Establishing a new business can be a daunting errand for anyone. Starting from tedious paperwork to the procurement of manpower, one has to look into every aspect of a business model while taking the budget and foreseeable liabilities into account. If you aren’t in the condition to predict the best business models, then Sole Proprietorship can be your best for bet. In this blog, we would explain the advantage and disadvantage of Sole Proprietorship registration. Sole Proprietorship is perhaps the easiest form of the business in regards to establishment procedure and tax liabilities. It could be formed with minimum paperwork and short of any formal registration. This business model is primarily adopted by those who prefer to work alone and reap more profit by averting tax liabilities.
Advantage of Sole Proprietorship registration
Lower establishment cost
You don’t need the fortune to establish a proprietorship-based business model. With less compliance to follow, anybody with a valid PAN card number can lay the foundation for their business under Sole Proprietorship. The overall cost of establishing a business depends on its nature and structure. But still, unlike other business models, