An Entrepreneur will always want to start his business to earn more benefits. 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 its 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? Okay again, insights! 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 assets at risk. Registration for the property is very easy and simple. All you need to get is 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 procedures and mandatory meetings as in other forms of business. The tax procedure for this characteristic is also simple since everything the company earns is considered sole proprietorship income. There is no unemployment tax involved.
There is also the option of mixing different businesses that are completely dependent on the sole proprietorship. There is no separate name requirement for the business, as everything is under the sole proprietor name. However, there are no restrictions on the different names and no registrations or filings as such are required. However, it is a very common practice to convert a sole proprietorship to 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 since 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, tax returns are made in the owner’s name and the capital earned by the business is shown as the owner’s income.
Also, 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 company is suffering losses.
· Capital fundraising – It is easy to establish, without a doubt. But it’s really hard to raise funds or get loans.
Due to all these characteristics, the sole proprietorship is considered as an incorporated form of business since it is not registered. For this reason, before deciding to establish a Sole Proprietorship, you must thoroughly understand its characteristics, requirements, pros and cons.
