The Proprietor must be an Indian citizen and a Resident of India. Non-Resident Indians and Persons of Indian Origin can only invest in a Proprietorship with prior approval of the Government of India.
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Sole Proprietorship is one of the most famous form of doing business with the least compliances involved as compared to other legal entity structures. A sole proprietorship consists of the sole owner who has the vision and idea of conducting the business.
The greatest advantage which a sole proprietor enjoys is that the business secrets are confidential and not known to any person as compared to partnership business and other legal entities where business secrets are known to every partner and directors involved along with the independence, flexibility and promptness of decision making power that a sole proprietor enjoys.
Legally there is no separate registration for sole proprietary concerns, PAN of sole natural person is also the PAN of sole proprietary concern and its registration can be done through operating any tax registration For Example - GST Registration or other Licenses For Example FSSAI, MSME, IEC Code, Trademark Registration.
Business secrets are confidential
Unlike in other business concerns the business secrets in case of sole proprietorship business are protected since they are only known to the owner.
Prompt decision making
Since the business owner himself can take decisions and there is no issues to consult other partners or understanding problem, therefore prompt and fast decision making can be done.
Minimum Compliances
Very less compliances are involved only the tax compliances with regard to specific licenses is to be done therefore, compliances burden is largely reduced.
Easy way to start any business
Easiest way to conduct business because of no specific registrations required with minimal disturbances in smooth flow of business.
Minimum Cost of Compliance and commencement
Since the compliance burden is largely reduced therefore, it is the cheapest way to start any business.
Difficulty in raising fund
A sole proprietor cannot raise funds through equity, venture capital etc.
Loans restriction
There is a limit upto which a business can lend money to sole proprietorship concerns.
Limited Liability Concept is not applicable
In case of losses the sole proprietor shall be held personally responsible and there is no limit of any monetary liability for sole proprietors.
Perpetual Existence concept not applicable
With the death of sole proprietor the sole proprietorship business comes to an end.
Non –Transferability of Business
Sole Proprietary business is linked to PAN of sole proprietor therefore transferability of sole proprietorship business from one person to another cannot be done.
Differences between Sole Proprietorship and Partnership are as Listed Below
| Particulars | Sole Proprietorship | Partnership |
|---|---|---|
| Meaning | A type of business organization, in which only one person is the owner as well as operator of the business is known as Sole proprietorship. | A business form in which two or more persons agree to carry on business and share profits & losses mutually is known as partnership. |
| Owner | Known as sole trader or sole proprietor. | Individually known as partners and collectively known as firm. |
| Minimum members | Only one | Two |
| Maximum members | Only one | 100 Partners |
| Decision making | Quick | Delay |
| Duration | Uncertain | Depends on desire and capacity of the partners. |
| Liability | Borne by the proprietor only. | Shared by the partner. |
| Governing Act | No specific Statute | Indian Partnership Act, 1932 |
| Incorporation | Not Required | Voluntary |
| DuraFinancetion | Scope for raising capital is limited | Scope for raising capital is comparatively high |
| Secrecy | Business secrets are not open to any person except the proprietor | Business secrets are open to each and every partner |
| Profit and Loss | Proprietor is solely responsible for the profits and losses. | Profit and losses are shared in agreed ratio. |
Self attested copies of PAN Card of the proprietor
Self attested copies of Adhaar Card of the proprietor
Self attested Passport/ Voter Identify Card / Driving License
Passport size photograph
Mobile No. and E-Mail id of the proprietor
Proposed Name of the Proprietary concern
Date of Commencement of Business
Description of activities to be conducted / Nature of business to be conducted
Copy of Utility Bill Eg- Landline Bill or Electricity Bill where the address of the Firm is to be situated (Shall not ne older than 2 Months)
In case of rented premises- Rent Agreement + Electricity Bill + NOC
Bank statement copy (first page for verifying bank account number, address and IFSC code)
Obtaining necessary Documents
As per requirement registration done for GST/MSME/FSSAI
The Proprietor must be an Indian citizen and a Resident of India. Non-Resident Indians and Persons of Indian Origin can only invest in a Proprietorship with prior approval of the Government of India.
There is no limit on the minimum capital for starting a Proprietorship. Therefore, a Proprietorship can be started with any amount of minimum capital.
To open a bank account for a Proprietorship, Reserve Bank of India mandates that the proprietor provide two forms of registration for the Proprietorship along with the PAN Card, identity proof and address proof of the Proprietor. The two forms of registration can be any two of the following: service tax registration, MSME registration, GST registration, shop & establishment Act registration, Professional license, Chartered Accountant certificate or others as provided in the RBI Know Your Customer norms
A business operated by proprietorship firm 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.
Yes, there are procedures for converting your Proprietorship business into a Company or a LLP at a later date. However, the procedures to convert a proprietorship business into a Company or LLP are cumbersome, expensive and time-consuming. Therefore, it is wise for many entrepreneurs to consider and start a LLP or Company instead of a Proprietorship.