This is the easiest and simplest type of business. Many such industries or businesses have been run in India, whose license is not with the business owner. With the help of proprietorship, a person’s business gets registered under his name, with the help of which a person can include his business benefits, expenses etc. in his tax return.
This actually proves very beneficial for those traders who start their business with very little capital. All the profit under this goes in favour of the proprietor. On the other hand, if the company incurs any kind of loss, then the proprietor bears all that loss. This is because there is no difference between owner and business under the proprietorship. This means that the owner has to bear the burden of debt or loss due to trade under the proprietorship. Also, the owner will be responsible for any kind of encroachment that happens under his business.
Proprietorship meaning and its registration
The government has fixed a minimum government fee of 500 rupees for the proprietorship and a minimum of 2500 rupees for the trade fee. There is no time limit for this. Generally, the time between 2 to 20 days of an application takes place during the entire time of registration.
No special formal method has been decided for this. But a person can register business under VAT / CST, Shops and Establishment Act, Service Tax, Central Excise etc. It is essential to keep the following documents ready for the registration of your business.
- PAN card and its copy
- Residential certificate in the name of the owner such as passport, voter ID or any kind of bill.
- Passport size photographs
- Proof of your business address such as electricity or telephone bill
- Shop and Prestigious Registration Certificate
- Bank account statement for at least six months
- Immediate account details like VAT, CST etc.
A man can also start his work by creating a bank account in the name of his company. But to create such a bank account, the customer has to agree to the KYC policy of the Reserve Bank of India. For this, special documents are being named, out of which at least two are required to be deposited in the bank.
- Registration letter of the company under the Shops and Establishment Act on behalf of the Municipal Authority.
- Sales and Income Tax Return
- CST / VAT certificate
- Registration document on behalf of a professional tax organization or sales tax
- Practice certificate from a CA institute based in India.
- License or registration letter given in the name of the company by the state or central government.
- Any kind of bill that is in the name of the company can also be used to open a bank account.
Difference between sole proprietorship, partnership and company
With this option, any person is prepared to run his business, seeing the benefit of it. Its special benefits are given below.
- Proprietor ship is much easier and cheaper than setting up a formal corporation. In many states, it is exempted from double taxation, which is always applicable to any formal corporation. For this, the name of the owner directly or a fictitious name corresponding to the business can also be named.
- For this, the proprietor does not need to keep or file any business tax report separately. Instead, the proprietor can give all the information about his business in his personal tax return. In this way, the use of the proprietorship avoids spending money on tax filing and accounting. The most important thing is that income tax is levied on the income of the owner and not the corporate tax rate.
- Under this, the owner is putting many people below him for work. This opens up many avenues for job growth, and for this, the government does not have to pay any additional tax. Also, the husband or wife of the owner can also join the work without the employee appointed by the company. Although all the responsibility will be on one person a married couple can also start their business with the help of a proprietorship.
- Only one man takes all the decisions in this business. Therefore, there is no need to depend on anyone for any kind of decision. The owner can run his business the way he wants.
Risks of some kind or the other are common in any business. Some such risks are also inherent in proprietor ship. Some of its shortcomings are discussed below:
Liability: In case of any loss, its responsibility goes directly to the head of the owner, ie if the company goes into loss, only one man (owner) incurs this loss. If the company goes into any kind of debt, then it will be paid only and only from the account of the owner.
Tax: Although it has tax facility, the owner has to pay all self-employment taxes from his pocket. Also, there are some taxes which do not come under any exemption like the health insurance tax of all employees.
Lack of continuity: If the owner falls ill in any way or the owner dies, then the company is shut down. In such a situation, the business becomes ‘liquidate’ and is distributed among all the beneficiaries. In this case, inheritance tax and estate tax are levied on the beneficiaries.
Trouble in capital regeneration: Although the owner starts by investing his capital in the initial time, later on, the need of capital, the owner gets in trouble and sometimes due to lack of capital, there is a chance of closing the company. Also, money cannot be invested in stock or any other type of business plan under the proprietorship.