Sole Proprietorship in India

Sole proprietorship is simple to start and is a very popular type of unregistered business in India. It is owned, managed and controlled by one person. Most of the micro and small business in India in unorganized sector prefers sole proprietorship.

Major advantage of a sole proprietorship is that it has very few regulatory compliance requirements for conducting the business operation. It is an ideal business formation for entrepreneurs who are getting into business with few client base and within smaller geographical area.

In a proprietorship, the proprietor and the proprietorship are the same legal entity. Proprietor himself alone is the owner of the proprietorship business. PAN and other documents of the proprietor are only required for obtaining all registrations and licenses for proprietorship firm from different government authorities. For a proprietorship firm, the proprietor is held personally liable in case of any liability in a business.

Major advantages of a Sole Proprietorship in India

Easy to Start: A sole proprietorship is simple to start and can be set up within a very few days on the basis of the KYC documents of the proprietor. One just need to have local government registration and tax registrations in place.

Quick Decision Making: Decision making in a sole proprietorship is faster as there is no concept of passing of resolution like in other entities. As proprietor is the only decision maker, he has the all authorities to take any business decision.

Less Compliance: A Sole Proprietorship has very minimum compliance requirements. Proprietorships must file yearly income tax returns and maintain regular GST and Professional Tax filings. As in case of sole proprietorships, proprietors and proprietors are the same, the proprietorship and proprietor’s income tax filing would be the same.

Economical: Sole Proprietorship is a economical form of business due to its minimum compliance requirements as compared to other forms of business entity.

Income Tax Return Forms applicable for Proprietorship Business in India

Sole proprietorship business may file their yearly Income Tax Return through Form ITR-3 or Form ITR-4 Sugam.

Form ITR-3 can be filed by a proprietor or a Hindu Undivided Family carrying out a proprietary business or profession. Form ITR-4-Sugam can be filed by a proprietor who would like to pay income tax under the presumptive taxation scheme. A presumptive taxation scheme is designed to help ease the compliance burden of small businesses by assuming a set profit margin on the business or profession’s total income.

A sole proprietorship required an audit if the total sales are over Rs 1 Crore during the financial year. For service sector, an audit is necessary if the total gross receipts are more than Rs 50 Lakhs during the financial year assessment.

Disadvantages of Sole Proprietorship Business in India

No Liability Protection: Major disadvantage of a sole proprietorship is personal liability. Proprietor is solely responsible for all the financial aspects of the business. This puts proprietor’s money and assets at risk unlike Private Limited or LLP entity where there is a limited liability that rests solely on the business as a legal entity.

No Perpetual Succession: A Sole Proprietorship will come to an end upon the death of its proprietor or insolvency. So, big clients or organizations generally avoid sole proprietorship to deal with.

Raising Capital: Though starting a sole proprietorship business costs low, but difficulty in raising capital can limit growth and business opportunity. This is one of the significant disadvantages of sole proprietorship business as proprietor’s personal assets are limited and tied up in the business. Due to absence of perpetual succession and separate legal entity, a sole proprietorship is not well positioned to raise capital.

Unlimited Liability: One of the biggest disadvantages of a sole proprietorship is unlimited liability. This liability not only spans the business but the proprietor’s personal assets. Debt collectors can access your savings, property, cars, and more to realize payments.

Documents required for Sole Proprietorship Registration in India

  • Proposed name of the proprietorship business
  • Address and Identity proof of proprietor.
  • PAN Card of Proprietor and Aadhar Card.
  • Rent agreement (or sale deed) of office premise.
  • Utility Bill of office premise

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