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“Starting your own business, especially as a sole proprietor, may be a lonely journey.”
The majority of people are terrified of their employer, and because this fear prevents mental development, all they want to do is become their own boss in order to feel enormous happiness and accomplishment.
As the name implies, it refers to a type of business where the owner and manager are the same person (i.e. individual human being).
In other terms, a sole proprietorship is a business that is not incorporated and is run by a single person.
Here, we’ll go over all there is to know about proprietorship businesses, including who must register, how, and what the process entails.
What sole ownership means
A sole proprietorship is a little company run by just one person. Other characteristics of this type of business include the following:
- It is the earliest and most straightforward method of conducting business.
- Profits from the company are entirely in the owner’s control.
- Due to the lack of a legal structure, the owner of the firm is personally liable for all obligations (liabilities/losses) incurred by the company. Actually, the proprietor and his company are regarded as a single entity.
- All business profits and losses must be included in the proprietor’s personal income tax return.
There is no need to tax the business separately.
- In contrast to OPC, this type of entity does not require any shareholder, partner, or director, nor is it required to select a nominee.
Which business entity should choose a sole proprietorship?
Generally speaking, this type of business structure is not ideal for someone with high business turnovers due to the inherent dangers.
Instead, proprietorships are more suited to small and low-investment firms.
Benefits of a Single Ownership Business
- Because there are fewer regulations to follow than there are for corporations, limited liability partnerships, and other business entities, sole proprietorships are simple to set up and manage.
- Compared to other types of enterprises, the cost of starting/closing these businesses is cheap. To establish a proprietorship business, obtaining any form of registration is not a required.
Business and financial decisions are made exclusively by the company’s owner. As a result, the owner will be in charge of the company’s operations and financial dealings.
- There is no statutory duty to keep business records or make any type of financial accounting or other papers available to the public when a business is organised under a proprietorship form.
Negative aspects of a sole proprietorship
- Unlimited responsibility This implies that you are personally responsible for the company’s debts. It is this type of business’s main drawback.
- Funding Needed It is challenging to obtain business loans or investment money from banks, financial institutions, or venture capitalists. Financial institutions are reluctant to make loans to proprietorship enterprises because of the one individual operating the business.
- No Longer a Concern A sole proprietorship’s lifespan is somewhat constrained by its owner. Any kind of owner incapacity has a bad impact on the company and may possibly force the liquidation of the enterprise. Without its owner, a lone proprietorship cannot continue.
How can you set up a sole proprietorship for your business? – Techniques
Step 1: Applying for Required Documents such as a PAN Card or an AADHAR (if necessary).
Step 2: Give the company a name. It is not necessary, though, as one can run their business under their own name as well. But giving a business unit a name helps to separate it from other units as well as give it an identity.
Step 3: Is to open a business-specific bank account. You can open the account by sending:
- A lease or rental agreement, or a document proving ownership, if applicable, for a company location
- Utility Bill for the Place of Business
- The proprietor’s income tax returns.
- More KYC records for the business’s owner.
Creating a Sole Proprietorship Business Account
Even while a lone proprietor is not required to have any particular registrations, it is nonetheless advisable to do so in order to ensure the smooth operation of his firm.
- Registration as a SME – Under the MSME Act, it is strongly advised to register as a Small and Medium Enterprise (SME). The business will greatly profit from taking out a loan, and the government also offers several programmes for SMEs where loans are given out at reduced interest rates.
The application may be submitted digitally. Registration as a SME is not required, though.
- Register under the Shop and Establishment Act – This licence is not necessary to be obtained by the business establishment at all times or in all circumstances, but it is required to be obtained in accordance with local legal requirements.
It is distributed by the State Labor Department and is based on the establishment’s total workforce.
Within 30 days of the start of work, every shop and establishment must compel registration under this Act (if required by local laws).
- GST Registration: It is necessary for a firm to register for GST if its annual turnover reaches the threshold outlined in the GST Act, 2017.
You need the following paperwork to register for GST:
- Owner’s PAN card, photo, and AADHAR card
- A lease agreement or an electricity bill as proof of a business location
- Copy of a bank statement, (first page for verifying bank account number, address and IFSC code)
What compliances are necessary?
- As a lone proprietor, submit annual income tax returns.
- If you have a GST registration, you must file a GST return.
- If you’re subject to a tax audit, deduct TDS and make a TDS return.