Tuesday, August 11, 2020

Sole-Proprietorship

Sole-Proprietorship

The perception of doing business varies from person to person, as the choice of a business entity depends on its object, nature and scope. Before deciding on a business structure, several factors are critical viz.   

  • Business activity and its nature and scope
  • Working capital requirement
  • Proprietor’s dependence
  • Concern on taxes to be paid for doing the business

 However, to choose a particular type of business structure, there is no defined formula.

The factor that organizes the process to conduct business in an optimized manner is known as a business organization. It is essentially a structured approach of establishing and maintaining a relationship among men, material, and machinery to carry on the business efficiently for earning profits.

Most of the individuals who manage their business to earn their daily bread are sole-proprietors. The small business entities in India fall under the category of unorganized sector. 

To start and to operate a sole-proprietorship in India, there are no standard legal compliances. However, registration with the local authorities is necessary to secure a license for a business name. 

 At this backdrop, a question arises, who are eligible to start a sole-proprietorship: 

  • Any Indian born citizens with a valid PAN can start and operate a sole-proprietorship
  • No other compliance is required

 Who could be a sole-proprietor? 

  • Indian citizens by birth or by citizenship
  • Persons holding PAN & Aadhaar

Even though a business entity can be established and maintained in different forms, each of the businesses has its own merits and demerits:

Merits of sole-proprietorship: 

  • Very little compliance to adhere
  • Zero interference from Government
  • Minimal wastage of time for approvals
  • Working capital as per business need
  • Single PAN for self and business entity
  • Hassle-free opening of current account
  • Proprietorship registration
  • Single ITR-3 to present the profit or loss with the personal income
  • No need to distribute the profit

Demerits of sole-proprietorship: 

  • No separate legal entity from its proprietorship
  • Losses in business may impact the personal assets of the proprietor
  • Due to a single PAN, transferring the profits to someone to meet future needs is difficult.
  • In case of the death of a proprietor, the proprietorship also ceases. 
  • Difficult to secure investments
  • Difficult to earn and identify

Registration of sole-proprietorship 

Any individual desiring to start a sole-proprietorship has to obtain a business license or a tax license as presented below: 

  • Shops and Establishment license
  • GST Registration
  • Trademark / Brand Name / Logo Registration  (so that no one-else should use your similar / identical name, Logo)
  • MSME Udyam Registration (for availing collateral free Bank loans and government subsidies)
  • FSSAI Registration (for doing business on food and related articles)
  • Import and Export Code (for export-import business)
  • Copyright (for persons engaged in literary & artistic business) 

Documents for sole-proprietorship registration: 

  • Proprietor’s PAN Card & Aadhaar card
  • Proprietor’s name or the business name
  • Mobile number and email address
  • Rental agreement with NOC and a utility bill viz. electricity bill / water bill / property tax receipt / BSNL Telephone bill 

A first-time entrepreneur who wishes to taste the business out of a passion may put in the best efforts, after weighing the options available, to remain independent, rather than working for someone. Unlike a partnership firm or a corporate, sole-proprietorship is an easy way of registering for a business due to minimal government intervention, besides hassle-free conduct of business.  

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