Sole Proprietorship

A sole proprietorship, also known as a sole tradership, individual entrepreneurship or proprietorship, is a type of enterprise owned and run by one person and in which there is no legal distinction between the owner and the business entity. A sole trader does not necessarily work alone and may employ other people.

The sole trader receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. Every asset of the business is owned by the proprietor, and all debts of the business are that of the proprietor; the business is not a separate legal entity. Sole proprietors may use a trade name or business name other than their or its legal name

Advantages and disadvantages

Registration of a business name for a sole proprietor is generally uncomplicated unless it involves the selection of a name that is fictitious, or assumed. In many countries, the business owner is required to register with the appropriate local authorities, who will determine that the name submitted is not duplicated by another business entity.

The owner may hire employees and enlist the services of independent consultants. Although an employee or consultant may be requested by the owner to complete a specific project, or participate in the company’s decision-making process, their contribution to the project or decision is considered a recommendation under the law.

This is transposed by the unlimited liability attached to a sole proprietary business. The owner carries the financial responsibility for all debts and/or losses suffered by the business, to the extent of using personal or other assets to discharge any outstanding liabilities. Thus the owner of a sole proprietorship may be forced to use his/her personal holdings, such as his/her car, to pay the debts. The owner is exclusively liable for all business activities conducted by the sole proprietorship and, accordingly, entitled to full control and all earnings associated with it.

To run a proprietorship business in India, the proprietor will have to obtain PAN and Aadhar. The proprietor must obtain GST registration, UDYAM registration and open a bank current account. In some states, the proprietor will also have to obtain Shops & Establishment Act registration.In addition to the basic requirements above, additional licence and permits may be required depending on the industry, state, and local regulations.

Compliances for Proprietorship

Income Tax Filing: The business owner of a proprietorship will have to file personal income tax return using form ITR-3 or ITR-4.Only income tax forms ITR-3 and ITR-4 allow for declaring business income. Hence, all proprietorships will have to file form ITR-3 or ITR-4 to be compliant with the income tax regulations.

GST Return Filing: If a proprietorship has GST registration, GST return must be filed every month and quarter as per the scheme under which the business is registered.

TDS Returns: In case the proprietorship is having employees or purchasing goods/services beyond a certain threshold – tax must be deducted at source and TDS returns must be filed every quarter.