Proprietorship

What is a Proprietorship?

A sole proprietorship also referred to as a sole trader or a proprietorship, is an unincorporated business that has just one owner who pays personal income tax on profits earned from the business by Edge Legal.

A sole proprietorship is the easiest type of business to establish or take apart, due to a lack of government regulation. As such, these types of businesses are very popular among sole owners of businesses, individual self-contractors, and consultants. Many sole proprietors do business under their own names because creating a separate business or trade name isn’t necessary.

Advantages

  • Ease to Start- A sole proprietorship is easy to start in India because there is no such registration required to start a sole proprietorship business.
  • Ease of compliance- If there is no statutory implication then only an Income Tax Return needs to submit by a sole proprietorship.
  • Ease of dissolution- Dissolution of proprietorship will very easy because it can be dissolved at any time without any regulatory hurdle.
 

Disadvantages

  • Liability protection: A sole proprietorship is basically business by an individual so all liabilities belong to the sole proprietorship will be liabilities of the proprietor.
  • Lifespan: The existence of the sole proprietorship is tied to the proprietor hence it would cease to exist with the proprietor.
  • Fundraising: Fund can only arrange through a bank and financial institution up to a certain limit fixed by that institution.

Due to the disadvantages mentioned above, this registration will be suitable only for small businesses and the unorganized sector with a limited period of existence.

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Frequently Asked Questions(FAQ) about Properitorship

Only one person is required to start a proprietorship as it can have only one promoter.
The proprietor must be an Indian citizen and resident. Non-resident Indians and persons of Indian origin can only invest in a proprietorship with prior approval from the Government of India.
No, the proprietorship firm and the proprietor are one and the same legally. The PAN of the proprietor will be the PAN of the firm. Therefore, there will be no separate legal identity for the business. The assets and liabilities of the business and the proprietor will also be one and the same.
A business operated under a proprietor cannot be transferred to another person unlike a limited liability partnership or a private limited company. Only the assets in the proprietorship can be transferred to another person through sale. Intangible assets like government approvals, registrations, etc., cannot be transferred to another person.
Proprietorship firms are business entities that are owned, managed, and controlled by one person. So they cannot issue shares or have investors.
Yes, there are procedures for converting your proprietorship business into a company or an LLP at a later date. However, the procedures for the same are cumbersome, expensive, and time-consuming. Therefore, it is wise for entrepreneurs to consider and start an LLP or a company in case they are expecting it to be operational at a bigger scale or they want to raise investment.