Sole Proprietorship - Advantages of Sole Proprietorship Business

It's quite apparent that Sole Proprietorship businesses are one of a kind where almost there's no expense of registration and all. But one should never forget that it's not a separate legal entity and doesn't have limited liability.

10th Sep 2019
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Sole Proprietorship, as the name suggests, is a business run by an individual. Unlike an OPC (One Person Company) where the owner has to appoint a nominee, a Sole Proprietorship business is entirely different. There isn’t any nominee or anything like that. It is simply run by a single entity.

Therefore, those who are thinking to start their business without any involvement of anybody, then he/she must go for Sole Proprietorship. Moreover, starting such businesses lets you stay away from involving in any kind of conflicts because of the varied opinions on the business decision taking and making.

 

If we talk about business forms such as Private Limited or Public Limited Company, Partnership or LLP, etc. there is more than one member. As a result, sometimes they aren't able to agree on something mutually. Hence, they get into a fight that affects the business operations.


Therefore, in this blog, we have aimed at making you familiar with the advantages of Sole Proprietorship businesses and let you know how it could prove beneficial for you. But before that, let us understand the concept of Sole Proprietorship clearly.

What is Sole Proprietorship?

A Sole Proprietorship is a business form that is managed and operated by a single individual. It doesn't require any partner, director, or shareholder. The only person who owns the business is wholly liable for everything.

Such business forms are one of the most common in India. Furthermore, the registration process is also pretty simple, as well as cost-effective. Moreover, the individual handling the proprietorship firm possesses the full responsibility and authority concerned with the business.

Besides, the owner of the proprietorship firm is liable for managing all the legal responsibilities that are necessary for handling the business. Hence, when a person registers his/her business as Proprietorship, he/she must remember that it's not a separate legal entity.

In fact, the owner and his business are considered as a single entity. Furthermore, such businesses have the owner as both the director as well as the shareholder of the business.

What form of entities should go for Sole Proprietorship Business?

Mainly, these kinds of business forms are not for somebody with large business turnovers as there are some risks involved. Instead, proprietorships could be best suitable for small businesses and those with a low investment. Let's discuss how and why.


  • Small Businesses: Proprietorship firms are recommended for businesses with low turnover and that in small in size. For instance, wholesale, retail, shop, and more. Generally, such business forms have a simple business nature along with a nominal or the least financial risk. Moreover, they don't have any requirement of huge debts and possess a small product-market.


  • Businesses with low budget: The business with low or minimal capital requirements may go for Sole Proprietorship. Earlier, there were no provisions for any kind of registration for such entities. However, now, these are required to register themselves under tax laws such as the Goods and Services Tax Act, depending upon their turnover.

Top 8 Advantages of Sole Proprietorship Business

If you start your firm as a sole proprietorship, then you have the benefit of saving your capital from business registration. There isn’t any formal registration required for proprietorship firms. Hence, the cost of setting up these businesses is low in comparison to the One Person Company and others.

Apart from these, there are various other advantages of Sole Proprietorship that are quite distinct from other businesses and can’t be availed from them. Some of them are as follows:

Decision-making process is quite flexible

The owners of proprietorship firms have complete control over their business. Therefore, the process of decision-making and taking is entirely their own part. Since there aren’t any partners, there isn’t any kind of interference from anybody. As a result, the decision-making process becomes quite quick and efficient. Furthermore, it's decided in a less time period.

Complete control over finance

Finance is something for which we all are working and mostly work. It plays an extremely important role in running businesses of every kind. Hence, the process of financial decision-making and imposing it becomes pretty simple. As a result, the owner experiences several business opportunities. The individual handling the business possess the sole and full control over the finance.

Better business relations

Such a business form lets applicants create and maintain a good relationship with their customers. As the business owner is able to interact with the client or customer directly; therefore, the information flow between both is complete and accurate. Additionally, because of direct communication, it's easy to solve the problems of the customer. Hence, in a sole proprietorship business, there are better business relationships among the owner and customers.

Confidentiality

It’s often seen that businesses with more partners are open to data theft and the leakage of information. However, as we have already mentioned, there's the only member in a proprietorship firm; and hence, the owner has complete control over the company. It implies that the condition for data or any information leakage doesn't even arise. Everything is confidential and limited to the only member of the company managing the business.

The registration process is less time consuming

Although it's not mandatory to obtain Sole Proprietorship Registration, it's recommended to get the registration to avail various benefits provided under the MSME schemes. Unlike other businesses, the registration process of a sole proprietorship business is the less time-consuming reason being there's almost no legal documentation required.

Comparatively inexpensive

If we compare a Sole Proprietorship Business with an OPC, it is relatively inexpensive. How? In an OPC, you are required to hire an auditor and likewise, other professionals for several core activities of the company. Moreover, it also saves the business from spending its money on other things such as meeting the compliances of the business.

Minimal statutory compliance

The statutory compliances such as various annual filings, paying professional taxes, sales tax, etc. aren't mandatory to be complied with. Therefore, operating and managing a proprietorship firm is quite simple.

However, if you have registered your business under any tax registration, then you are surely required to follow the compliances of the same. Besides, you have to file the Income Tax Return (ITR) if your turnover is above the threshold value.

Easy to close or wind-up

Unlike in other business forms where you have to intimate the closure of business to the RoC (Registrar of Companies), in Proprietorship, you don't have such formalities. The winding-up process is pretty simple. The only thing you require doing is to get your GST Registration canceled in the proprietor's name if you have enrolled for the same.

Conclusion

It's quite apparent that Sole Proprietorship businesses are one of a kind where almost there's no expense of registration and all. But one should never forget that it's not a separate legal entity and doesn't have limited liability. Therefore, if anything happens, the owner will be responsible for everything.

Apart from this, the proprietorship firm has its own varied number of advantages. You have full control over both businesses as well as finance. You would never be in conflict with any partner. Furthermore, you won't be forced to comply with much compliance, as is the case with companies. Moreover, if at some point, anybody wishes to wind up, then the process is pretty simple. In a nutshell, such business forms are recommendable but for only small businesses and those with low investment.

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