It is form of business which is completely owned by one person, i.e. Owner / Proprietor with no separate legal entity. The owner operates directly under his name or under a fictitious name that may be registered or unregistered and responsible for entire affairs of the business. It is the easiest and most sort after business form and doesn’t require any formal registration unless specifically require under the regulation governing the business.
Due to ease of start with nominal cost; majority of small and medium businesses are initiated as sole proprietorship. Once the businesses reaches certain heights or the circumstances warrants then a sole proprietorship can be converted into a partnership firm or company or any other legal entity form of businesses. Under sole proprietorship all the business and other related contracts are signed by the owner of the business with no formal procedural requirements and / or authorizations.
Advantages of Sole Proprietorship
Inexpensive set-up: Set up of your business under sole proprietorship is relatively economical and can be started immediately. Any person can start a business just by expressing his intention of offering services or goods.
Easy Tax Compliances: Since the owner and proprietor have one legal identity so normally there is no separate tax compliances and only one PAN is issued to be owner / proprietor and the business.
Ease of formation: The best advantage of sole proprietorship is the ease of formation with almost no formalities, negligible documentation and cost involved for starting a sole proprietorship business.
Disadvantage of Sole Proprietorship
Unlimited liability of owners is the biggest disadvantage of the sole proprietorship business. Entire losses and other obligations of the business are of owner for which he is personally liable. This form of business is considered lesser creditability and bankers usually takes comfort only upto certain level beyond which they may insist to convert sole proprietorship into a company. As legally the owner and business is having same identify so in case of any dispute or legal proceedings with third party then the owner becomes a party to represent the business.
Registration of Sole Proprietorship business:
Technically there is no registration requirement for starting a sole proprietor business, however, a registration / approval / consent / licence may be required from the regulator governing the business. For example a shop of chemist may require drug licence or if a turnover of a business exceeds Rs.20 lakhs than a registration under Good and Service Tax Act (GST) is required. Shop & Establishment Licence, MSME Registration, registration with taxation authorities, Export Import Code (IEC) are some of the common registrations for sole proprietorship businesses.
Opening a Bank Account:
Though opening a current account is also not a prerequisite for sole proprietorship business yet it is advisable to have a current account for which Know Your Customer (KYC) guidelines issued by Reserve Bank of India (RBI) is to be complied with. Normally the following documents are accepted by banks while opening a current account for sole proprietorship firm:
Please Click to download Document For Opening a Bank Account