What is a Proprietorship Firm?
Proprietorship Firm is a form of the business organization in which the proprietor brings his capital, manages, controls the business himself, and bear solely the risks of business.
It is the oldest form of business which is owned managed and control by one person. It is also known as an individual proprietorship or sole trading. In the eye of Law, there is no distinction between the proprietor and their firm.
It is nothing but a business run by a single entity, where whole capital is contributed by him or her and in lieu of capital contribution, he or she gets an entire profit and is liable to bear the entire loss. This type of business is most suitable for small and micro operating Businesses.
This form of Business is particularly common in an area of personalized services such as beauty parlors, hair, saloons, and small scale activity like running a retail shop in a locality.
Who is Proprietor?
Any person who owned, control, and managed by herself or himself. It simply refers to a person who owns the business and is personally responsible for all debts.
Eligibility For Proprietorship Firm
- Capital contribution by a single person.
- No other partner will be there in the company.
- There should be a single owner of a business.
- A single person will take all profit and bear all the losses.
Restrictions to Proprietorship Firm in India
In India, there are hardly any restrictions on proprietorship Business except the following –
- Banking Activities: Banking activities can only be carried out by a body corporate complying with the requirement stipulated by Banking Regulation and Control Act,1949, and all the direction is given by the Reserve Bank of India and The Government of India in these regards.
- Insurance Business: Even After liberalization, the insurance business cannot be carried out by a proprietor.
How to Start a Proprietorship Firm?
A proprietorship is the simplest form of a business organization in which an entrepreneur can start, grow, and managed their business single-handed.
For the Proprietorship firm, there is no registration required as such it starts with the will of the proprietor /owner without obtaining any certificate. But in some cases, they required a license for operating their business.
For starting the proprietorship firm in India there is some registration required for operating proprietorship firm is –
MSME Registration -Micro small and medium enterprise’s registration is mainly required for whose Investment and the turnover limit is up to 1 crore, for getting the benefits of schemes provided by the government of India.
GST Registration – Goods and service tax registration mainly required for whose sell the goods, and services within the state (intrastate supplies)or interstate (I.e. One state to another).it Is mandatory for those whose minimum turnover exceeds up to 20 Lakhs.
TAN Registration -It is mandatory for the filling of Income-tax return. It is a specific number allotted for the deduction /collection of TDS and payment.
FSSAI Registration– FSSAI registration is required for those companies involved in selling or manufacturing of food products.
Current A/c – For proprietorship firm it is mandatory to open a current Account for that the bankers insist for two KYC documents in the name of firm to open current bank A/c in the name of firm.
Documents Required for Proprietorship Firm Registration
- Two Photograph
- Copy of Pan card
- Valid ID proof
- Latest Address
- Proof of registered office address(it should not be older than 2 months)
- NOC from Owner of premises
- Canceled cheque of the proprietor
Advantages of Proprietorship Firm
Easy Formulation and Closure
A proprietorship firm can be easily started at the will of the proprietor and dissolved any time without any legal formalities as it is not governed by any specific law.
The income of the proprietor is included in the income of the proprietor itself. Hence, slab based tax rates apply in the tax benefits.
No Foreign Funding
A proprietor cannot be funded with foreign money, and it is only owned the Indian and NRI with the same condition.
Ease of Compliance
In a proprietorship firm, there is no additional compliance needed in most of the cases operating business as a proprietorship firm.
Disadvantages of Proprietorship Firm
In proprietorship Firm, the liability of proprietor is unlimited which means the proprietor is personally liable for all the losses of their business. In case business assets are insufficient to pay for, the personal assets are equally liable. This unlimited liability makes caution the proprietor due to high risk and therefore it is not preferred much to start the proprietary concern.
No Perpetual Existence
it doesn’t, ‘t have perpetual existence which means In case the proprietor is no more – the existence of the business would also come to an end.
No Separate Legal Entity
A proprietor has no separate legal identity distinct from its owner. There is no distinction between the proprietors and business in the eyes of law.
Transferability of Share
The Proprietorship firm is not flexible in case of transferability because all license and registration are obtained in the name of proprietor which are linked to the proprietor, and which cannot be transferred to any other person.