Sole proprietorship is one of the oldest and easiest Business Structure to start in India. A proprietorship is a type of business that is owned, managed, and controlled by one person – who is the proprietor. As the proprietorship and proprietor are one and the same, it is very easy to start and there are very minimal compliance requirements.
Advantages of Proprietorship
- Less paperwork – With incorporation, it’s mandatory to file yearly documentation. With less paperwork also comes fewer overhead costs for a bookkeeper who is familiar with the legalities of incorporation and securities laws.
- Simpler income tax – Taxes as a sole proprietorship are a lot simpler. As a sole proprietor, there are certain tax advantages that come with small business deductions. For a small business that uses its own home as a business base, part of housing costs, including utilities, internet, and such, can be written off. This helps reduce personal taxes and possibly even results in a tax refund when you file your personal tax return.
- You have freedom and flexibility – Freedom and flexibility of running your business as a sole proprietorship are included in this business structure. The process of registering as a corporation is longer and costlier, and business operations as an incorporated business are also more complicated.
- Business decision – In a proprietorship, the business owner takes all business decisions. There is no consent or approval required from any other person. Hence, a proprietor can normally take quick decisions regarding his business affairs.
Disadvantages of Proprietorship
- Funding: This business structure relies solely on one person’s savings, borrowings, and credit history. As there are no other persons involved in this type of business structure, raising funds from banks will be very hard.
- Unlimited liability – This liability not only spans the business but the business owner’s personal assets. Debt collectors can access your savings, property, cars, and more to repay a debt. When you register your business, it’s important to look into insurance as a precaution.
- Growth: A proprietorship has various restrictions in terms of fundraising, liability, and business continuity. Hence, only very small businesses that are in the unorganized sector operate as proprietorships.
- Business continuity: In case of death or disability of the business owner, the sole proprietorship will be automatically dissolved. Hence, there is will be no business continuity.
Documents Required for the Registration of a Proprietorship
- GST Registration
- UDYAM Registration
- Import Export Code (IEC License)
- Business Current Account