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Company Setup
 
Sole Proprietorship
 

A sole proprietorship is the oldest and most common form of business structure for a small business. A sole proprietorship is a business structure owned, operated and managed by a single individual.

Sole proprietorship firm is not a legal entity and does not have a distinct status than the owner.

 

A sole proprietorship is also known as a sole trader or simply a proprietorship. It is a business structure owned and run by a single individual and in which there is no legal distinction between the owner and the business. The identity of the organization is nothing but the individual himself. The owner receives all profits (after tax) and has unlimited responsibility for all losses and debts.

He/she is the sole authority to take decisions, enjoy all profits of the firm and is personally liable for all losses of the firm. The proprietorship form business carries unlimited business risk, as the business proprietor is individually responsible to settle all business liabilities. The proprietor's personal assets are at risk to compensate for the business liabilities.

How to set up a sole proprietorship firm :

In India, there are no specific laws for registration a sole proprietorship. A proprietor may use a trade name or business name other than his/her name. While selecting a name, it is advisable to select a unique name to avoid the potential infringement of an existing trademark.

Technically, no registration is required to start a business under sole proprietorship. However, to open a bank account in the name of the firm, a minimum of 2 registrations such as Shops & Establishments, Professional Tax, Service Tax, MSME, etc. under the local, state or central authority is mandatory to comply with the Know Your Customer (KYC) norms of the bank.

Even though registration is not essential, the owner has to obtain the necessary licenses specific to his/her line of business such as Shops & Establishments, Professional Tax, Service Tax, VAT, IEC, etc. A sole proprietorship can be registered under the MSME Act to avail the benefits and protection under that act.

Its main features are :-

Ease of formation is its most important feature because it is not required to go through
elaborate legal formalities. No agreement is to be made and registration of the firm is also not essential. However, the owner may be required to obtain a license specific to the line of business from the local administration.

The capital required by the organisation is supplied wholly by the owner himself and he depends largely on his own savings and profits of his business.
Owner has a complete control over all the aspects of his business and it is he who takes all the decisions though he may engage the services of a few others to carry out the day-to-day activities.
Owner alone enjoys the benefits or profits of the business and he alone bears the losses.
The firm has no legal existence separate from its owner.
The liability of the proprietor is unlimited i.e. it extends beyond the capital invested in the firm.
Lack of continuity i.e. the existence of a sole proprietorship business is dependent on the life of the proprietor and illness, death etc. of the owner brings an end to the business. The continuity of business operation is therefore uncertain.

Advantages:

Ease of formation
Maximum incentive for work
Secrecy of business
Quick decisions and flexibility of operations

Hence, this form of organisation is suitable for the businesses which involve moderate 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.

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