Sole Proprietorship Business

Sole Proprietorship Business

What is a Sole Proprietorship Business?

A sole proprietorship is a business owned by a single individual. This is the most basic and common form of business in India.The individual who owns the business is called Proprietor and hence the name Proprietorship Concern. In the eyes of law, the Proprietor and the proprietorship business is a single entity and they donot differentiate between both of them. This means that all the assets, liabilities, profit, loss etc. of the business are property of the proprietor and they are also taxed at individual rates instead of business rates. This is also the reason why proprietorship businesses donot have a separate PAN card for them and the PAN card of the Proprietor is used for any tax related purposes.


How do I register a Proprietorship Business?

Typically, proprietorship business donot require any registration with any authorities in India to come to existence. There is no naming guidelines specified for the new business. Since this doesnot require any registration, the proprietor is FREE to select and start a business in any name. You should although make sure that you are not infringing on any trademarked, copyrighted or patented name or word. In other words, there is no one to stop you if you keep e.g. "Google Inc" as your new business name and say you are the proprietor of the same. But if Google is a trademarked or copyrighted word, then the concerned company may have objections for the same and they may proceed with a trademark or copyright suit against you. So its advisable to run a check for the same before you finalise a business name.


What licenses are required to run a Proprietorship Business?

Although a proprietorship concern doesnot require any registration, all specific business licenses are required to be obtained depending on their applicability. e.g. if you are providing a service and has a turnover more than 10 Lacs in a particular financial year, you need to obtain service tax registration. Click here for a list of common licenses required to run a business.


Advantages of Proprietorship Business.

  • Completely controlled, managed and owned by a single person with all authority, responsibility and risks
  • Can hire employees to facilitate running of business
  • All profits/ loss are retained by owner. No sharing of profits involved
  • Easy to start and Easy to close. Requires no legal formality/ registration to start. Similarly, business can be closed whenever the owner decides, no legal approvals required
  • Can open a separate bank account in the name of the business
  • Can apply and obtain for trademarks, patents, copyrights and other IP assets
  • Free to do any business at any point of time as there is no scope document which limits or restrict you to a specific set of businesses
  • Fewer compliances requirements

Disadvantages of Proprietorship Business.

  • All the investment is made by the owner either through personal resources or loans/ funding 
  • Typically associated with businesses having lower capital requirement
  • Not a separate legal entity. The Owner and the business is treated as 1 in the eyes of law
  • Business ends with death of owner and cannot be continued further
  • Unlimited Liability associated with business. Any liability that business has is also the liability of the owner.
  • Difficulties in opening Bank account

Opening a Bank account for Proprietorship Business.

Although Proprietorship business is easy to start and easy to close and doesnot require any specific registration to start a business, they have been facing challenges from bankers to open a suitable current account in the name of the business. As per new guidelines issued by RBI under the KYC (Know your customer) norms, any banker opening a current account for Proprietorship business should insist on minimum 2 registrations or licenses in the name of the business. This means that until you donot have minimum 2 different licenses to run your business, you may have lot of challenges opening a bank account in the name of the business.

Many times, small business may not require any licenses to conduct a business. e.g. If you are a service provider like Software developer, freelancer etc. and if you turnover is less than 10Lacs then you may not need a service tax registration. You may continue to operate your business freely without need of any other specific licenses as long as you donot cross 10Lac turnover for the first time. But if you wish to open a bank account then you will need to produce 2 different set of licenses or registration e.g. say service tax and Shops & Establishments License or any other combination depending on your business activities.


Steps to Start a Proprietorship Business

  • Finalise a Business name
  • Obtain required licenses as applicable to your line of business
    • May require ID proof like PAN card etc.
    • May require Address proof e.g. Bank statements, Rental agreement etc.
  • Open a bank account

 

 


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