Mukesh Goel

The sole proprietorship is the oldest, simplest, and most common form of business entity. It is a business owned by a single individual. For tax and legal liability purpose, the owner and the business are one and the same. The proprietorship is not taxed as separate entity. Note that the earnings of the business are taxed at the individual level, whether or not they are actually in cash. There is no vehicle for sheltering income. For liability purposes, the individual and the business are also one and the same. Thus, legal claimants can pursue the personal property of the proprietor and not simply the assets used in the business.

Advantages of a Sole Proprietorship: Perhaps the greatest advantage of this form of business is its simplicity and low cost. You are not required to file with the government, nor are any legal charter required. The sole proprietorship form of business has other advantages:

  • The owner or proprietor is in complete control of business decisions.
  • The income generated through operations can be directed into the proprietor’s pocket or reinvested as he or she sees fit.
  • Profits flow directly to the proprietor’s personal tax return; they are not subject to a second level of taxation. In others words, profits from the business will not be taxed at the business level.
  • The business can be dissolved as easily and informally as it was begun.

These advantages account for the widespread adoption of the sole proprietorship in the India. Any person who wants to set up shop and begin dealing with customers can get right to it, in most cases without the intervention of government bureaucrats or lawyers.


Disadvantages of the Sole Proprietorship:
This legal form of organization, however, has disadvantages:

  • The amount of capital available to the business is limited to the owner’s personal funds and whatever funds can be borrowed. This disadvantages limits the potential size of the business, no matter how attractive or popular its product or service
  • Sole proprietors have unlimited liability for all debts and legal judgments incurred in the course of business. Thus, a product liability lawsuit by a customer will not be made against the business but rather against the owner.
  • The business may not be able to attract high-caliber employees whose goals include a share of business ownership. Sharing the benefits of ownership, other than simple profit-sharing, would require a change in the legal form of the business.
  • Some employee benefits, such as owner’s life, disability, and medical insurance premiums, may not be deductible, or may be only partially
    deductible from taxable income.
  • The entity has a limited life; it exists only as long as the owner is alive. Upon the owner’s death, the assets of the business go to his or her estate.

Is it necessary to register the Sole Proprietorship firm in India? : No registration is required for a sole proprietorship. You simply have to open a bank account with the name & style you want to work. But if you are liable for state VAT or service tax registration, then you have to obtain VAT and/or service tax registration. Further, for sole proprietorship, no separate income tax PAN is required. The PAN of the proprietor will be the PAN of the firm and proprietor will have to file income tax return in his personal name.

(Author is a Practicing Chartered Accountant and can be reached at mukesh@mukeshraj.com )

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0 responses to “Sole proprietorship in India- Meaning, Advantage, Disadvantage, Necessity”

  1. Murali says:

    Sir, Can we change proprietor name. My father is Sole proprietor of business. Now they transfer this business to me.

  2. Inder says:

    Can my mother owned sole proprietors business of medicines be transferred in my name without change of tin or any other details.

  3. jignesh jhaveri says:

    SIR,
    I WANT TO KNOW THAT MY FATHER OWN A BUSINESS IN SOLE PROPERTORSHIP , BUT NOW HE IS NOT FEELING WELL AND I WANT TO TAKE INCHARGE ON HIS BEHALF , CAN I DO SO WITH THE SAME NAME AND ENTITY WITHOUT CHANGING THE NAME AND TIN NUMBER. IF YES THE WHAT IS THE PROCEDURE. PLEASE REPLY.

  4. sandeep sharma says:

    i want to start a new business as a trader , i want to run my own proprietor ship firm.

    what is the procedure of registration of Proprietorship firm .

    can you guide me & which type of documents required for it.

    please explain with details as earlier as possible.

    with regards

    sandeep sharma

  5. Vinod says:

    Can job holder in any company open a sole PROPREITORSHIP firm? If yes while filing income tax he/she can file the 2 differnt incomes differently or the person have to consolidate both the income and file?

    And as the maximum threshold of the services tax is 10Laksh. So while paying service tax to govt does he/she has to consider the consolidated income from salary and business OR has to consider only income from business?

  6. Ashok B Agrawal says:

    Sir,
    My father is properiter of one shop in which he is not getting as much returns as it could be .It is presently runed by empoloyess, Now my father is deciding to cease from owership and take the capital invested in that shop from those employees by taking payment invested.
    Presently all the investment of my father in that shop is in way of stock & sundry debtors.
    Can he simply take his investment from those employees and reliunquish from that shop making the employees the owners.
    please guide

  7. rajeev says:

    hi sir, i have one query for freelancers.

    I am a freelance web designer. is there any law about the website. means anybody in india can have a website or there is some special condition??

    I have a website on which i show my work etc but not sell purchase on website.. I am a freelancer. is it required to be register before having a website.

  8. rakesh says:

    Can sole proprietor take salary from his business ?

  9. richie says:

    I want to start a sole proprietor firm in exporting handlooms. Besides IEC number what else do i need .

  10. Amit R.Patel says:

    Dear

    i am asked one question is what are the limit for service tax in the firm of Proprietorship ( my business is shipping copr.

