PROPRIETORSHIP FIRM
What is Proprietorship Business?
Proprietorship is a kind of business which is owned, managed and controlled by a single person i.e. its proprietor. It is the simplest and easiest form of business in India. It is most suitable form for small businesses, especially in their initial years of operation. Compliance procedures are also very easy and cost effective. If you are an individual and want to start a business then by giving a proper legal entity name, you can easily start a proprietorship business by taking some basic registrations which will be discussed shortly.
BENEFITS OF PROPRIETORSHIP BUSINESS
Quick decision making:
As the business is owned, managed and controlled by a single person , the speed of making decision is very fast .It creates opportunities for the proprietor to timely capitalise the market opportunities by taking decisions more faster and quicker . Thus, a sole proprietor enjoys a considerable amount of freedom in making his/her decision.
Confidentiality of information:
In case of Sole Proprietorship, there is no necessity to share our confidential information with any third person as the proprietor is the only king of business. There is no legal compulsion to publish accounts and therefore high level of secrecy is maintained in these kind of businesses.
Direct incentive:
In sole proprietorship business, there exists a direct incentive for the sole proprietor to work even harder for earning lump sum amount of profit. Thus it can be said that there is a direct relationship between efforts of a proprietor and the rewards he/she receives in lieu of his/her efforts
Ease of formation and closure:
Proprietorship business can be easily formed without much legal formalities and compliances. It may be noted that there is no specific law governing a proprietorship business. It can be closed at any time whenever sole proprietor desires. Hence, there is an absolute ease in forming and closing this type of business.
SHORTCOMINGS OF PROPRIETORSHIP BUSINESS
Limited resources:
Resources are limited in a sole proprietorship business as it is mainly financed by a sole proprietor. Supply of finance is limited in these type of business. Borrowings can be made by a sole proprietor but at a high rate of interest. A sole proprietor can arrange limited funds & are not sufficient for
Limited life of a business concern:
The life of a proprietorship form of business is very limited because if a sole proprietorship dies then the sole proprietorship business shall get dissolved.
Unlimited liability:
In proprietorship business, Proprietor himself is responsible for all the losses. If the business assets are not sufficient to pay off debts then he/she shall have to sell his/her personal property to pay the debts
Limited managerial ability:
The owner has to assume that he has all the managerial responsibilities. But a sole proprietor is not an expert in all the managerial activities. He/she cannot afford expert/ specialised employees because of limited resources.
REGISTRATIONS REQUIRED IN A PROPRIETORSHIP BUSINESS
PAN:
When a sole proprietor start a business, he/she is required to mention his PAN card number in his/her sole proprietorship business. Also for filing income tax return, it is mandatory for a sole proprietor to obtain Permanent Account Number (PAN). Application for PAN CARD can be made through online.
GST REGISTRATION:
You can directly apply for GST registration as individual if your turnover exceeds 40 lakhs in case of supply of goods and 20 lakhs in case of supply of services as per GST ACT . Registration is compulsory only if the business crosses the turnover limit specified above.
TRADE LICENSE:
Trade license is also required for starting a sole proprietorship business. Trade license is required for doing businesses like establishments of hotel, canteen, food stall, cafeteria etc.
MSME REGSITRATION/UDYAM/UDYOG/SSI
80% of the Businesses are registered under MSME ACT because it’s very easy to register. Government also provides various benefits if the business of the sole proprietor is registered under this act like providing loan at concessional rates. However, it is not mandatory for a proprietorship business to get register under this act
SHOP AND ESTABLISHMENTS ACT:
In order start a proprietorship firm, the proprietor needs to register its proprietorship business under Shop and Establishments Act of the state in which the business is located and therefore obtain registration certificate. This certificate is issued for 3 years and then the proprietor may renew it, if required.
DOCUMENTS REQUIRED FOR A PROPRIETORSHIP BUSINESS
Following are the documents which are required for the formation of proprietorship business:
01
PAN CARD
02
AADHAR CARD
03
BANK ACCOUNT
04
REGISTERED OFFICE PROOF
05
TRADE LICENSE
06
TAN is required in a case when proprietorship firm is required to deduct TDS.
07
GST registration is required if the turnover exceeds the maximum limit set by the gst act.
Frequently Asked Questions
Yes, it depends upon various factors like scalability of business, economies of scale and efficiency of sole proprietorship.
The sole proprietor is the ultimate owner in a sole proprietorship business.
