Carrying business in the form of sole proprietorship is very old and popular one, but the question which arise is what exactly is sole proprietorship? A sole proprietorship is an entity which is wholly owned, managed and controlled by a single person known as proprietor, who receives all profit and has unlimited liability. As per Indian laws there is no distinction between the sole proprietor and the business owned by him/her and therefore the proprietor is the only owner of each and every asset the sole proprietorship business has and accordingly he/she is responsible for all the debts of the business.
a. Quick and easy to start-One benefit of sole owner is that it can be easily started. A Sole Proprietor needn’t bother regarding any element of registration with any government authorities like Company /LLP are required to get itself registered from Registrar of Companies.
b. Name restrictions-There are no naming rules and limitations applicable to the sole owner business However business name ought not infringe the brand name or copyright of others. So one can begin its business with any name and be a proprietor of the same. Also it should not take after to any words which appreciate state/central government satisfaction/advantage.
c. Lower Start up cost-No major capital is required to start the business in the form of sole Proprietorship.
d. Taxation-The taxation assessment can be done for the proprietor and may not be needed for the business. On the off chance that you are proprietor of more than 1 business(es), all salaries might be clubbed to show up as single figure and afterward tax burdens are determined.
e. Least government rules and regulations-Sole ownerships likewise have the least government rules and guidelines influencing it. Sole ownerships need to deal with sector specific legislation in which they are working and furthermore need to follow the particular prerequisites of the individual state laws.
f. Minimum Alternate Taxes(MAT)-There is no responsibility of Sole Proprietorship towards MAT.
g. Audit requirements
- Statutory Audit-As they are not covered under the Companies Act, 2013 therefore there is no legal necessity of statutory audit of books of records of sole ownership.
- Tax Audit-Tax audit may be required for Sole Proprietorship if the turnover exceeds the prescribed limit.
h. Control & Authority-Everything i.e. controls, rights, specialists, obligations, chances and so forth lies with the proprietor. Sole Proprietor is in outright control of business. A sole proprietorship business can’t have 2 proprietors and henceforth the proprietor appreciates 100% and total control and authority on the business.
i. Easy to administer and manage-Sole Proprietor is the owner of the business. He manages the business in the way he wants. All the major and minor decisions are taken by him only.
j. Books of Accounts-Business carried out by sole proprietorship is not regulated by any statute, therefore there are no prescribed books of accounts which are required to be maintained by the business. However at the same time, every proprietor is advised to keep records which may be essential, keeping in mind the business and volume, to satisfy the tax department.
k. Method of Accounting-Sole Proprietorship shall maintain books of Account on accrual basis and the Double Entry System of Accounting. There is no requirement to follow any accounting standards for maintaining books of Accounts.
l. Life Span-It is very easy to close. Sole Proprietorship does not require any approval from any authorities to close the business. The business also closes with the death of the owner and cannot be continued further.
- Not a separate legal entity
- Owner has unlimited liability
- Owner is personally liable for all the debts and losses of the business
- Can sue or be sued in owner’s own name
Major Registration/ License Requirement:
As already discussed and elaborated above, there is specific legislation in respect to registration or license requirement for carrying out the business in the form of Sole Proprietorship, However, there are certain licences/ registration as may be required under various other legislation as specified below:
- Shop and Establishment: Under Indian Shop and Establishment Act, every shop, and commercial establishment irrespective of their form of business whether it is sole proprietorship, Partnership, Limited Liability Company, all are required to get themselves registered under respective state shop and establishment Act.
- Goods and Service Tax: Every proprietorship depending upon the amount of turnover and nature of business i.e. manufacturing or providing services, are required to get themselves registered under Goods and Service Tax Act.
- PF Registration: In case proprietorship is having 20 or more employees or any other limit as may be specified under the specific legislation, are required to get the PF registration done and file return from time to time.
- ESI Registration: In case proprietorship is having 20 or more employees or any other limit as may be specified under the specific legislation, are required to get the ESI registration done and file return from time to time.
- Registration depending upon Nature of Business: There are certain other registration and license which may be required by the Sole Proprietorship depending upon their nature of business like if any sole proprietorship is carrying out the business of Food Café, then registration under FSSAI is required. Similarly if anyone is dealing and having chemist shop, then they are required to take DRUG license.