Sole Proprietorship Business

Which is the oldest form of business organisations? Well, it is a sole proprietorship. It is also the most common type of business entity found in India. All the businesses you see around you, your local grocer, the chemist, the doctor are all probably sole proprietors. Let us look at some features of a sole proprietorship.

The sole proprietorship is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts. A sole proprietorship can operate under the name of its owner or it can do business under a fictitious name, such as Nancy’s Nail Salon. The fictitious name is simply a trade name–it does not create a legal entity separate from the sole proprietor owner.

Why choose a sole proprietorship?

Sole proprietorships are often the results of accidental entrepreneurs and new business owners beginning a business without really intending to start a company. As soon as your enterprise has revenue, it’s a business. With a sole proprietorship, there is no state filing to begin the business. On the flip side, there is no separation between the assets of the business and those of the owner. Therefore the sole proprietor‘s personal assets can be used to satisfy business debts and liabilities.

Advantages of sole proprietorships

Typical advantages of a sole proprietorship include:

  • Ease of creation. Owners can establish a sole proprietorship instantly, easily and inexpensively.
  • No state paperwork. There is no state filing required to create a sole proprietorship.
  • No separate tax filing. There is no separate business income tax filing. Business income or loss is reported on the sole proprietor’s personal tax return, and any tax is paid at the individual level.
  • Few ongoing formalities. Sole proprietorships face few, if any, ongoing requirements or formalities, For example, State annual report.

Merits of Sole Proprietorship

  • Easy formation and closure
  • Direct motivation
  • Maintenance of business secrets
  • Quick decision and prompt action
  • Better control
  • Flexibility in operation
  • Least record keeping
  • Close personal relation

A sole proprietorship is among the oldest and simplest business forms wherein, only one man heads the entire show. Some common examples of sole proprietorship business are grocery shop, chemist shops, beauty parlours, fabrication units and so on.

Demerits of Sole Proprietorship

  • Limited resources
  • Limited managerial ability
  • Lack of continuity
  • Limited size
  • Unlimited liability

In contempt of various shortcomings, many business persons choose a sole proprietorship business, especially startup founders, due to its inherent benefits. Such business is appropriate where the market for the product is limited or when the customers demand personalized services. It also suits to the businesses where manual skills are required or where the capital required to start the business is relatively small and does not involve a high degree of risk.


Q; The functioning of Sole Proprietorships in India are governed by the Proprietorship Act. True or False?

Ans: The statement is False. In fact, there is no such law in existence. Sole Proprietorship is not governed by any one single law. This is because it has no separate legal identity. There is no need for incorporation and the not many procedures to be done. Opening a bank account and obtaining a license (if necessary) are mostly the only steps involved.

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1 Response

  1. June 16, 2019

    […] order, and then completing the invoice. Still, not everyone may need this system. For instance, a sole proprietor with no employees may suffice without it. However, small businesses with more employees, customers, […]

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