Sole Proprietorship Firm Overview : Lesson 1

Welcome to MyOnlineCA Legal Guide. In this lesson we let you know about the Sole Proprietorship Firm Overview. So let’s learn about the sole proprietorship firm in India. we are creating some FAQ’s on the basis of 1000+ Startups Questions and experience.

a) What is the Sole Proprietorship Firm ?
b) Advantages of the Sole Proprietorship Firm
c) Disadvantage of the Sole Proprietorship Firm
d) Why Choose Sole Proprietorship Firm ?
e) Can I Convert Sole Proprietorship Firm into the another one legal entity
g) Tax Liability in the Sole Proprietorship Firm
h) Annual Legal Compliance in the Sole Proprietorship Firm.  

a) What is the Sole Proprietorship Firm ?
Ans : in simple terms, Sole Proprietorship Firm refers to a legal entity which required only the one person for the registration. Sole Proprietorship Firm has not required any business registration in India but you have to always remember the difference between business & tax registration. Sole Proprietorship Firm need at least one local and tax registration so you can open at least a current bank account in the firm name. 


b) Advantage of the Sole Proprietorship Firm
Ans : There are following advantages in the Sole Proprietorship Firm from Startup Point of view  –

1. Less Costing – You can register Sole Proprietorship Firm nearby just in 2000 through myonlineca because of its need only the tax registration. so you have to spend the money directly on the tax registration instead of business registration. In other legal entity you have to spend the money on business registration then you have to register separately the tax registration.

2. Less Compliance – You have a very less yearly compliance so you have easily bear the annual expense in the case of the sole proprietorship firm. as compared to other legal entity, there is no maintenance cost in the case of solo firm registration. for the more details on this point refer point h.

3. Fewer Taxes – You have to pay very less tax because there is simply reason i.e in the sole proprietorship firm you  have to pay the taxes as individually so there is no difference between sole proprietorship firm income tax or individual person or salary income tax rules. all have to pay on the tax slab basis which is start from 2.5 lac per annum. for the more details refer point g. 

4. Control – you have 100% control over the business and firm. you can start the business on your own terms so that is one of the most advantages of the sole proprietorship firm.


c) Disadvantage in the Sole Proprietorship Firm
Ans : there are following disadvantage in the sole proprietorship firm –

1. Personal Liability –  This is the main disadvantage in the sole proprietorship firm. all the business liability are personal. means if you are unable to pay your business liability like creditor payments then you have to pay from a personal account , even your personal properties can be attached for any business liability.

2. Name Protection is not Available – another disadvantage is you can’t protect your firm name, means anyone person can use your name without your permission. in the other legal entity you can protect your company name.

3. Not Proper Business Registration – Sole Proprietorship Firm has not required any business registration so you not get the proper business registration which means if any one person wants the certification of registration then you are unable to provide them any certificate or business registration number.

4. International not accepted – Sole Proprietorship Firm is trustworthy only in India because it’s not registered under any business registration act. simply you can’t winning trust of the customers or companies outside India with the sole proprietorship firm name. For Ex – in US LLC or Corporation is similar to LLP or Pvt Ltd Company Only.

5. Limited Resource – in the sole proprietorship firm your resource are limited. even you can’t add the partners or can’t raise the funds from investors. you have the only option for the bank loans.


d) Why Choose Sole Proprietorship Firm ?
Ans  : You have to Choose Sole Proprietorship Firm Only when your business idea is not viable or not tested or have doubts to starting a business. Even if you want to test your ideas on the small scale, always start with the simply sole proprietorship firm.


e) Can I Convert Sole Proprietorship Firm into the another one legal entity
Ans : basically conversion is not possible. because already told to you that in the solo firm there is no business registration. you have to simply close the sole proprietorship firm for the conversion and have to start a new legal entity like a private limited company.


g) Tax Liability in the Sole Proprietorship Firm
Ans : Tax liability is only the Income Tax Return in the Case of the Sole Proprietorship Firm. Apart from income tax if you are registered under any other tax registration like service tax or VAT/CST then you have to file the half yearly or quarterly basis return.

So liabilities are –
1. Income Tax – Pay on the Slab Basis ( till 2.5 lac per annum net profit exempt) Once in a year.
2. Service Tax – Half yearly basis Returns & Quarterly basis Payments
3. VAT/CST – Quarterly Basis Returns
Note – Now a new concept is coming GST instead of the service tax or DVAT from 2017.


h) Annual Legal Compliance in the Sole Proprietorship Firm.
Ans : Annual Legal Compliance Only the Tax Returns which is mentioned above like the Income Tax, Service Tax or VAT/CST. apart from this, there is no separate any compliance.