    Thanking You
    Amit Patel

  11. Farid says:

    Dear Sir,
    I am working for a proprietorship company based in New Delhi. I am given a fixed amount as salary every month by cheque and there is no TDS deduction and the employer also doesn’t deducts any amount for PF. Is it legal for employer not to deduct TDS and PF? I also don’t get form 16 and 16A.In this case how should I file my ITR?

    Thanks

  12. gaurav says:

    dear sir can we change the sole propriter after his dath please give me answer on my mail thank u

  13. Vishal says:

    I have a sole proprietorship company and I want to sell it. Please tell me how can I do it.

  14. vishal singh says:

    dear sir,

    please help me i am start a sole proprietorship business but i dont know few things the things is given beleow
    1.how to make bill???????????
    2.what kind of paper required for start sole proprietorship business???????
    3.without tin number can i submit the  bills??????
    4.vat is menditory????????

  15. mittu says:

    DEAR SIR ,
    I PLAN TO START THE SMALL TRAVEL AGENCY . I WANT TO KNOW PROCEDURE HOW TO START A TRAVEL AGENCY & WANT TO KNOW ABOUT AGENCY NAME, AGENCY PREMISES, REGISTRATION OF AGENCY, MAINTAIN MY ACCOUNTS, PAN CARD, OPEN A CURRENT ACCOUNT IN THE NAME OF COMPANY . HOW DO I MAKE BILLS AND RECEIPTS AND MAINTAIN A LEDGER & MANY MORE. PLEASE HELP ME SIR.

  16. mittu says:

    DEAR SIR ,
    I PLAN TO START THE SMALL TRAVEL AGENCY . I WANT TO PROCEDURE HOW TO START A TRAVEL AGENCY & WANT TO KNOW ABOUT AGENCY NAME, AGENCY PREMISES, REGISTRATION OF AGENCY, MAINTAIN MY ACCOUNTS, PAN CARD, OPEN A CURRENT ACCOUNT IN THE NAME OF COMPANY . HOW DO I MAKE BILLS AND RECEIPTS AND MAINTAIN A LEDGER & MANY MORE. PLEASE HELP ME SIR.

  17. SUBBU says:

    RESENT FOR ADVICE – THANKS
    subbu wrote on 23 March, 2011, 15:12
    DEAR SIR , MY COMPANY IS A PROPREITORSHIP TRAVEL AGENCY IN INDIA. AFTER YEARS OF TRAVEL EXPERIENCE I HAD DECIDED TO START MY TRAVEL AGENCY . MY INVESTMENTS ARE VEW MEAGRE AND THE MONEY I GOT FROM PF AND SMALL FDs I HAD ACCUMULATED . I PLAN TO START THE SMALL TRAVEL AGENCY . HOW DO I MAINTAIN MY ACCOUNTS BEFORE TAX PURPOSES. I HOLD A PERSONAL PAN CARD. I HAVE PLANNED TO OPEN A CURRENT ACCOUNT IN A NATIONALISED BANK IN THE NAME OF COMPANY . HOW DO I MAKE BILLS AND RECEIPTS AND MAINTAIN A LEDGER WHEN IT IS A SMALL TARVEL AGENCY . ON THE OTHER HAND I BUY MY TICKETS FROM BIGGER TRAVEL AGENCIES AND MARK A SMALL SERVICE CHARGE WHICH IS MY INCOME. CAN YOU HELP ME SIR , AS HOW I AM TO MAINTAIN MY ACCOUNTS AND REGISTERS .
    MY MAIL ID IS gilkrs@yahoo.com / mobile 9840049432.
    THANKS AND REAGRDS
    SUBBU

  18. SUBBU says:

    subbu wrote on 23 March, 2011, 15:12

    DEAR SIR , MY COMPANY IS A PROPREITORSHIP TRAVEL AGENCY IN INDIA. AFTER YEARS OF TRAVEL EXPERIENCE I HAD DECIDED TO START MY TRAVEL AGENCY . MY INVESTMENTS ARE VEW MEAGRE AND THE MONEY I GOT FROM PF AND SMALL FDs I HAD ACCUMULATED . I PLAN TO START THE SMALL TRAVEL AGENCY . HOW DO I MAINTAIN MY ACCOUNTS BEFORE TAX PURPOSES. I HOLD A PERSONAL PAN CARD. I HAVE PLANNED TO OPEN A CURRENT ACCOUNT IN A NATIONALISED BANK IN THE NAME OF COMPANY . HOW DO I MAKE BILLS AND RECEIPTS AND MAINTAIN A LEDGER WHEN IT IS A SMALL TARVEL AGENCY . ON THE OTHER HAND I BUY MY TICKETS FROM BIGGER TRAVEL AGENCIES AND MARK A SMALL SERVICE CHARGE WHICH IS MY INCOME. CAN YOU HELP ME SIR , AS HOW I AM TO MAINTAIN MY ACCOUNTS AND REGISTERS .
    MY MAIL ID IS gilkrs@yahoo.com / mobile 9840049432.
    THANKS AND REAGRDS
    SUBBU

  19. Sasimann says:

    Does a Sole Proprietor of firm have to deduct tax on interest paid to an individual for borrowed capital.The turnover of the firm is high enough to have compulsory audit of accounts.If the answer is no,will it be same if borrowed capital is from spouse of the proprietor? Thanks

  20. shushank kalra says:

    i wnt a project on this…………………………..

