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RG - A Helping Hand (Company Secretary)     13 September 2011

Sole proprietorship_most common form of business

Sole proprietorship_Most common form of Business

 

 

As the title of this write up suggests A sole proprietorship is still the oldest and the most common type of business in India. You may find lots of proprietorship businesses near you place.

 

In general terms A “Sole Proprietorship” business means a business that is owned by only ONE person. You can operate a sole proprietorship under your own name, or under another name you've chosen. We may also call it a one man Army.

 

Agree that there may be few employees or assistants hired by the owner for the smooth functioning of business, but there are only one “Owner” who administers and runs the business.

 

DEFINITION OF A SOLE PROPRIETORSHIP [FROM INTERNET]

 

The definition of a Sole Proprietorship is: A business enterprise exclusively owned, managed and controlled by a single person with all authority, responsibility and risk.

 

FEATURES

 

Ease of formation is its most important feature of this kind of business form. One of the main features of this kind of business is that since you are the only owner, you are free to run the business just the way you want to run it. Also, in a sole proprietorship you get to keep all the profits. Further it has no legal existence separate from its owner.

 

ADVANTAGES OF PROPRIETOR SHIP BUSINESS


There are lots of benefits of choosing this form of business. Some of the points have been listed below for your understanding. Kindly have a look:

 

1.      Ease of Formation

 

Ease of formation is its most important feature of this kind of business form because it is not required to go through detailed legal formalities. Very small amount of capital is required initially and there is no minimum capital requirement.

 

2.      No registration required

 

Registration of the proprietorship is also not essential. However, the owner may be required to obtain a license specific to the line of business from the local administration.

 

3.      Easy Winding up of business


Just like formation winding up of the business of proprietorship is also very easy. It is the owner’s decision to form or wind up the business at any time.


4.      Entire profit belongs to the proprietor


The profits earned by the business belong to the proprietor alone. Likewise he bears the risk of losses as well. So there is direct connection between the efforts of proprietor and consequent business profits.


5.      Quick decisions


Since in a sole proprietorship business the proprietor is the real owner and directly responsible for all the business decisions. However he may appoint few persons to assist him in carrying out regular activity of the business. Yet he is free to take any decision on his own. Since no one else is involved in decision making it becomes quick and prompt action can be taken on the basis of the decision.

 

6.      Good control over the business


In sole proprietorship business the proprietor has full control over each and every activity of the business. Since the proprietor has all authority with him, it is possible to exercise better control over business.

 

7.      Tax Benefits


Another big advantage of this form of business is the tax simplicity. As a sole proprietor, you declare your business income on your personal income tax form, rather than having to file a separate tax form like a corporate assesses.


8.      Other Benefits


i.                    Due to single handed control the proprietor will be able to maintain business secrecy. In the case of sole proprietorship business, the proprietor is in a very good position to keep his plans to himself since management and control are in his hands.

ii.                  In the case of sole proprietorship business, the proprietor is in a very good position to keep direct connectivity with his vendors, customers and employees.

 

 

DISADVANTAGES OF PROPRIETOR SHIP BUSINESS

 

Few disadvantages are also there of this kind of business form. Some of the points have been listed below. Please have a look:

 

1.      Unlimited liability

In a sole proprietorship business, you assume all responsibilities for the business. This means that as a sole proprietor, you are personally responsible for all the debts and liabilities of your business. So if your business fails, any of your assets, including your personal assets, can be seized and used to discharge the business liabilities.

 

2.      Limited capital


In a sole proprietorship business, the owner is liable to bring the entire capital. So sometimes it becomes difficult for him to arrange relatively a big amount of capital for expansion purpose.


3.      Lack of continuity


In a sole proprietorship business, the proprietor is the real and sole owner. This feature makes the business wholly dependent on the life of the proprietor. Illness, death etc. of the owner brings an end to the business. The continuity of business operation is therefore uncertain.


4.      Expansion is difficult


Over a period of time it becomes difficult for a sole proprietor to expand the business activities. It is not possible for a single person to supervise and manage the affairs of the business if it grows beyond a certain limit.


5.      Limited managerial ability


Initially a person with general understanding of business can start a sole proprietor ship business. But later on he may not be able to provide expertise to his business because there is lot of areas in business where expertise is required like administration, planning and marketing. Again, because of limited financial resources it is also not possible to employ a professional manager. Thus, the business lacks benefits of professional management.

