A sole proprietorship is one of the simplest and most often used business formation structures. It is truly beneficial for small enterprises and new entrepreneurs. Statistics show that one individual runs more than 80% of small enterprises in the US. Out of 33.3 million small enterprises in the nation, just 27.1 million are operated by their proprietors.
It is quite similar in India, with the rising number of sole proprietorship firms. This reflects the independence of businesses without any need to hire extra workers. Also checkout 7 Types of Company Registration in India.
In this blog post, we will explain sole proprietorship features along with document requirements, eligibility criteria, and process for registration.
What is Sole Proprietorship?
When one person owns and runs a business, it is called a sole proprietorship. The business owner is in charge of all the functions and operational activities and is responsible for all bills and obligations. In this type of business, there is no incorporation. It means that the owner and the business are the same entity in the eyes of the law. Therefore, the personal assets of the business owner can be used to pay off business bills. Here are the type of assets for businesses.
Features of Sole Proprietorship Firm
These are the main features and reasons why many business owners choose to run their own business as a self-proprietor:
- Having Ownership and Control: The sole proprietor owns and runs the business alone, which allows them to make any decision quickly.
- Being Simple: A sole proprietorship business is easy to run compared to other business structures, as there are fewer rules and regulations to abide by.
- Tax Advantage: The money coming in from the business is personal cash, which makes it easier to file your taxes. There are many tax benefits on business loan.
- Direct Gain: The business owners get all the profits they make when they register a proprietorship.
- Unrestricted Use of Funds: The owner is free to use business funds for any purpose without many restrictions.
Eligibility Criteria for Sole Proprietorship Firm
Some prerequisites must be satisfied to register a sole proprietorship. According to these eligibility criteria, the person who wants to run the business must show that they are legitimate and have the skills to do so.
To register a sole proprietorship is relatively simple and knowing these requirements will help for smoother sole prop registration.
- Age: The individual must be over eighteen years old to be officially able to sign business agreements.
- Citizen of the Country: Anyone who wants to register their business must be a citizen of the country where the business is being filed.
- No Past Insolvency: A person with any past insolvencies is not allowed to register the sole proprietorship business.
Different Name of the Business: The new suggested business name should not match any existing trademarks or business names.
Documents Sole Proprietorship Registration
Depending on your legislative area, different documentation is required to register for a sole proprietorship. But in general, it includes:
- Identity Proof: An official piece of identification, such as a driving license or passport.
- Business Address Proof: Proof of where the business is located, such as a power bill or a rental deal for the building.
- Permanent Account Number Card: This is the owner’s PAN card for tax purposes.
- Bank Account Proof: A voided check or a recent bank statement to prove that you have a business account.
- Licenses and Permits: Any trade or health permits or other licenses or permits needed for the particular type of business to run.
Also Read:- What is Join Venture?
Registration Process For Sole Proprietorship Firm
There are many phases involved in registering a sole proprietorship firm:
Step 1: Select a Name for Your Business:
Pick a unique name for your business that follows the rules set by the law. It shouldn’t be similar to any other business name, and make sure the name fits the business objectives and its services.
Step 2: Prepare for the Required Documents:
The owner must apply for a PAN card if they do not already have one. For tax reasons, you need to have a PAN card. Also, you need to have address proof and identity proof.
Step 3: Fill out the Online Registration Form:
Visit the government portal to register your sole proprietorship firm and fill out the registration form carefully.
Step 4: Pay the Registration Fees:
For your sole proprietorship firm to be registered, you need to pay the government-set fees, which range between Rs.2000 and 3000.
Step 5: Wait for Verification and Approval:
The government officials and designated authorities will verify your registration form and approve the same.
Takeaway
People who want to start their own business should register a proprietorship firm without fail. It causes little trouble and doesn’t have much compliance. It gives you the legal power to control and manage your firm. Hence, we can say that it is a good practice for many business owners.
However, it’s equally essential to consider that after registering your sole proprietorship firm, you may face financial difficulties funding your business. In such a case, Indifi can be your best helping hand. It provides specialized financial solutions to meet the needs of sole proprietorship firms having financial difficulties. Indifi gives loans to small businesses to help them grow. They aid in making sure businesses have the funding they require to expand and prosper.
FAQs
- For how long does it take to start a one-person business?
Setting up a sole proprietorship normally takes a few days or weeks. The time depends on the legislative area of law and how much paperwork is required.
- Is it compulsory to register a proprietorship firm?
Even though it’s not always compulsory, registering a sole proprietorship business is a good idea. It helps businesses run smoothly and in accordance with local rules, such as getting a license or opening a bank account.
- What do the tax rules say about a sole proprietorship?
The owner of a sole proprietorship considers the business revenue their own. This indicates that the owner’s and business’s incomes are subject to the same tax rates, simplifying the tax filing process.
- What are the five benefits of being a sole proprietor?
Here are the five benefits of being a sole proprietor:
- Full power to make business decisions.
- Easy to set up and doesn’t cost much.
- Involves few regulatory requirements.
- All the profit goes to one person.
- Direct tax breaks because income from a business is personal income.
- Why is sole proprietorship popular among business owners?
A sole proprietorship is well-known for being easy to set up, having low start-up costs, and giving the owner full power over business choices. It has few rules and regulations, and allows individual to keep all the income without paying corporate taxes on them.
6. What are the different types of LLP Registration?
A Limited Liability Partnership, or LLP, is a type of business setup that mixes parts of a regular partnership and a corporation. In an LLP, the partners are only responsible for the business’s debts up to a certain limit.