A sole proprietorship is a business owned, managed and controlled by one person.
It is one of the most common forms of business in India, used by small businesses operating in the unorganized sectors.
Registration of Sole proprietorship are recognized by the Government as a registered entity.
Proprietorship Firm Advantages
Ease of formation.
The business structure is simple to understand..
No need of a partner. Hence, free of any dependencies.
There is always an option to turn it into a Private Limited Company or any other legal entities.
Easy to Establish
A sole proprietorship business does not have any specific registration requirements and the proprietor’s legal identity is used by the business. Hence, a proprietorship can be started without any registration. Using the PAN and Aadhaar of the promoter, Udyog Aadhaar registration and Trademark Registration can be obtained optionally to create and protect the identity of the business.
Easier to Operate
As a single person is at the helm of affairs, it is easier to operate as the particular person will be the sole decision maker and he need not consider a plethora of opinions. There is no concept of a board meeting or approval from other persons in a proprietorship firm.
Sole Beneficiary of Profits
No other business, other than that of a sole proprietorship and one person company, entitles the owner as the sole beneficiary of profits. In all other types of an entity like a partnership, LLP or company, a minimum of atleast two persons are involved.
Compliance & Taxation
Since a proprietorship firm is not registered with any Government authority like the Ministry of Corporate Affairs, the compliance requirements
are minimal. Further, the proprietor would only have to file income tax returns if the firm has taxable income of more than Rs.2.5 lakhs per annum.
In case of proprietors who have attained the age of 60 years or more during the previous year, income tax filing would be required only if the taxable
income is more than Rs 3,00,000. In case of proprietors who have attained the age of 80 years or more during the previous year, income tax filing would
be required only if the taxable income is more than Rs 5,00,000.
Contributions to provident fund, life insurance premium, subscription to certain equity shares or debentures etc.
Contribution to certain pension funds.
Contribution to notified pension scheme of the Central Government.
Medical insurance premium.
Caring for a dependent who is ailing with disability.
Repayment of loan availed for higher education.
Payment of rent.
Income from royalty.
Royalty on patents.
Frequently Asked Questions
Any Indian citizen with a current account in the name of their business can start a sole proprietorship. Registration may or may not be required, depending on what business you are planning to establish.
However, to open a current account, banks typically require a Shops & Establishments Registration.
To open a current account, you need proof of the existence of your business. Most banks will ask
for a Shops & Establishments Act Registration. In addition, you will need a PAN card and address and identity proofs.
A sole proprietorship business does not take more than 15 days to open-up and get running. This simplicity makes it popular among the small traders and merchants.
It’s also much cheaper, of course. This is the other reason why it’s the most widely used business structure.
Most local businesses are run as sole proprietorships, from your grocery store to a fast food vendor, and even small traders and manufacturers. This is not to say that larger businesses do not operate as sole proprietors.
Even some jewellery shops are sole proprietors, but this is not recommended.
To start a sole proprietorship, you would need address and identity proofs, PAN card, all KYC documents and rental agreement or sale deed (in case of Shops & Establishment Act Registration).
The registrations controlled by the central government —
service tax, for example — can be availed of online, whereas the state-government-controlled ones may or may not be. In some technologically advanced states, such as Karnataka, they are, whereas in others they may not be.