A sole proprietorship is a business owned and operated by a single individual.

It is one of India’s oldest and most popular business forms because of the easy setting-up procedure and nominal costs. Many businesses start as a sole proprietorship before becoming a partnership or an LLC (Limited Liability Company).

Suitability of Sole Proprietorship 

A sole proprietorship is suited best for small businesses. Any person can be a sole proprietor, with the right mindset. The initial investment in these kinds of businesses is usually much smaller than other kinds.

Small retailers such as groceries, electronics shops, bakeries, and general stores will find sole proprietorship more suitable due to their simple structure.

Features of Sole Proprietorship 

  • Only one person is required to form a sole proprietorship.
  • There are no legal conventions associated with this business form. The owner might need a license if he deals with certain products like alcohol or medicine.  
  • A sole proprietor can close the business at any time.

Benefits of Sole Proprietorship  

Sole proprietors enjoy benefits that other kinds of business owners do not:

Ease of Operations

Apart from the ease of setting up, a sole proprietorship is also easy to operate as only one person is at the helm of affairs. As a result, owners can take major decisions quickly. Moreover, it is easier to maintain confidentiality regarding business decisions and USPs. 

Direct Earnings

This is the only business type where the owner is the sole beneficiary of all profits. In all other types of businesses, such as partnerships or LLCs (Limited Liability Companies) minimum of two people are required to set up the business and profit also has to be shared.

Flexibility

A vital benefit of a sole proprietorship is that the owners can close or sell off their businesses any time they want to. There are only a few complications associated with changing the business structure. Owners can easily convert a sole proprietor business into a partnership or LLC. 

Over the past few years, the country has witnessed a rise in sole proprietors and startups. To make tasks easier, RazorpayX offers a neo-banking platform that solves all business financial needs. 

Limitations of Sole Proprietorship 

The popularity of sole proprietorship businesses is undeniable, and for good reason. If you are looking to start a small business of your very own, there are certain things you’d do well to keep in mind:

  • Obtaining finances is a significant challenge for these businesses. Sole proprietorships cannot sell shares, so such businesses cannot receive equity funding. 
  • Moreover, formal financial institutions usually don’t agree to lend to sole proprietors easily, as the existence of the entity depends on the proprietor. 
  • The owner of this business has unlimited liability, which is a significant disadvantage. They might have to use their personal savings and assets to pay off liabilities.

How to Register a Sole Proprietorship in India

There are three ways to register a sole proprietorship in India: 

  • Registration through Udyog Aadhaar under the MSME Act

A sole proprietor can apply for a Udyog Aadhaar under the Ministry of MSME (Micro, Small and Medium Enterprises). It is a unique identification number that lends a unique identity to the business.

Once a sole proprietorship registers under this Act, it can receive benefits offered by the Government of India for the MSME sector. 

  • Registration under Shops and Establishment Act 

A sole proprietor can register the business under the Shops and Establishment Act by applying to the local municipal corporation.

The term ‘shop and establishment’ refers to any place where customers receive services. It also includes any place from where goods are sold by wholesalers or retailers or office spaces, warehouses, and store rooms used in connection with the business. 

Note that the term ‘shop and establishment’ does not include commercial establishments, restaurants, factories, theatres, and places of public entertainment. 

  • GST Registration of Sole Proprietorship 

GST registration is mandatory for a sole proprietorship if the annual turnover is Rs. 40 lakh or more. It is necessary if the business has an e-commerce presence. It is also mandatory if the business trades from one state to another.

Documents Required for Sole Proprietorship Registration

To register as sole proprietorship, the following documents are required:

  • PAN details
  • Aadhaar card
  • Bank account details
  • Proof of office space
  • Rent agreement or NOC (No Objection Certificate) from the landlord
  • Electricity bill or sale deed or electricity bill in case the office space is self-owned

Business Ideas for Starting a Sole Proprietorship 

Some of the best ideas for starting a sole proprietor business in India are as follows. These businesses are easy-to-set-up and offer good returns.

  • Financial planning
  • Bookkeeping business 
  • Catering business
  • Landscaping business 
  • Computer repairing businesses

For more detailed and concrete small business ideas, read our blog!

Read more

How Can RazorpayX Help a Sole Proprietorship? 

RazorpayX assists sole proprietorships in automating all financial transactions, including receiving payments, payouts, payrolling, tax payments and more. Business owners can focus their attention on growing their business and not have to worry about managing their finances.

Here are the top reasons why new businesses should opt for RazorpayX: 

  • The platform provides detailed reports that help owners get complete control and visibility of their business finances.
  • Sole proprietors get to benefit from APIs (Application Programming Interfaces) integration, which helps them develop their websites and apps. 
  • Moreover, business owners can track their transactions whenever they wish to. 
  • Businesses can open their very own RazorpayX-powered current account, which helps them grow to their full potential. 

Taxation Rules of Sole Proprietorship 

When it comes to taxation rules, a sole proprietorship is no different from the individual. These businesses and their profits are taxed as per the income tax slab rate of the owner.

Discussed below are some important points to remember: 

  • A sole proprietor must file ITR (Income Tax Returns) only if taxable income exceeds Rs. 2.5 lakh per annum. 
  • Sole proprietors who have crossed 60 years must file ITR only if the taxable income exceeds Rs. 3 lakh. 
  • Sole proprietors who are 80 years old or more need to file ITR only if their taxable income exceeds Rs. 5 lakh 
  • For income of less than Rs. 10 lakh, sole proprietorships carry lower tax liability than companies or LLPs. However,  

A sole proprietorship is the oldest type of business for a reason. It is easy to set up, and legal complications are almost negligible.

If you are a sole proprietor or thinking of becoming one, you’ll need a solid banking platform to back you up.

Join RazorpayX, India’s #1 neobank.

 

FAQs

Does a sole proprietorship have a continuous existence or perpetual succession?

A sole proprietorship does not have a continuous existence. Nor will it have perpetual succession. These businesses get dissolved after their owners leave them or die.

Can I register my sole proprietorship at my residential address?

Yes, sole proprietors can register their businesses by providing their residential addresses.

Is a sole proprietorship a separate legal entity?

A sole proprietorship is not a separate legal entity from its owner. The business's earnings and profits are considered the owner's income and taxed accordingly. Moreover, the PAN card of the business is the same as that of the owner.

What is the minimum amount necessary to start a sole proprietorship?

There is no rule regarding the minimum amount one must have to start a sole proprietorship in India. Therefore, people can start their businesses with any amount of money in hand.

Is audit mandatory for a sole proprietorship firm?

An audit is not mandatory for a sole proprietorship. But it is necessary as per the Income Tax Act if its annual income exceeds the specified limit and it needs to file ITR.

Author

Raghavi likes to think that because she writes for a living, she'd be good at writing a short bio for herself. But she isn't. She is good at binging K-drama, though.

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