A sole proprietorship is neither a company nor a corporation. The business is owned by an individual. The sole proprietorship firm registration is done with a motive to open a current bank account and start a small business. When an individual who owns any products or services and starts selling it, they are nothing but automatically establishing themselves as the sole proprietorship. Many entrepreneurs are running and selling their product under sole proprietorship. The income is basically reported as the business income or losses by the owner in his/her individual income tax return.
Is the ownership of a sole proprietorship transferable?
The sole proprietor can transfer the business by selling its tangible and intangible assets; as there is no concept of a separate legal entity, the owner and business are one and the same.
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Features of a Sole Proprietorship Firm Registration
No sharing of Profit and Loss
Less Legal Formalities
No legal distinction between the proprietor and business:
Advantages of choosing Sole Proprietorship Registration in India
Business secrecy is maintained
Informed decision making is done and prompt action is followed
Operations are quite flexible
Least record keeping
Accountability is your own
Strong personal relation
It is the oldest and simplest business forms
No hazel to establish your business. It automatically exists as soon as you start to sell something.
No second set of business tax forms to complete
Sole proprietorships have the lowest tax rates.
Disadvantages of Sole Proprietorship Firm
Limited capital is applied to a sole proprietor who means and includes his/her own personal savings and money, he shall fear to borrow and less expansion of the business is followed. Banks and financial institutions are also hesitating in lending to proprietorships.
In a sole proprietorship firm, it is the unlimited liability of the owner which means in case of business fails even the personal wealth of the owner can be encroached and attached by the court as well and affects his future business prospects too.
Due to being handled by the single person, the managerial look into the business is limited and an expert eye is lacking in all the fields of the business.
Limited resources are available to it.
Lack of competent people and may result in mismanagement and poor decisions.
If any litigation is initiated against you and if sued, you are personally responsible for any judgment, it may affect your financial health.
It is also harder to raise money from investors or to secure a business loan.
In loan matters, a sole proprietorship is qualified for a personal loan easily which makes you personally liable if the business fails.
Is minor are allowed to start a sole proprietorship?
No, a minor cannot allow starting a sole proprietorship. Only a major whose age is above 18 can start a sole proprietorship firm.
Documents required for Sole Proprietorship Registration
Sole Proprietorship isn’t governed by any specific laws it has the minimal and easy compliance.
For Sole Proprietorship registration, the following documents are required:
Registered office proof
Personal Bank Account
Rules and Regulation for Sole Proprietorship Registration Online
In India, a sole proprietor firm registration should be done under GST Act or MSME act, Shops and Establishment registration under the state Act, rule, and regulations play a vital role in growth and ease of doing business in a state.
Private Company vs. Sole Proprietorship Firm
A private company is registered under the Companies Act 2013 with the Ministry of Corporate Affairs, however, no such registration required under sole proprietorship.
A private company and must end with words Private Limited Company and a approval from the Registrar of the company is required to incorporate it, No such approval is required before using the name in a sole proprietorship.
A private limited company is based on the separate legal entity concept under the Companies Act 2013; however, in case of sole proprietorship, the owner is personally liable for the liability of the business.
Liability in private limited company is limited to the extent of their shares only; on contrary the Liability in a sole proprietorship is unlimited.
In private company Minimum2 members are required and maximum- 200 members can be there and in Sole proprietor minimum and the maximum member can be one, however, employees can be hired to run the sole proprietorship.
FDI is allowed in many sectors, under the automatic approval route in the Private limited company however it is not allowed in Sole proprietorship business.
Shares transferability is the essence, no such activity is there in Sole proprietorship business.
Tax is charged at 30% plus surcharges and cess as applicable in Private limited company however separate treatment under business income, slab based is opted in Sole proprietorship.
Conversion of Sole Proprietorship to One Person Company
Conversion of a Sole Proprietorship firm to One Person Company (OPC) is quite simple; basically, a fresh OPC registration is to be initiated.
Before you start registration to make sure there are two people one is the director/owner and other is the nominee. The steps are enlisted below:
Check at MCA portal about if an entity (LLP or Company) already exists same as your sole proprietorship, if yes, you are required to check for name availability in form RUN. If not, you can directly proceed for company registration
Obtain DSC from authorized signatory.
In case of fresh company incorporation DIN, PAN, TAN all can be applied along with the incorporation application SPICE-32 at the MCA portal.
Once the name is approved the director has to submit several documents such as Memorandum of Association and Article of Association, Identity proof of directors, address proof for the office.
The documents are examined by the Registrar of Companies and on successful verification, the certificate of incorporation is granted.
What happens to the property when a sole proprietor dies?
As a sole proprietor, your business ceases to exist when you die. Your business's assets and liabilities become part of your estate.
What is Sole Proprietorship?
A sole proprietorship is a type of enterprise that is owned and run by one person and in which there is no legal distinction between the owner and the business entity.
A sole proprietorship usually does not have to be incorporated or registered.
Define the Features of Sole Proprietorship
Lack of legal formalities
Risk and Profit
No separate identity
What are the Advantages of Sole Proprietorship?
A proprietor will have complete control of the entire business, this will facilitate quick decisions and freedom to do business according to their wishes
Law does not require a proprietorship to publish its financial accounts or any other such documents to any members of the public. This allows the business a great deal of confidentiality which is sometimes important in the business world
The owner derives maximum incentive from the business. He does not have to share any of his profits. So the work he puts into the business is completely reciprocated in incentives
Being your own boss is a great sense of satisfaction and achievement. You are answerable only to yourself and it is a great boost to your self-worth as well
What are the disadvantages of a sole proprietorship include?
Owners are subject to unlimited personal liability for the debts, losses and liabilities of the business.
Owners cannot raise capital by selling an interest in the business.
Sole proprietorships rarely survive the death or incapacity of their owners and so do not retain value.