PROPRIETORSHIP FIRM

Proprietorships are very easy to start and have very minimal regulatory compliance requirement for getting started. A sole proprietorship can operate under the name of its owner or it can do business under a fictitious name.
  

Proprietorship

A sole proprietorship is a business that is owned and managed by a single person. You could have one up and running within 15 days, which makes it very popular among the unorganised sector, particularly small traders and merchants. The sole proprietorship is a popular business form due to its simplicity, ease of setup, and nominal cost. A sole proprietor need only register his or her name and secure local licenses, and the sole proprietor is ready for business.
  

Advantages of Proprietorship Firms

Easy to Start
 
A sole proprietorship could take 15 days to start if all you need is a Service Tax Registration, but this would stretch to even 45 days if you need Sales Tax Registration. Either way, the process is uncomplicated. PAN card and identity and address proofs are enough to get them done.
Minimal Compliance
 
Sole Proprietorships are only recognised via their government and tax registrations, so the extent of their compliance is limited to the annual filing of their service, professional or sales taxes.
Relatively Inexpensive
 
A Sole Proprietorship is inexpensive as compared to a One Person Company (OPC) and, thanks to the minimal compliance requirements, is inexpensive even over the long-term. You would not need to hire an auditor, for example. This is why, despite its severe shortcoming (unlimited liability), small merchants and traders opt for it.
Business Name
 
Since the name of a Proprietorship is not registered, a Proprietorship can choose to have any name - as long as it does not infringe on a registered trademark. However, since the name is not registered, any other person can also use the same business name unless trademark registration is obtained.
Taxation
 
A Proprietorship with less than Rs. 2 lakhs of income is not required to pay any income tax, as Proprietorships are taxed as the individual owing the business. However, once, income of the business exceeds Rs. 10 lakhs per annum, there are no major advantages for a Proprietorship in terms of taxation.

FREQUENTLY ASKED QUESTIONS?

1. Who can start a sole proprietorship?

Any Indian citizen with a current account in the name of their business can start a sole proprietorship. Registration may or may not be required, depending on what business you are planning to establish. However, to open a current account, banks typically require a Shops & Establishments Registration.

2. How long does it take to establish a business with Sole Proprietorship?

A sole proprietorship business does not take more than 15 days to open-up and get running. This simplicity makes it popular among the small traders and merchants. It's also much cheaper, of course. This is the other reason why it's the most widely used business structure.

3. What businesses are commonly run as sole proprietorships?

Most local businesses are run as sole proprietorships, from your grocery store to a fast food vendor, and even small traders and manufacturers. This is not to say that larger businesses do not operate as sole proprietors. Even some jewellery shops are sole proprietors, but this is not recommended.

4. Do I need to use my own name for my sole proprietorship, or can I run the business under another name?

As a sole proprietor, by default, the legal name of your business is your own name. But you can choose operate the business under another name, known as a "fictitious business name" or "doing business as" (DBA). Most states require you to file an application for your DBA.

5. Do I need to register my sole proprietorship with the government?

You don't have to register or file any paperwork with the federal government to form a sole proprietorship. If you go into business without setting up another business structure and if you're the sole owner, then you're automatically considered a sole proprietor.

However, some states and counties may require you to obtain business licenses and/or permits before you can lawfully operate, Also, if you want your business to have a name that's different from your own legal name, then most states will require you to file for a DBA.

6. What if I wish to convert from sole proprietorship to private limited company or partnership?

You can always choose to do so. The procedure is a little tedious, but it is possible. It is very common for sole proprietors to convert into partnerships and private limited companies at a later stage.