Introduction

A sole proprietorship is an unincorporated business that one person owns and manages. As the business and the owner are not legally separate, it is the simplest form of business structure. It is also known as individual entrepreneurship, sole trader, or simply proprietorship.

This type of business is the easiest and cheapest form to start. For this reason, it is common among small businesses, freelancers, and other self-employed individuals. The business owner, also known as a proprietor or a trader, conducts business using their legal name. They may also choose to do business using another name by registering a trading name with their local authority.

A sole proprietorship may transform into another, more complex business structure if the business grows substantially. A sole proprietorship begins and ends when the business owner decides, or upon their death.

BENEFITS OF SOLE PROPRIETORSHIP

Every business structure renders different benefits. Following are some notable benefits offered by a Sole Proprietorship Business to its owners.

  • Fairly Easy to Establish

An applicant seeking to run their business affairs as a Sole Proprietor doesn’t need to undergo any registration process. They only need to secure business-specific licenses or registrations to run their business legally.

  • Seamless Decision Making

Sole Proprietorship business outweighs other business structures when it comes to the decision making. It offers complete authority to the owner to take any decision regarding business affairs without intervention of anyone else.

  • Attract lower Taxes

Tax authority doesn’t treat Sole Proprietorship and Sole proprietor differently. Therefore, they do not need to address separate tax liabilities. Prevailing IT Act mandates sole proprietor to file an income tax return. It is a way to disclose profit and income generated before the tax authority for the given FY.

  • Ensures no profit distribution

The sole proprietors serve as the sole owner of their business and rejoice in uncompromised control over their profit.

  • No Auditing requirement for low-income firm

The financial accounts of Sole Proprietor business are not exposed to mandatory auditing requirements. It only comes into play when a business income surpasses the certain turnover threshold underpinned by the concerned authority.

  • Adheres to minimal compliances

The Sole Proprietorship business model doesn’t come under the ambit of any specific law; hence, it is free to operate without tedious compliances. Unlike entities functioning under Company Act, 2013, they are free to work without a Certificate of Incorporation or Registration Certificate. Also, they are not obligated to disclose annual reports with MCA. However, such businesses need to stay in line with applicable GST compliances. In view of this, they are also mandated to register under the prevailing GST Act.

DOCUMENTS REQUIRED TO OPERATE AS AN SOLE PROPRIETOR.

  • PAN, photographs, & Aadhar Card of the proprietor.
  • Utility bills of the business place such as water bill or electricity bill.
  • Bank statement copy and other details such as account number and IFSC code.
  • Applicants can avail of GST registration by submitting relevant e-application on the GST portal.

PROCEDURE FOR ESTABLISHING SOLE PROPRIETORSHIP BUSINESS IN INDIA

The section below reflects the list of mandatory documents that is required for establishing a sole proprietorship business.

  • Step 1: Register under GST.

GST registration applies to all forms of business whose annual turnover is above the prescribed threshold limit. At present, businesses whose yearly turnover is greater than Rs 40 lakh are mandated to secure this registration. Keep in mind that GST also covers online business owners.

  • Step 2: Open the Bank Account in the name of Business

Once you have secured the PAN and Aadhar Number, you can approach any designated bank opening a current account. Common documents required for serving this purpose include PAN, Aadhar Number, GST registration, and address and identification proof.

Note: the applicant can furnish the copy NOC or rent agreement for address proof. Likewise, they can also facilitate utility bills to serve such a purpose.