Sole Proprietorship ( Incorporation to Taxation)

Hello Everyone! Welcome back to Tax destination. In our last blog, we discussed Business ideas, how to start a business, and the most popular forms of business in India. One of which was Sole Proprietorship. In this blog, we are going to talk more about Sole Proprietorship, its pros, and cons, Tax, and legal implications. So that you can decide whether to start your Business in the form of a Sole Proprietorship. Let's get started.

What is Sole Proprietorship

A sole Proprietorship is a form of Business where there is only one owner. The owner is known as the Sole Proprietor. He alone enjoys all the profits or suffers all the losses. There is no legal distinction between the entity and the sole proprietor. It is the simplest form of doing Business. To start this form of business you just need an idea. Yes, it could be that simple sometimes. But often you need to have some documents and registration, which we will address later in this blog. Firstly, we need to know the pros and cons of Sole Proprietorship so that you can choose if it is suitable for your business.

Advantages of Sole Proprietorship

Full control

As you alone are the owner of the business, you have full control over it. All decisions will be yours. It will be fully owned and operated by you so there will be no interference in decision-making.

Less compliance

In Sole Proprietorship, there is less compliance as compared with other forms of business. Here you don't even need a different PAN number. The owner's PAN number is used for the business as well.

Less cost

Less compliance directly means less cost. You can start your business with a minimum cost. The cost depends on the registrations required for your Business like you may have to pay GST registration fee if you are liable to pay GST under the act.

Tax benefits

Sole Proprietorship income is taxed at the individual tax rates. It means your business income gets the benefits of slab rate unlike in the case of companies or LLP. You can enjoy deduction which are available to individuals against your income for Sole Proprietorship. 

By now you might be thinking this is the ideal form for your business as you can start your business without spending any extra money. You just need to pay tax only if it earns income over and above individual exemptions limit that too after all the deductions available. However, before concluding it is important to know the disadvantages also. Let's address some of its cons.

Disadvantages of Sole Proprietorship

All losses are yours.

Since you are the only owner, all the losses will be yours. You alone have to suffer the losses. 

Unlimited liability

Sole Proprietorship is not treated as a separate legal entity. The owner has Unlimited liability in case of default.

Less capital for investment

Since there are no partners, the owners have to arrange all the funds for its business. It can't issue shares. So one may face issues while raising funds.

No perpetual succession

If the owner dies, the business ceases to exist on its own. 


Process and documents required

Now that you have seen the pros and cons, let's discuss what are the important documents or registration one needs to start a Proprietorship business. 

  1. You should have a valid PAN card.
  2. Name and address of the Business
  3. Bank account in the name of business.
  4. You need to register in GST if it is applicable to you based on your turnover
  5. You may register yourself for MSME. It is not compulsory but you can enjoy various benefits if you have MSME registration.
  6. You may need Professional tax registration.

You may have to obtain additional registration depending upon the needs of your Business.

 

Generally for any registration you would need following documents:


  1. Aadhar Card of the owner
  2. PAN Card of the owner
  3. Passport Size Photo of the owner
  4. Address proof
  5. Utility Bill
  6. NOC from the owner of premise

 

Conclusion

You may consider to choose Sole Proprietorship form if you alone want to be the owner of the business. The funds or investment can be generated by you. I hope this article will help you in choosing the right form for your Business. If you have further questions feel free to comment.

 

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