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A Sole Proprietorship is a business structure where one single person owns and manages the entire business. It is the oldest and simplest form of business structure to start in India, and it can be incorporated within 15 days. This makes it one of the most popular forms of business structures among small traders and merchants in the unsystematic sector. Typically, registration is not required for a Proprietorship firm business since it can be distinguished through alternate government business-related registrations such as GST registrations. Moreover, since it doesn’t have a perpetual existence and has unlimited liability, it doesn’t require a formal registration process. Sole Proprietorship Firm Registration is equivalent to individual company registration or One Person Company Registration.
A sole proprietorship is the simplest and most convenient way to start a business in India. It is not a company or corporation but owned and controlled by an individual who is the owner, director, member, and shareholder of the proposed entity. Common examples of proprietorship businesses are grocery shops, chemists, salons, and more.
Some of the compliances that apply to a sole proprietorship include the following:
Income Tax Return Filing:
Business Income:
GST Return Filing:
TDS Returns:
In addition to the mentioned points, the proprietorship may also need to comply with additional regulations according to its industry and region.
To start a Sole Proprietorship, the following documents are required
Sole proprietorship is a popular form of business in which an individual owns and operates a business. Some of the benefits of a sole proprietorship firm are:
Overall, a sole proprietorship firm is an ideal option for small businesses with minimal capital and limited liability.
| Feature | Proprietorship | Limited Liability Partnership (LLP) | Company |
|---|---|---|---|
| Definition | A business owned and controlled by a single individual | A partnership where partners have limited liability | A legal entity separate from its owners |
| Ownership | Owned and controlled by a single individual | Owned and managed by partners | Owned by shareholders |
| Registration Time | Quick and simple registration process | Moderate registration process | Lengthy registration process |
| Promoter Liability | Unlimited personal liability for debts and obligations | Limited liability for partners | Limited liability for shareholders |
| Documentation | Minimal documentation required | Moderate documentation required | Extensive documentation required |
| Governance | Controlled and managed by the proprietor | Managed by partners | Managed by directors and officers |
| Transferability | Not easily transferable | Transferability subject to agreement | Easily transferable through share transfer |
| Compliance Requirements | Fewer compliance requirements | Moderate compliance requirements | Extensive compliance requirements |
Answered by our experts
Any Indian citizen with a current account in the name of his/her business can start a sole proprietorship. Registration may or may not be required, depending on the type of business that is planned to be established. However, to open a current account, banks typically require a Shops & Establishments Registration.
Most local businesses are run as sole proprietorships, from grocery stores to fast-food vendors, and even small traders and manufacturers. That is not to say that larger businesses cannot operate as sole proprietorships, they can! Jewellery shops are sole proprietors, but it is not recommended.
A Sole Proprietorship business does not take more than 15 days to set up and start functioning. This simplicity makes it popular among small traders and merchants. It's also much cheaper, of course. This is the other reason why it's the most widely used business structure.
Yes, it is much cheaper to run an LLP than a private limited company. Mostly because compliances, such as an audit, apply to LLPs only after their turnover is sizable. Most LLPs spend about half as much as private limited companies, in their first year on registrations and compliance work.
The procedure involved is a little tedious, but it is possible. It is very common for sole proprietors to convert into partnerships or private limited companies at a later stage of their businesses.