A sole proprietorship is a business that has only one member who owns the business. It is the easiest way to start a business as the registration process is simple and fast.
It is the most common but most popular way of doing business in India. Some examples of sole proprietorship businesses are a freelancer, a shop owner, a lawyer, a painter, etc.
Significant Points to Remember
- It does not have a separate legal entity distinct from its owner.
- The liability of the owner is unlimited and if the company bears losses or the owner gets insolvent, the creditors can sue him by recovering it from his personal assets.
- All the profits and losses are solely bared by the owner of the company.
- The sole proprietor manages and controls the whole business on his own as all the decisions regarding the business entity are taken by him.
- The capital issued in a sole proprietorship is given by the owner himself through his personal assets and resources.
Types of Sole Proprietorship
1. Self Employed
These types of people can do any type of work alone whether it is freelancing, graphic designing or web development. They can work from anywhere at their particular time. They mostly work from home because it is the most suitable job for them.
2. Contractors
These fall into the category when an independent contractor is hired to do work like a carpenter, plumber, electrician, etc, by receiving payment. This type of work requires special skills and work to complete a particular task or project.
3. Franchises
This type of business is exclusively done with an organization providing services like logo, design, etc. There is little control over the management and continuity of the business.
Sole Proprietorship Registration Process
1. Apply for Aadhar
The first step to apply for Sole Proprietorship is to apply for your Aadhar Card as it is an important document required to start your own business.
2. Apply for PAN
After successfully applying for Aadhaar, the next step to proceed with the registration process is to apply for PAN card.
3. Name the business
The next step after applying for PAN card is to give a name to your business. Most of the sole proprietorship owners give their name to the business. However, it is not necessary that you give your business a name unless it is affecting other business entities or harming the reputation of their business in any way.
4. Apply for a Bank Account
After giving a unique name to your business, the next important step is to open a bank account in the name of the business as all the transactions of the business will be done through this account.
5. Apply for MSME and GST Registration
The last step to complete the entire process is to apply for MSME registration and GST registration. MSME refers to small and medium business owners. You will have to fill all the relevant documents while filing online application. If your business turnover is more than Rs 40 lakh per year then you will also have to obtain GST registration.
Documents Required for Sole Proprietorship
- Aadhar Card
- PAN Card
- Bank Account details
- GST Registration
- Passport Size Photograph
- Office proof such as Electricity Bill
FAQs
What type of business is a sole proprietorship suitable for?
This type of business entity is suitable for many purposes like retail business and freelance as they are easy to establish on your own.
Is a sole proprietor is separate from his business?
A sole proprietor is not different from his business as he is the only owner of the business. In the case of death or insolvency, the business will shut down.
What are the disadvantages of a sole proprietorship?
Since he is the only owner in the business the capital will be limited and easy to raise and he has to bear all the losses by himself.
Is sole proprietorship good for small businesses?
A sole proprietorship is a business entity where all liabilities and financial obligations pass to the single owner of the business. Those who choosing sole proprietorships are generally in career fields with low liability and look for the administrative ease and flexibility that comes with this type of entity.
