and small business operators. This form of business is very easy to start and close and have minimal regulatory compliances. A Sole Proprietorship does not offer benefits such as corporate status, separate legal identity, perpetual existence, independent existence, as it is owned and managed by a single person. Therefore proprietorship is suited only for unorganised or small business.
There is no specific mechanism for registration of a sole proprietorship in India, therefore the existence of proprietorship must be established through other registrations like tax registrations, Labour related registration, shops registrations and other statutory business registrations that a business is required to have as per the applicable provisions of the law. Examples of such registrations are of GST registration or MSME registration (Micro Small Medium Enterprises), Shops & Establishment Registration, Factory Licence, IE Code etc. be obtained in the name of the proprietor or the proprietorship in order to establish that the proprietor is operating a business as a sole proprietorship. The name of a proprietorship may be different from that of the proprietor, however, the PAN they share is same.
EASY WAY TO START A SMALL BUSINESS
A sole proprietorship is one of the easiest ways to open a small form of business having less capital and resource. It is the easiest form of business since it isn’t governed by any specific laws. Under this business form, the compliances are minimal and easy to fulfil.
Definitions of sole ownership include small enterprises, such as a one-person art studio, a local grocery store, or an IT consulting company. As soon as you start selling products and services to others, you can become a sole owner. It's just that easy. There is no legal difference between you and your company
Benefits of a Sole Proprietorship
EASY WAY TO START A SMALL BUSINESS
A sole proprietorship is one of the easiest ways to open a small form of business having less capital and resource. It is the easiest form of business since it isn’t governed by any specific laws. Under this business form, the compliances are minimal and easy to fulfil. Some other benefits are enlisted below
1. Easy to establish and operate:
It is quite easy to incorporate a Sole Proprietorship and quite easy to operate as the control in with the proprietor and decision can be quick.
2. LESS INVESTMENT:
Single Proprietorships can be started with a very small amount of investment in the initial process. So, it's a great opportunity for those who want to set up a low-money company, as no minimum capital is required for the start-up of ownership.
Easy to wind up
3. FEWER COMPLIANCE
A proprietorship firm enjoys fewer compliance as compared to other forms of business. Some of the COmpliance applicable on a proprietorship are
a. Income Tax Compliance and audit (as applicable)
b. GST Filing and Compliance
c. Labour Compliance
4. PRIVATE INFORMATION
Unlike other forms of corporate structures, information pertaining to financials and operations of a Sole Proprietorship Firm are not public information. THis form of business is meant for greater discretion of operations within the ambit of law.
5. NO PROFIT SHARING
A Proprietorship from is owned by a single person hence no profit sharing is involved. Whatever profits a Sole Proprietorship FIrm earns belong to the proprietor of the firm.
6. CENTRALISED CONTROL
A proprietorship basically mean a business started owned and handled by a single person. Hence, the control is absolutely centralised which enable quick decision making. It also avoids any conflicts of ideas or ideology pertaining to the operation of the business.
7. EASIER TAX AUDIT COMPLIANCE
Sole Proprietorship is not expected to have its accounts audited under any particular law each financial year. The audit would depend on the nature of the company and the threshold turnover limits set for the conduct of the audit. As is the case, a tax audit is required if the turnover / sales reaches 1 crores and, for professional services, an audit is required if the receipts surpass Rs 50 lakh. Similarly, a GST audit is expected if the turnover exceeds 2 crores.
Documents Required
âž² PAN Card of the proposed proprietor
âž² Aadhar Card of the proposed proprietor
âž² Address Proof of proposed business address (any 1):
a. Rent agreement
b. Electricity bill
c. Gas bill
d. Water bill
Bank Account of a Sole Proprietorship Firm
The current account is to be opened in the name of the sole owner or the business name, in order to carry out the financial transactions related to the business undertaking. There are certain KYC (Know Your Customer) standards, declared by the RBI, for opening a bank account. A Bank account is one of the essentials of carrying out a sole proprietorship business. For the opening of a bank account generally, the bank seeks any 2 govt. issued registration certificates in the name of the Proprietorship firm, as a proof of the existence of the business. Hence, one should avail any two of the applicable business registrations/Licences (Mentioned Above) in order to smoothen the process of opening of a bank account of the firm.
Difference between Various forms of business
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Sl No.
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Particulars
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Sole proprietorship
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Partnership
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Company
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1
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Govern Under Act
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There no such particular act under which it is governed
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It is governed under partnership act 1932
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It is governed under Companies act 2013
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2
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Minimum Requirement
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One member
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Minimum 2 partners are required
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Minimum 2 members and 2 directors are required
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3
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Primary registration document
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Registration certificate under registering authority like GST or MSME or Shops and establishment certificate.
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Partnership deed
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CIN (certificate of incorporation)/MOA (Memorandum of Association)
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4
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Managing body
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Proprietor
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Active Partner
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Directors
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5
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Winding-up
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Can wound up voluntarily
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Can wound up as per all partners consent
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Can wound up as per the provision of companies act
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6
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Compliance
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Less compiled
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Less complied as per compare company
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More complied
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7
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Registration
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May get registered under GST act or MSMED act or Shops and establishment registration
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Can get registration under Partnership act
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Get registration under companies act 2013
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8
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Liability
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The proprietor is fully liable
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Partners are liable
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Member’s liabilities are limited
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9
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Credibility
(preference by financer at time of financing)
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Least credible
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More credible than sole proprietors
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More credible
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10
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Investment size
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The small size of the investment can also form this business
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More investment is required as compared to proprietary business
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The large size of the investment is required
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