What is sole proprietorship?
A sole proprietorship, also known as one man company, is a simple form of business. It is not only easy to form but is also very cost effective and provides a broad range of advantages to businesses that are new. If your business idea requires a sole proprietorship, a one man organization, an LLP (limited liability partnership) or even a private limited organization, then it is not easy to make it.
So, in this informative blog post, we are going to talk about the advantages and disadvantages of a sole proprietorship.
Advantages of Sole Proprietorship
Simple to form
One of the best advantages of sole proprietorship! If you want to establish a sole proprietorship firm, you don't need any specific registration requirements and your identity will be used by your business. Therefore, you can start the company without any registration. In order to create the identity of the Business, you can use an Aadhar card or PAN card, even udyog aadhar registration, etc.
Operate Without Much Hassle
A sole proprietorship firm is very easy to operate because you are the sole decision maker and you don't need to consider a lot of options. Apart from this, no approval is required from any other person or even no board meeting required if you take a decision.
Profit is all Yours
As it is a one person organization, the owner of the firm is the sole beneficiary of the profits. In any other types of business such as a partnership firm, or LLP, minimum two persons are involved which means profit will be divided in them.
Simple and Easy Banking
Sole proprietorship enjoys very simple banking because it does not need a business checking bank account so as to operate the company. You can make plus accept payments right from your own personal account.
Minimum Compliance and Taxation Requirements
We know that a sole proprietorship company will not be registered with any government authority, so the compliance needs are very less and you would only have to file tax return if your company has taxable income (more than RS 2.5 lakhs per annum). If you have crossed the age of 60 during the previous year, then the income tax filing would be needed only if the Business taxable income is more than 3 lakhs.
If you have crossed the age of 80, the income tax filing will be required only if the taxable income is greater than RS 5 lakhs.
Disadvantages of Sole Proprietorship
Some of the major disadvantages of sole proprietorship are here.
Limited Resources
If you are the owner of a sole proprietorship company, then you don't have access to a large Corpus in the beginning. You can take a bank loan or even ask your family members, friends and relatives for loans. In case your business doesn't work well, you may have problems repaying the loan.
Continuity of Business is Uncertain
Keep in mind that the existence of a one man organization completely depends on the Business owner. If he or she dies, then the business can not survive. We know his or her family or heirs can take care of the business but they may not have the understanding of business and this can result in both loss of profit and customers. So, lack of continuity is always there in case of a sole proprietorship firm.
Business size is limited
In the case of a sole proprietorship firm, the business or Company that can be expected completely depends on you, so there is a limit to which you can't expand your business. You can manage the business but up to a limited size.
Liability is not limited
This is the major disadvantage and as a sole business owner, you have to carry all the burden of unlimited business liability. For instance- creditors like banks can seek compensation from your private estate if you are not able to repay loans. But, most of the sole Business owners are aware of this risk and take decisions very carefully.
Need to register sole proprietorship company in India?
The most common question asked by a lot of businesspersons. The answer is no Sole Proprietorship Registration in India is needed for a sole proprietorship. You just need to open an account with the name you want to work. In case you are liable for state service tax or VAT registration, you need to get service tax or VAT registration. Remember, no separate income tax PAN is required. Your PAN will be the PAN of your company and you have to file income tax in your personal name.
Why choose ExpertBells as your service provider for sole proprietorship firm registration in India?
ExpertBells helps end-to-end incorporation, management consultancy and compliance advisory services to clients in India and overseas. With ExpertBells, incorporating a proprietary company is very easy, fastest and cheapest.
Apart from this, the company also helps people with private limited company registration, udyam registration in India, public limited company registration, one person company registration, LLP registration and GST registration. So what are you waiting for, call them today to get your business registered?
Conclusion
When we talk about advantages and disadvantages of sole proprietorship, many of the benefits can be drawbacks, so it depends on what will work good for you and your business.
To know whether a sole proprietorship is good for you or not, you need to consider a few important points:
1) Want to set up your business fast with less registration fee and paperwork?
2) Want to have everything related to your organization attached to you as an individual person and completely under your control or
3) Don’t want to worry about other business partners or investors?
If your answer is "YES" for all these questions, then the advantages of sole proprietorship outweigh the disadvantages.