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:
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:
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 [email protected] )