- Ownership and Control: A sole proprietorship is owned and managed by one individual, with complete control over the business’s assets, revenues, and operations.
- No Limited Liability: The proprietor is personally liable for all business activities, making it unsuitable for ventures with high risks or liabilities.
- No Formal Partners: A sole proprietorship does not allow for partners or shareholders.
- Ease of Registration: Registering a proprietorship does not require formal incorporation or dissolution processes. However, obtaining necessary licenses and registrations such as GST and UDYAM ensures compliance.
- Low Compliance: Sole proprietorships primarily interact with tax departments like GST or Income Tax, reducing compliance burdens compared to LLPs or companies.
- Simple Decision-Making: With no partners or directors, the proprietor has full authority to make quick and independent business decisions.
- Complete Control: As the sole owner, the proprietor retains full control over the busines Better Tax Benefits
- Better tax benefits: The income generated by the firm directly passes through a single layer of income tax. In some cases, it is also eligible for up to a 20% tax deduction. These deductions can help the owners save a lot of money
- Limited Funding: Sole proprietorships rely on the proprietor’s savings, borrowings, and credit history. Raising equity or external funding is not possible.
- Unlimited Liability: The proprietor’s personal assets can be used to settle business liabilities, including loans and taxes.
- Lack of Continuity: The business ceases to exist upon the proprietor’s death or incapacity.
- Unincorporated Structure: Sole proprietorships are unorganized and lack a centralized registration database, limiting recognition and transparency.
To operate a sole proprietorship in India, the following licenses and registrations are typically required:
- Permanent Account Number (PAN) and Aadhaar: Essential for business identification.
- UDYAM Registration: Recognizes the business as a Micro, Small, or Medium Enterprise (MSME) and provides government benefits.
- GST Registration: Mandatory for businesses exceeding specified turnover thresholds.
- Shops and Establishment Act License: Required in some states to comply with local labor regulations.
- Separate Bank Account: Opening a current account under the proprietor’s name is recommended for smooth financial management.
- Obtain PAN and Aadhaar for identification.
- Register under GST to formalize the business.
- Apply for UDYAM Registration using PAN, Aadhaar, and GST certificates to avail MSME benefits.
- Open a business current account by submitting required documents such as GST registration and Shop & Establishment license.
- Income Tax Filing: Proprietors must file personal income tax returns (ITR-3 or ITR-4) annually, declaring business income.
Tax Audit: If the sole proprietor has a turnover or conducts business exceeding ₹1 crore in a financial year it is mandatory to have a tax audit before tax filing. Vakilsearch has a team of experienced chartered accountants who can guide you when it comes to regulatory compliances , tax advantages, and return filing. Book a slot to consult today. - Bookkeeping and Accounting: As per law the sole proprietor is required to maintain a book of accounts if they cross the threshold of₹25,00,000 or more than ₹2,50,000 in any of the three preceding years.
- Filing GST Returns: As per the GST Act the proprietor has to file GST returns if the aggregate business turnover is more than ₹20 lakhs.
- Comply with Labour Laws: If the proprietor decides to hire employees, then they will have to follow the other labour laws of India. The proprietor should agree to the minimum wage requirements, working regulations, and other employee benefits.
- File TDS Returns: The TDS returns have to be filed on time by the proprietor to avoid fines. Based on the purpose of deduction the following TDS return forms should be filed:Form 24Q for TDS on salaries
○ Form 27Q for TDS deducted for a non resident or foreign company
○ Form 26QB for TDS on payment for transfer of immovable properties
○ Form 26Q for TDS in any other case - Professional Tax Registration
Additional compliance requirements may vary based on the business’s industry and location.
Proprietorships can engage in most business activities except those requiring specialized approvals, such as banking, insurance, and telecommunications. This structure is best suited for small-scale ventures.
| Particulars | Sole proprietorship | LLP | Partnership | Particulars |
| Establishment | It is easy to register doesn’t require any complex paper works | A bit complicated process and requires the applicant to file articles of incorporation with the state government | The applicant should file all the details regarding the partnership partners and the business directly to the MCA | Establishment |
| Name of the business | The business can function under the owners name or formally registered business name | It requires an established and secured name ending with the word LLP | It requires filing directly for name registration. | Name of the business |
| Liability | There is no legal protection for the firm. The owner has 100% liability for debt. | Legal protection is provided for the owners. | The owners are liable | Liability |
| Taxation | The income generated is filed under the owners personal taxes. | In case of two or more owners the taxation is filed appropriately as partnerships. | Filed under partnership both the income or the losses are declared on personal returns | Taxation |
