An Entrepreneur will always want to start his business to earn more profits. But when it comes to legal documents and records, the work involved can be very overwhelming. One easily gets confused between the type of company you want to incorporate and then how to proceed with your registration. It requires a lot of hard work. In the midst of all this arises the concept of sole proprietorship. It is the simplest form of business. It is not considered a separate legal entity. This can be considered as one of its advantages or disadvantages depending on individual perception. All business income and losses are taxed on the owner’s Income Tax Return, sounds scary? Well again, perceptions! What exactly sole proprietorship is is described in detail below.
Its main characteristic is that it does not have its own legal personality. It is completely in the owner’s name, so all debts are in the owner’s name. This may put the owner’s personal property at risk. Registration for the property is very easy and simple. All you need to get are some local licenses and permits (such as PAN card, bank account, TAN, business establishment license, etc.) and then you need to register your name as a sole proprietor. It does not follow complex voting and meeting procedures as mandatory as in other forms of business. The taxation procedure for this characteristic is also simple since everything the company earns is considered sole proprietor income. There is no unemployment tax involved.
There is also the option of mixing different businesses that are completely dependent on the sole proprietor. There is no separate name requirement for the business as everything is under the name of the sole proprietor. However, there are no restrictions on the different names and no registration or filing as such is required. However, it is very common practice to convert a sole proprietorship into an LLP or other corporations to overcome the risk of losing everything. One disadvantage of having a sole proprietorship is receiving capital funds. Obtaining loans and obtaining funds is a very difficult job as the company does not have a separate identity under the law.
Therefore we can say that the advantages of the sole proprietorship are:
· Total control -Since the business belongs to the owner, he has full control over his business without much legal intervention.
· Easy and inexpensive setup – Not many legal procedures are needed, except for some permits and licenses.
· Easy tax returns – Since the owner and the business are the same, the tax returns are made in the name of the owner and the capital obtained by the business is shown as the income of the owner.
In addition, the disadvantages are:
· Personal responsibility – Although having full control over the business sounds like an incredible idea, it doesn’t sound so good when the business is suffering losses.
· Raising capital funds – It’s easy to set up, no doubt. But it is really hard to raise funds or get loans.
Due to all these features, sole proprietorship is considered as an incorporated form of business since it is not registered. For this reason, before deciding to set up a Sole Proprietorship, you should thoroughly understand its characteristics, requirements, pros and cons.
