Sole Proprietorship

Overview

When a business is owned and governed by one person, it is called a sole proprietorship. Sole proprietorship registration of a company is a fast and simple method to set up and operate a firm, particularly for startups with only one person. People who register as sole proprietors have full power over their business decisions, do not have to follow many regulations, and can save on taxes. All these factors make it easier for businesses to grow. Experts dedicated to providing quick and affordable registration services give aspiring business owners confidence as they navigate the complex process of registering their business. You can trust these experts to help you set up your sole proprietorship, ensuring your business succeeds with their knowledge and support.

Sole proprietorship is one of the oldest and easiest business structures to start in India. A proprietorship is a type of business that is owned, managed, and controlled by one person—the proprietor. As the proprietorship and proprietor are one and the same, it is very easy to start, and there are minimal compliance requirements.

Since the proprietor and the business are one and the same, a proprietorship cannot have other partners or shareholders. Additionally, there is no limited liability protection for the proprietor from the business activities conducted in the sole proprietorship. Hence, this type of business entity is best suited for small businesses with no more than five employees.

Benefits

Easy Setup:

Registering a sole company is a simple process that includes minimal papers. Unlike other business arrangements, sole proprietorships do not require complex legal steps for creation. This ease of setup makes it an attractive choice for people looking to start their own business without the load of extensive administrative tasks.

Complete Control

As the sole owner of a proprietorship, you enjoy complete authority over all business choices. This level of authority allows for fast decision-making and the ability to advance the business in the desired direction without the need for discussions or approvals from partners or proprietors. The direct relationship between ownership and decision-making is a key advantage of sole proprietorships.

Minimal Compliance

Sole proprietorships come with fewer legal requirements compared to other company organisations. This ease in legal duties lowers the routine load on the business owner, allowing them to focus more on business operations and growth. With minimal legal steps to stick to, sole owners can allocate more time and resources to core business activities.

Direct Taxation

Income earned by a sole business is treated at the individual owner’s income tax rate. This direct taxation system improves the tax process for sole owners, as business income is reported on the owner’s personal tax return. This simple tax setup removes the need for different business tax files, simplifying the financial parts of the business.

Low Cost

Operating costs connected with sole proprietorships are usually lower compared to other business models. The ease of setting, limited legal requirements, and direct taxes add to cost-effectiveness for sole businesses. This cost makes sole proprietorships an easy choice for individuals looking to start and run a business without facing hefty financial overhead.

Comparison Chart

Features	Proprietorship	Partnership	LLP	Company
Definition	Unregistered type of business entity managed by one single person	A formal agreement between two or more parties to manage and operate a business	A Limited Liability Partnership is a hybrid combination having features similar to a partnership firm and liabilities similar to a company.	Registered type of entity with limited liability to the owners and shareholders
Ownership	Sole Ownership	- Min 2 Partners - Max 50 Partners	- Minimum 2 Designated Partners	- Min 2 Directors - Min 2 Shareholders - Max 15 Directors - Max 200 Shareholders For One Person Company - 1 Director - 1 Nominee Director
Registration Time	7-9 working days	7-9 working days	7-9 working days	7-9 working days
Promoter Liability	Unlimited Liability	Unlimited Liability	Limited Liability	Limited Liability
Documentation	- MSME - GST Registration	- Partnership Deed	- LLP Deed - Incorporation Certificate	- MOA - AOA - Incorporation Certificate
Governance		Under Partnership Act	LLP Act, 2008	Under Companies Act,2013
Transferability	Non Transferable	Transferable if registered under ROF	Transferable	Transferable
Compliance Requirements	Income tax filing if turnover is more than Rs.2.5 lakhs	ITR 5	- Form 11 - Form 8 - ITR 5	- ITR 6 - MCA filing -Auditor's Appointment

Check Lists

Minimum Requirements	List of Documents
-Single Person Ownership -Only a natural person can be a proprietor -Only Indian citizens are eligible -Must have a Registered Address -Unique Name -Adequate Capital (No Min or Max Limit) -NRI/PIO can start a proprietorship on a Non-Repatriation basis.	Documents of the Proprietor -PAN Card -Aadhar Card -Two Coloured Photograph -Address Proof -Cancelled Cheque for Bank Details Documents of Registered Office -Proof of Address of Registered Office -NOC from the Owner of the Office Space -Rent Agreement, if applicable

Frequently Asked Questions (FAQs)

Do I need to register a sole proprietorship?

The registration requirements for a sole proprietorship vary by jurisdiction. In some places, registration is not mandatory, but it is recommended to obtain necessary licenses and permits.

How do I choose a name for my sole proprietorship

The name should be unique, not infringe on existing trademarks, and comply with local naming guidelines. It can be the owner’s name or a creative name related to the business.

Is there a fee for registering a sole proprietorship?

Yes, there may be a registration fee associated with establishing a sole proprietorship. The fee amount varies depending on the jurisdiction.

How are sole proprietorships treated for tax purposes?

Proprietorships do not have a separate legal identity and, hence, are not treated separately for income tax purposes. This means that any profit derived from a sole proprietorship is treated as the income of the proprietor. It is accounted for on the tax returns filed by the proprietor. The business income shall be shown as separate income in the proprietor’s income tax return.

Is the proprietor personally liable towards his sole proprietorship?

Yes. Unlike other incorporated business forms, the proprietor’s liability towards his sole proprietorship is unlimited. This means that debts and losses accumulated by the business shall be paid off using the proprietor’s personal assets.

What businesses are commonly run as Sole Proprietorships?

Most local businesses are run as sole proprietorships, from grocery stores to fast-food vendors, and even small traders and manufacturers. That is not to say that larger businesses cannot operate as sole proprietorships, they can! Jewellery shops are sole proprietors, but it is not recommended.

Aside from a current account, is there any need for any other registration?

This depends on the business you’re in. It is compulsory for any business whose turnover in a financial year exceeds ₹20 lakhs (₹10 lakhs in the case of North Eastern states) to get a GST registration. For businesses that are involved in selling goods or services to customers out of a commercial establishment, it is mandatory to register under Shops and Establishments Act.