Sole Proprietorship Firm Registration

Sole Proprietorship firm Registration

The sole proprietorship is the simplest form of business that one can operate. It is not a legal entity. It simply refers to the people who own the business and is personally responsible for its depts. It is one of the earliest forms of business which started the concept of the market has become synonymous with the retailer-ship. The retailer is the person who sells goods to customers whereas the sole proprietor could be anyone in the chain of distribution. This form of business is found at every corner because of the ease of setting up and also because of fewer compliance costs.

The sole proprietorship is a popular business form due to its simplicity ease of setup and the negligible cost. What sole proprietor has to do is just simply register his/her name and secure local licenses and he would be ready for the business. A disadvantage of a sole proprietorship is that the owner of the sole proprietorship is personally liable for all the business's accounts. In case the business runs into financial trouble, the owner will have to pay the business debts. with his or her own money.

This profession has become so popular that various sole proprietors has open their shops everywhere for selling the goods and providing services. Hence, it is a very popular form of business organization. Because the sole proprietorship is non-differentiable from its owner, the income earned by the sole proprietor is the income earned by its owner.

There are numerous advantages of sole proprietorship which has made it popular such as no cost of setting up, single ownership and no compliance for corporate tax requirements. This is the only reason it has gained such popularity and it is a leading form of small business to go with. Apart from these advantages, there are some disadvantages of sole proprietorship too that is it offers limited liability, improper management and also includes no perpetual existence. Unlike private limited company in which after the death of shareholders the company continues with their existence. In proprietorship with the death of the proprietor, proprietorship dies too that is the reason why there is no perpetual existence.

The sole proprietorship is not complex and simple to set up and also there are not many legal formalities involved in the setting up of business. Thus, you must note that sole proprietorship has stayed even after the introduction of so many business organizations. It is a kind of business substance which is managed and worked by one individual and therefore, it is called a Sole dealer or sole trader. In other words, you can say that when an individual chooses to perform business separately or pays personal income tax on profits earned by the business and also uses his/her name or the business name for himself to perform business exercise expertly by experiencing the own firm.

Advantages of Sole proprietorship

1. Low set-up cost

The cost of opening the sole proprietorship does not require costly legal expenses as well as corporate taxes. If a business has fewer employees the incentives and bonus paid to them will also be lesser. Income tax filing will be required only if the taxable income is more than Rs.3,00,000 in case of the proprietor who attained the age of 60 years and in the case of the proprietor who has attained the age of 80 years, income tax filing would be required only if the taxable income is more than Rs.5,000,00

2. Own ownership

This is one of the reasons entrepreneurs prefer sole proprietorship over the other business structures because in sole proprietorship there is no boss or supervision since you are the only owner of the company. This means that the decision, rules & bylaws of the business will solely be implemented by the entrepreneur. This can prove useful during emergencies when the decision is needed to be taken right away.

3. Profit

One of the advantages of a sole proprietorship is that the owner can keep all the profit by himself unless he is not in a partnership with any individual or he has a corporation of investors in which profits will be divided among themselves.

4. Easy process

Requirements for opening a sole proprietorship is less as compared to the others like you can just open it by applying for the name of the business and opening a bank account with only one signatory. Changing business structure is also less complicated in a sole proprietorship. If the owner wants to change his business into a partnership he or she can easily decide to do so without consulting with other signatory or co-owners.

5. Total business control

Owners who are sole proprietors have complete control over how to manage the business, or he can make quick decisions as well. This can be beneficial to the entrepreneur since the owner does not have to discuss issues with the business partners and he will be able to handle problems without someone disagreeing with his solutions.

Disadvantages of Sole proprietorship

1. Less capital

The limitation of not having partners and investors in the business is that you are unable to come up with a large amount of capital to start the company. It is difficult sometimes if there is no additional capital to implement the business idea even if it is feasible. Unlike corporations where there are investors who can make additional investments.

2. Decision-Making

Being the only one decision maker has advantages as well as disadvantages too. Some complex problems need minded people who interest centers on making the business profitable. More partners mean many brains which can help to come up with various decision ideas. On serious decision making, there will be different views that will provide balance in the management.

3. Risk of losing personal Assets

One of the drawbacks of a sole proprietorship is that the Owner's money is tied with his business which means there is no legal separation between the finances of the owner and business. In case the business encounters any problem, he has a risk of losing his personal money. In short, his personal properties can be at risk if the business fails. The sole proprietorship is not safe from legal issues as other business structures because the owner has to deal alone with the problems as compared to the owners to corporations where not only one is liable.

4. Taxes

Another drawback of a sole proprietorship is that the owner has to pay taxes personally. Also, some tax benefits are not given to the sole proprietor such as health insurance benefits for employees. If the name of the business is different from the owner's name tax is still paid by the business owners.

The sole proprietorship has benefits as well as drawback so would be beneficial for the entrepreneurs to consider these factors to make sure that he or she decides for a suitable business structure.

Documents required for a sole proprietorship

  1. PAN card of sole proprietor

  2. Aadhar card of sole proprietor

  3. Address proof of the office

    • own office (Electricity bill, water bill, landline bill, property tax receipt)

    • Rented office (Rent agreement, NOC (No objection certificate) from the owner.

  4. Bank account details (Copy of canceled check or bank statement)

Proprietorship company registration procedure

  1. Decide what type of certificate you are planning to register a sole proprietorship company in India.

  2. Upload the documents required for online proprietorship registration

  3. Documents which are required are PAN card of sole proprietor, Aadhar card of sole proprietor, Bank account details (Copy of canceled check or bank statement), Address proof of office

  4. After submitting documents pay the required fees for the registration.

  5. After verifying all these documents you will get your certificate from the government department for the approval of your sole proprietorship company registration.

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