  21. Prachi says:

    Hi! I am planning to sell craft supplies & ready craft stuff online. Some craft supplies will be sourced from India & some imported from other countries. I will be operating frm my house. What accounting & legal documents I need to have before starting d business.

  22. Sunjay Dembla says:

    I am a partner in a firm and have some dispute with the other partner, the firm is in my control but have difficulty in operating the bank account.
    1. Can i open a bank account in the firms name showing my self as the sole proprietor of the firm.
    2. Can I continue to show this proprietorship account in the accounts of the partnership firm.
    3. Can the bank open such a account, even after having full knowledge that the firm is a partnership firm.
    Please advice the legal consequences.

  23. sushanth says:

    can a proprietorship in father’s name be transfered (registered) to one of the son’s name on health grounds?

  24. Sameer A says:

    What are the various ways to save tax for a sole proprietorship firm?

  25. DEBAPRIYA PAL says:

    Like that of Limited Liability Partnership Firm, don’t we have the option of Limited Liability Proprietorship Firm here in India?

  26. SANJAY says:

    Dear Sir,

    I won’t to confirm PAN Number of a service provider in Maharashtra, he is running a proprietorship firm. I have his VAT Tin Number and his company name.

    Please guide how can I get his PAN Number.

    Please reply

    Regards

    Sanjay Sharma

  27. Rajendra prasad says:

    Dear sir,

    I want to start a business as a sole owneship in andhra pradhesh. I want to do dealership business. How can I register my company. Is it necessary to register. If not so how can I get license to start

  28. rajneesh says:

    I wish to know the procedure / requirement for change in ownership in a proprietorship firm.

  29. Balachandar K says:

    Dear Sir

    I am a employee of the MNC and paying income tax regularly. Can I start a new proprietorship firm on my name?

    Pls reply

    Thanks
    Balachandar K
    9600921002

  30. Balachandar K says:

    Dear Sir

    I am a employee of the MNC and paying income tax regularly. Can I start a new proprietorship firm on my name?

    Pls reply

    Thanks
    Balachandar K
    9600921002

  31. subbu says:

    DEAR SIR , MY COMPANY IS A PROPREITORSHIP TRAVEL AGENCY IN INDIA. AFTER YEARS OF TRAVEL EXPERIENCE I HAD DECIDED TO START MY TRAVEL AGENCY . MY INVESTMENTS ARE VEW MEAGRE AND THE MONEY I GOT FROM PF AND SMALL FDs I HAD ACCUMULATED . I PLAN TO START THE SMALL TRAVEL AGENCY . HOW DO I MAINTAIN MY ACCOUNTS BEFORE TAX PURPOSES. I HOLD A PERSONAL PAN CARD. I HAVE PLANNED TO OPEN A CURRENT ACCOUNT IN A NATIONALISED BANK IN THE NAME OF COMPANY . HOW DO I MAKE BILLS AND RECEIPTS AND MAINTAIN A LEDGER WHEN IT IS A SMALL TARVEL AGENCY . ON THE OTHER HAND I BUY MY TICKETS FROM BIGGER TRAVEL AGENCIES AND MARK A SMALL SERVICE CHARGE WHICH IS MY INCOME. CAN YOU HELP ME SIR , AS HOW I AM TO MAINTAIN MY ACCOUNTS AND REGISTERS .
    MY MAIL ID IS gilkrs@yahoo.com / mobile 9840049432.
    THANKS AND REAGRDS
    SUBBU

  32. Printers in thane says:

    Please throw some light on the tax structure for sole propreitorship, pls

  33. Narayan Acharya says:

    sir
    tell me how to change the proprietor in assam of proprietorship firm

  34. sandeep says:

    plz tell me what is the exat limit of income when i have to change my firm in to company? is there any limit for sole proprietorship firm

  35. Ravinder Kumar Aggarwal says:

    Sir, Can we change proprietor name. My father is Sole proprietor of business. Now they transfer this business to me.

  36. kalpesh joshi says:

    Please give advice for proprietor ship company based in Maharashtra

  37. kalpesh joshi says:

    what is limit for proprietor ship company for foreign tour please give also A/c head wise limit

  38. Raga says:

    I wish to start a Franchise of a HR agency under sole proprietorship. Can I do so without any legal registration.

  39. Rinki Srivastava says:

    I am proprietor of a firm engaged in export, situated in Delhi. I have an IEC number and sales tax number for my proprietorship firm. I want to shift my business to kolkata. What are the hassles and requirements for that? do i need to get fresh IEC or sales tax number there or whether amendements can be made in the existing ones.

    • Wasim Akhtar says:

      Hello Mis.Rinki I would like to talk to u regarding proprietorship company and IEC.Plz help me in this regard.
      Wasim Akhtar
      +917207649384

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