WHAT IS SOLE PROPRIETORSHIP?

A sole proprietorship is one of the most common form of business structure. It is a business form which is owned, controlled and managed by a single person and who is the whole sole owner of that business. It is one of the most simple form of business structure with least amount of regulatory compliance requirements. Mostly a Sole Proprietorship business is started as an unregistered business.

In India a Sole Proprietorship business does not have any specific law which governs it unlike a Company which is governed by Companies Act or Partnership business which is governed by Indian Partnership Act or a Limited Liability Partnership which is governed by LLP Act, thus making its compliances easy to fulfil.

HOW TO START A SOLE PROPRIETORSHIP BUSINESS IN INDIA

In India any person who wants to start a business as a Sole Proprietor has to just:-

• Firstly decide the NAME of the business with which it wants to start so as to give a different and unique identity and
• Secondly he/she has to just decide and the place of business premises i.e. the location of its business.

By just doing and complying these above two requirements anyone can start a business as Sole Proprietor legally and without any obstruction.

BENEFITS OF STARTING A BUSINESS AS A SOLE PROPRIETOR

Below are some Advantages of Sole Proprietorship business –

• Only one single Person is required as Single Entrepreneur.
• He is the whole sole owner of the Business.
• It is very easy to commence or shut down this form of business.
• Decision taking becomes easy as complete control of the business is in one single hand.
• The cost of forming a Sole Proprietorship business is very less as compared to other forms of businesses.
• The sole proprietor is the only beneficiary of the profits and does not have to share them with any other person
• Since they are mostly unregistered form of entity it has an element of privacy, there is no database maintained with the Government. Thus they are more private when compared to a company or LLP whose details are published on the website of Ministry of Corporate Affairs.

DISADVANTAGES OF STARTING A BUSINESS AS A SOLE PROPRIETOR

Some of the main Disadvantages of starting a business as a Proprietor are:

• In a Sole proprietorship business no one is there to share the risk of failure and it is totally on the shoulders of the proprietor
• Liability in such form of business is unlimited and thus in case of loss or if the proprietor is unable to meet out the liabilities, his/her personal assets may have to be used for discharging out the liabilities.
• Taxes imposed on Proprietorship businesses are at the rates same as that on an individual. Hence the businesses are taxed on the basis of Slab Rates. Now as and when the income goes beyond Rs.10 lakhs, the income tax rate for a proprietorship business is higher than the income tax rate of a company and hence, in the long-run, it is not beneficial..
• It is difficult for a Sole proprietor business to obtain/procure funds and thus they have limited capital at their disposal. Further, banks are also not willing to lend large sums of money to a proprietorship business as their existence is tied only and only to the Proprietor.
• Further it cannot add any partner as then it would loose its identity of being a sole proprietorship business.

REGISTRATION OF SOLE PROPRIETORSHIP BUSINESS

Although as discussed above sole proprietor doesn’t require any specific registrations and even does not have any specific law for its registration, he is advised to obtain a few registrations to make his business legally identifiable and function smoothly with various benefits.

• Registering as SMEunder the MSME Act
• Obtaining License under Shop and Establishment Act
• Goods and Service Tax Registration

(A) Registering under the MSME Act Through Udyog Adhar

MSME stands for Micro Small and Medium Enterprises and all the enterprises/businesses that fall under this categories are called as MSME’s. MSME’s are the backbone of Indian economy and thus to support them Government of India provides these businesses some or the other benefits and subsidies and to avail such benefits one needs to register its business under the said Act.

Under this registration an Udyog Adhaar is provided to the business by the Ministry of MSME to register themselves as MSME. 12 digits Identification Number is provided and is known as Udyog Adhar or popularly known as Adhaar of the business. Thus it provides the proprietor an identification and recognition officially from the Government.

It takes about 1 to 2 working days for getting the MSME Certificate and is received online via Email in digital form.

(B) Registering under Goods and Service Act

Registration under GST is another way of getting your sole proprietorship business registered and identified in the eyes of the government. One can apply for GST registration if dealingin any kind of exchange of goods and services. It has now replaced the old VAT and Service tax registration. Though registration under GST Act is not compulsory but in case if the turnover of the business crosses above 40Lakhs then the business has to compulsorily register itself under GST Act. Government issues a 15 digit PAN based GSTIN which is to be mentioned in the Tax Invoice in all the future sale and purchases of goods and services.

Documents required for completing the registration form under GST:

• Adhar Card
• PAN Card
• Email ID and Mobile No.
• 1 Photo of the proprietor
• 1 Photo of the Authorised Signatory (if any) along with a letter of authorization from the Sole Proprietor
• Proof of Principal Place of Business (electricity bill, rent agreement, etc.)

It takes about 5 to 7 working days for getting the GST Number.

(C) Registration Under Shops & Establishments

Now in case if a person has a Shop and wants to start a business as a Sole Proprietor he can register it self under this Act easily.

Now for registering one has to submit an application in the prescribed form to the Inspector of the area. The application has to be submitted along with the prescribed fees which varies from state to state.