Entrepreneurship is an opportunity that many people seek today. But for a newbie entrepreneur, deciding on the form of business is as crucial as the idea for business. Whether you want to open up a sole proprietorship, a partnership etc. needs careful consideration and legal advice.
While individually each business form has pros and cons, opening up a sole proprietorship seems easy if you are a first generation entrepreneur. Let us take you through some of the associated benefits:
- Easiest business type: There are no complexities involved. The legal hassles and mandatory taxation requirements are minimal.
- Easy to start: Sole proprietorships require licenses and registrations that are business specific. Thus the nature of your business decides if there is a need for a sole proprietorship registration. You can easily start your business with a trade name of your choice provided it does not clash with a brand name. Even the trade name you select does not require approval from the concerned authorities.
- Requires less investment: Most start-ups require an initial investment. For sole proprietorship the requirement for an initial investment is minimal. Thus you can start off with your business with whatever capital you have. There is no minimum capital requirement prescribed by the relevant authorities for a sole proprietorship firm.
- No profit sharing: A sole proprietorship is solely and wholly your baby. You benefit from all profits you make. Any loss incurred is a matter of concern for you only.
- Minimal legal compliances: Sole proprietorships have minimal legal governance. Thus legal compliances are also less. Thus money spent on gaining legal advice is also quite low. The compliances are generally specific to the nature of your business rather than for opening a sole proprietorship firm.
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Lesser IT hassles: The company and the proprietor are one and the same for the IT department. This means that:
- You need not file any additional tax returns
- The tax liability of you and your sole proprietorship firm are the same
- Tax is calculated based on the individual IT rates applicable for you
- Profits you earn in the business need to be included in your normal returns.
However, you need to take care of the other tax liabilities as required by the business.
- Information privacy: In all the other forms of business, important details related to accounts and finance need to be shared with the MCA. But there is no such binding on a sole proprietorship firm. Thus you can retain your privacy regarding the business you have started.
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No specific audit required: When you opt for a sole proprietorship registration, you are not governed by any such law that makes annual financial audits a necessity. However, tax audit becomes mandatory when:
- Your annual gross sales cross INR 1cr or
- Professional services you offer have receipts of more than INR 50lakhs
GST registration is required if your annual turnover is more than INR 2 crores.
It is always better to try out start-up ideas with minimal investment and legal compliances. This is where sole proprietorship scores heavily against all other forms of business.