 

SUITABLE BUSINESS

 

Hence, this form of organisation is suitable for the businesses which involve low risk, small financial resources, capital requirement is small and risk involvement is not heavy like automobile repair shops, small bakery shops, tailoring, etc. It accounts for the largest number of business concerns in India. Some of them includes in no particular order:

 

Selling grocery items, books, stationery, vegetables, making special type of furniture, designing garments, grocery, garments business, telephone booth, making jewellery, haircutting or tailoring, cycle or motorcycle repair shop, etc.

 

IS IT NECESSARY TO REGISTER SOLE PROPRIETORSHIP FIRM

 

No.

 

No registration is required for a sole proprietorship. Simply open a bank account with the name & style you want to work. But if you are liable for state VAT or service tax registration, then you have to obtain VAT and/or service tax registration. In case you wish to have a trade mark, design and use it as your trade mark. One may even register a Trade Mark with the proper authorities.

 

Further, for sole proprietorship, no separate income tax PAN is required. The PAN of the proprietor will be the PAN of the firm and proprietor will have to file income tax return in his personal name.

 

The only thing you must take care of is that you have the required licenses specific to your line of business. For Example: If you are a doctor you need a license to practice etc. Find out about your line of business and what licenses you may require before setting up.

 

Hope this write up would be of some help. Due reference have been taken from net wherever required.

 

Thanks

RG

 



 13 Replies

Prakash

Prakash (Chartered Accountant)     13 September 2011

Nice Article

Vijay

Vijay (Adamo Studio)     13 September 2011

Well compiled......

RG - A Helping Hand

RG - A Helping Hand (Company Secretary)     13 September 2011

Thanks very much for reading the post.

Mukesh Kumar Singh

Mukesh Kumar Singh (CA-FINAL)     13 September 2011

nice creation............ keep sharing............
Vikas Gupta

Vikas Gupta (CHARTERED ACCOUNTANT)     13 September 2011

Thnaks for sharing

Karan Teli

Karan Teli (Life Is just an Illusion...!!)     13 September 2011

Richank bhai aapne to hame fir se CPT ki yaad dila di...,

The post was good and informative..,

Hamare jaise ghajinioo ko fir se yaad aagaya sab..

 

Thanks and Keep sharing...

Arniv Sharda

Arniv Sharda (CA Final)     13 September 2011

nice article sir

keep sharin

cheers

Sourav Banerjee MA,MSW

Sourav Banerjee MA,MSW (Shabda Bramha)     14 September 2011

Dear Richank ji,

You are a prolific writer. That's confirmed.

I would request you to kindly create a word file containing all the notes and upload them. For starters like us ( and a lazy Taurus like me) , that will be of immense help.

Regards.

pari

pari (manager)     14 September 2011

Dear RG,

 

We want to open businees for Packers & Movers / Relocation industry. Do we need any licence reqrd for this industry? Please confirm.

 

Regards,

Trupti

Manjul Soni.

Manjul Soni. (CA Student.)     17 September 2011

Nice Presentation

Arun Kumar

Arun Kumar (Proprieter)     01 July 2013

thank you so much for this nice article.

Kindly let me know one thing...is it necessary to file sales return monthly?

mitra

mitra (Others)     09 July 2013

Sir,

I am planning to setup a New micro scale manufacturing Unit as a Sole Proprietor in Karnataka.

we will be manufacturing plastic goods in my own house Garage for both B2B and B2C market with machinaries worth less than 200,000 and 3 labour employees.

Please suggest me what all the licence and registration i must full fill to start the business

I have PAN card & i will be applying for TIN(VAT)

Please clear my below doubt.

1) Do i have to register under shops and establishment or factories.?

2) As my T/O is less than 150Lakh, i will be exempted from Excise Duty, must i give a declaration for the same.? If Yes, whom should i give the declaration to, what is the format.

3) After Producing the material and getting orders, How should i transport it to customer place both inside karnataka and outside karnataka

4) must i register CST

5) How can i register to avail C form.

 

Please help me out with your valuable knowledge

 

 

Arun

Arun (Student Others)     23 December 2013

hello sir 

i want to know how to open sole proprietorship firm 

i dont want to invest large lavel i just want to sale clothes pre branded like puma, spyker etc online they ask me for proprietorship firm declaration form

what should i do sir

i am impressed by your article i think you can solve my problem

 

waiting.......

mail:- arundabas2011mates @ gmail.com


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