Proprietorship
4 Points You Must Know About Proprietorship
1. Unlimited Liability in case of Proprietorship :
The liability of the owner is unlimited in the case of proprietorship. Unlike a company, the owner is personally liable for all the liabilities of the business.
2. No Legal Identity:
In the eyes of the law, it has no separate legal identity.
3. Evaluation of Alternative Business Constitution :
One must evaluated the pro and cons of alternative business constitution form such as OPC, LLP, Private Limited Company, etc. In other words ,this will help in making an informed regarding the suitability of the business constitution.
4. Minimum Government Regulation :
The government interference and regulations is minimum in this type of business form.
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FAQ`s About Proprietorship
1. What is a proprietorship firm?
The proprietorship firm is owned and run by a single individual. Further , this individual is known as proprietor and is personally liable for all the liability of his business. Moreover , he takes all the profits or responsibility for losses.
2. How sole proprietorship registration is done?
This type of business form does not need registration like a partnership firm or a company. However, shop and establishment or GST registration are necessary for opening a bank account in the business name.
3. What is the life of a sole proprietorship business?
A sole ownership business can exist as long as its owner is alive and desires to continue the business.
4. What is a Proprietorship PAN card?
A sole-proprietorship has no legal identity separate from that of its owner. Moreover , the law makes no distinction between the proprietor and his business. So, there is no separate PAN in the name of the proprietorship business. Further , the individual PAN of the proprietor works for the proprietorship business also.
5. What is the difference between one person company vs a sole proprietorship?
| Points of difference | Sole Proprietorship | One person company |
| Legal Status | No Separate Identity | Separate legal entity |
| Registration | Not Necessary | It must be registered |
| Liability of the owner | Unlimited | Limited |
| Setting-up | Easy and minimum paperwork | Complex and time-consuming process. |
| Formalities | No legal formalities | Formalities concerning board meetings, audits, etc., make it difficult to run |
6. What are the merits and demerits of a sole proprietorship?
Merits: –
1. Easy to start and dissolve:
It is simple and easy to set up sole-proprietorship business. Similarly , it is very simple to close down the business.
2. Motivation to work:
The sole owner is entitled to receive all the business profits and also has to bear all losses. So he has motivation for his work.
3. Quick Decisions:
The owner is entirely free to take decisions and implement them.
4. Independent Control:
The owner enjoys complete freedom and control over his business.
5. Retention of business secrets:
The owner can keep the business secrets to himself.
6. Personal Contact:
A owner is in a position to maintain personal contact with his customers and employees.
7. Flexibility:
A sole proprietorship can be adapted easily to suit the changing conditions in the market.
8. Economy:
As the owner himself is the manager, the cost of management is meagre.
Demerits: –
1. Limited Capital:
The financial resources of a proprietor are minimal. further, his funds are not adequate to start large-scale operations.
2. Lack of specialization:
The sole owner has a limited managerial ability. Moreover , he is also overburdened with too many tasks. Moreover , the sole proprietorship cannot afford to employ professional experts.
3. Instability:
A sole ownership does not enjoy continuity of existence. As it is dependent on the life of the proprietor.
4.Unlimited Liability:
The owner is himself liable for all the losses of the business.
5. Limited scope for expansion:
Due to limitations of capital and management, proprietorship businesses can`t grow and expand to a significant size.
7. What is the difference between sole proprietorship and partnership?
| Basis of comparison | Sole Proprietorship | Partnership |
| No. of members | One | Minimum 2 Maximum 50 |
| Agreement | No agreement required | A partnership agreement is required |
| Registration | No need to get registered except under the shop and establishment act and GST act. | It should get registered to enforce its rights in a court of law. |
| Capital | Entire capital is contributed by one person, the owner of the entity. | Several persons contribute capital. |
| Management | It lies exclusively with its owner | All partners have a right to take part in the management. |
| Secrecy | Secrets are known only to their owner | Secrets are shared between the partners. |
| Quick decisions | One man takes all the decisions. So, the decisions may be impulsive. | Decisions are taken by mutual consultation between the partners. So, the decisions are less impulsive. |
| Governing law | There is no specific law | The governing law is Partnership Act, 1932. |
8. What is the sole proprietorship registration fee?
There is no government registration fee for proprietorship registration.
9. What are the features of a sole proprietorship?
Features of Sole Proprietorship: –
Single ownership:
Firstly , a sole proprietorship a wholly owned by one individual.
One-man Control:
Secondly , the proprietor alone takes all the decisions of the business.
No legal entity:
Thirdly , it has no separate legal identity.
Unlimited Liability:
Further , the proprietor is entirely liable for all the debts of the business. Therefore, if the assets are insufficient to meet its obligations, the proprietor’s personal property can be attached.
No-profit sharing:
Moreover , the sole owner is entitled to all the profits and losses of the business.
Small Size:
Also, the business size of the sole proprietorship business is generally not significant.
No Legal Formalities:
Lastly, minimal legal formalities are required to start, manage, and close a sole trader business.
