MEANING

A sole proprietorship is a very popular type of business entity that is owned and managed by a single entrepreneur particularly in the unorganized sector, mainly small traders and merchants. Proprietorships are recognized by registrations such as service tax registration or sales tax registration. It is very easy to start a proprietorship firm as it has very minimal regulatory compliance formalities for commencing and operating a business.

However, proprietorship firms do not offer benefits such as limited liability proprietorship, separate legal entity, corporate legal status, easy transferability, perpetual succession. Therefore, proprietorship firm registration is best suited only for micro and small businesses that may not have a continuous existence.

Since, the existence of a proprietorship firm must be established through tax other business registrations as per the rules and regulations. Registration is thus, obtained in the name of the Proprietor to establish that the concerned Proprietor is managing and operating the business as a sole proprietor. Hence, all the registrations would be in the name of the Proprietor, making him personally liable for all the liabilities of the firm.

REASONS TO OPT FOR A PROPRIETORSHIP FIRM

EASY TO START

A Proprietorship firm needs minimal registration formalities. Therefore, it is easy to set up. However it gets relatively tougher to open a bank account or obtain a payment gateway in the business name; since registrations like Service Tax or VAT or GST Registration is required.

FEWER COMPLIANCES

Sole Proprietorships are recognized through their tax registrations, thus, the extent of their compliance is only limited to the annual filing of their service, professional or sales taxes.

REDUCED COSTS

Compared to OPC, a sole proprietorship firm is relatively inexpensive, thanks to the minimal compliance formalities; it is inexpensive even in the long run. Despite its severe shortcomings like the unlimited liability, small businessmen, merchants and traders opt for it.

LOWER TAXES

A proprietorship firm with less than Rs. 3 lakhs of income does not to pay any income tax, as proprietorship’s are taxed as the individuals owing the business. However, a proprietorship cannot benefit some of the tax deductions, which would potentially raise the tax liability.

SINGLE PROMOTER

A proprietorship firm is registered, managed and operated by a single person and is hence, preferred by micro and small businesses.

EASY TO WIND UP

The Proprietor and the proprietorship firm are the same for all the concerned legal purposes. Hence, winding up or closing a proprietorship is simple having fewer formalities. In most cases, to wind up a proprietorship firm, only the tax registrations acquired in the name of the proprietor must be cancelled.

DOCUMENTS REQUIRED

  • Address proof and identity proof (PAN card).
  • KYC documents.
  • Rental agreement or sale deed.

IMPORTANT FACTORS TO BE CONSIDERED IN A PARTNERSHIP DEED

  1. Prepare documents required for the Proprietorship Registration.
  2. Apply for the Service Tax or VAT or GST registration.
  3. Get Service tax or VAT or GST Registration Certificate.
  4. Apply for a current bank account in any bank with complete documentation.
  5. After getting the respective licenses or certificates as per the proprietorship business, one can commence the business.
 

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