It refers to that business organization where a single person known as a proprietor owns, manages and controls all the activities of the business. The proprietor needs to pool and organize the resources in a systematic way all by himself and thereby he controls all the activities with the sole objective of earning profit.
Income tax need not to be paid separately by the owner of the company, but reporting of business income or losses is done on his/her individual income tax return. The owner is inseparable from the proprietorship, so he/she is liable for any business debts.
Also there are ways to pool the resources by two and more people such as that in Partnership Firm
Self Employed Business Owner- When the proprietor thinks of conducting a business with an intention of earning a profit.
Independent Contractor- Here an Independent Contractor is hired to perform a specific task.
Franchise- Proprietor or the franchisee pays fee to franchisor to open a business.
Proprietorship firm can although be started without any governmental registration but tax registration is needed in terms of Proprietorship Registration in India. This can however be done online by Sole Proprietorship Registration Online where you need to fill a registration form in order to register for service tax for your proprietorship. Hence Proprietorship registration in India is based on registration for tax and not for the incorporation of the firm. Sole Proprietor registration in terms of incorporation process is therefore not mandatory to start your business.
Some of the main advantages of sole proprietorship include:-
a. Ease of formation
b. Minimal compliance
c. Relatively inexpensive
d. Individual ownership
e. Lower taxes
f. Ease in dissolving.
One can legally start a sole proprietorship business in India by first choosing a business name and select a location for the conduction of business.
For starting a sole proprietorship business in India you would need address and identity proofs, PAN cards, all KYC documents and rental agreement or sale deed.
Likewise private limited company, sole proprietorship does not require any amount of capital to show on the paper. You can start with any amount of capital in your business.
Below is the comparison between Sole proprietorship, Partnership, Private Limited Company, Limited liability partnership, One person company and Public limited company