A sole proprietorship is a type of unregistered business entity that is owned, managed and controlled by one person. Sole proprietorship is the most common type of business in India and it is used by most micro and small businesses operating in the unorganised sectors.
Proprietorships are simple to start and have minimal regulatory compliance requirements for operating. This entity is ideal for entrepreneurs who are getting into business for the first time and for small businesses with few clients.
Ease of setup- The entrepreneur can start operations and receive payments from clients as no registrations are required to start a proprietorship.
Ease of compliance- The other advantage of a Proprietorship is that it requires no additional compliance in most cases. The PAN of the proprietor and proprietorship are one and the same. Hence in most cases, only income tax return in Form itr_3 must be filed every year.
Ease of dissolution- The proprietor does not have to particularly wind up the company incase he wants to cease operations. This saves a lot of time and effort.
In a sole proprietorship, the proprietor has all the rights to decide what to do and how to operate. A proprietor neither needs to report someone nor take orders from anyone else. There is no interference from a third party. Unlike a corporate firm, there are minimal compliances or disclosure requirements during the whole financial year. Hence, Government interference is also very less.
Liability protection: A sole proprietorship does not provide the proprietor with limited liability protection. So the proprietor would be held personally liable in case of any loss or liability.
Transferability: Any license or registration obtained in the name of the proprietorship cannot be transferred to any other person or entity.
Lifespan: The existence of the sole proprietorship is tied to the proprietor hence it would cease to exist with the proprietor.
Fundraising: A proprietorship cannot raise equity funds from angel investors, venture capital firms or PE funds. Banks also tend to restrictions on the amount of credit they can lend.
Due to the disadvantages mentioned above, this registration will be suitable only for small businesses and the unorganised sector with a limited period of existence.
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