Who can opt for Sole Proprietorship?

Any person who wants to start a business with less investment can opt for this type of business form. It can be started in a time span of 10-15 days. Also, the control in the business is solely in your hands.

Advantages of Sole Proprietorship

Less compliances

The sole proprietorship business can be started easily by just one person. There is minimum compliance that is required to be adhered to get it incorporated. This form of business is economical as it is relatively less expensive to start than a company or LLP.

Control of the business

The sole proprietor will have complete control over the business. He will look after all the aspects of the business. Since only one person is running the business, secrecy can be maintained.

Quick decision making

The sole proprietor takes all decisions of the business. The decision making rests with a single person. Thus, the decisions can be taken quickly and immediately without the need for consulting anyone.

Disadvantages of Sole Proprietorship

Unlimited liability

There is an unlimited liability on the sole proprietor. He is personally liable for all the transactions he enters in the business. If any loss occurs, he will have to bear the whole loss out of his personal estate.

No perpetual succession

There is no perpetual succession which means it can come to an end if something happens to the sole person taking care of the business. It can shut down at any time. This makes the business unreliable and difficult to gain public trust for entering into agreements or contracts to expand the business.

Difficult to raise funds

Since a single person manages the business, it is not easy to raise capital. The capital of the business is from the investments put in by the sole proprietor. The sole proprietorship firm has no separate legal entity status from the owner. As it can come to an end at any time and there is no separate entity, it is difficult to obtain funds from third parties.

Registration of Sole Proprietorship

The procedure for incorporating a sole proprietorship firm is-

1. Applying for PAN card.
2. After obtaining a PAN card, or if the proprietor already has a PAN card, the next step is to keep a name for the sole proprietorship business.
3. The next step is to open a bank account in the name of the business. All the transactions of the business will be through this bank account.
4. Though no specific registration is required for starting a sole proprietorship firm, certain basic registrations are required to be obtained by a sole proprietorship firm for doing business. The basic registrations required by a sole proprietorship are-
   • The proprietor needs to obtain the Registration Certificate under the Shops and Establishment Act of the state in which the business is located.
   • The sole proprietorship should also register for GST if the business turnover exceeds Rs.20 lakh.
   • The sole proprietorship can also register as a Small and Medium Enterprise (SME) under MSME Act, though it is not mandatory, it is beneficial to be registered under the same.

Documents Required for Sole Proprietorship

The documents required  for registration of Sole Proprietorship are-

1. Aadhaar Card.
2. PAN Card.
3. Registered Office proof.
4. Bank Account.

Checklist required for Sole Proprietorship

1. PAN Card of the proprietor.
2. Name and address of the business.
3. Bank Account in the name of the business.
4. Registration under the Shop and Establishment Act of the respective state.
5. Registration under GST, if the business turnover exceeds Rs.20 lakhs.

What are the Compliances required?

As a sole proprietor, you must file Income Tax Return annually. Also, you need to file your GST Return if you are registered under GST. A sole proprietor should also deduct TDS and file TDS return if liable for Tax Audit.

Timelines for Sole Proprietorship Registration

The Sole Proprietorship requires opening a bank account in the name of the business, a Certificate of Registration under the Shop and Establishment Act of the respective state and GST Registration. The registration process takes approximately 10 days, subject to departmental approval and reverts from the respective department.