What is a Sole Proprietorship?
Sole Proprietorship Business is an unincorporated business that is owned and managed by a single person.
As the business and the owner are not legally separate, it is the simplest form of business structure. It is also known as individual entrepreneurship, sole trader, or simply proprietorship.
The business owner, also known as a proprietor or a trader, conducts business using their legal name. They may also choose to do business using another name by registering a trade name with their local authority.
This type of business is the easiest and cheapest form to start. For this reason, it is common among small businesses, freelancers, and other self-employed individuals. It is not necessary for a sole proprietorship to be registered with any statutory Law like Company Law / LLP Law / Partnership Act etc.
Proprietorships are recognized by other registrations, such as a Service Tax registration or GST or MSME or Shop and Establishment Act.
Features of Sole Proprietorship
- Sole proprietorships are the simplest form of business structure and are easy and cheap to start due to few government rules.
- Proprietors enjoy full control and profits from the business but incur unlimited legal liability personally.
- Sole proprietorships are limited by the amount of capital available, the ability to get outside assistance, and a potential shortfall of needed skills to be successful.
Importance Of Registration
Benefits of sole Proprietorship
i) The easiest and cheapest way to start a business
The process of establishing a sole proprietorship is generally an easy and inexpensive process, unlike forming a partnership or a corporation.
Compared to other business forms, there is very little paperwork a proprietor needs to file with their local authorities. As a result, proprietors do not have to wait long before they have permission to carry on a business. It can be set up and become operational within as little as 15 days.
The start-up fees are also low, in line with many government policies that encourage entrepreneurs to take risks and grow the economy by minimizing the friction of starting new businesses.
ii) Few government rules and laws
There are very few government rules and regulations that are specific to proprietors. Sole proprietors must keep proper records, file, and pay taxes on the business income and other personal income sources.
iii) Full management control
Proprietors control all aspects of their business, including production, sales, finance, personnel, etc.
iv) Flow-through of business profit
There is no legal separation between the owner and the business, so the owner gets 100% of the profits.
Registration Conditions
For a Sole Proprietorship business, registration is not required as it is identified through alternate registrations, such as GST registrations. However, its liability is unlimited and it also doesn't have perpetual existence.
- Obtain an Aadhar card.
- Apply for a Pan Card
- Open a bank account in the name of the business for the proposed sole proprietorship
- Secure a Shop and Establishment Act License
- Register under GST.
Incorporation Process
There is only a requirement of opening a bank account in the name of the proprietorship firm or obtaining the licenses required for conducting the business.
- A certificate/license issued by Municipal authorities under the Shop & Establishment Act.
- The license issued by Registering authority like the Certificate of Practice issued by the Institute of Chartered Accountants of India.
- The registration/licensing document issued in the name of the proprietary concern by the Central Government or the State Government Authority.
- The banks may also accept the IEC (Importer Exporter Code).
- Complete Income Tax return in the name of the sole proprietor.
- The utility bills such as the electricity, water, and landline telephone bills.
- Issue of GST Registration/Certificate.
Documents Required
Documents Required For Sole Proprietorship Registration
You need to have the following set of documents for proprietorship registration in India:
- Copy of PAN card of proprietor (self attested)
- Copy of address proof of proprietor (self attested)
- Authorization Letter approving Targo Legal to appear on Behalf of you (we will prepare)
- Signed copy of Proprietorship Charter (we will prepare)
- Copy of Rental Agreement of premises.
- E-mail Address and mobile number of the Proprietor
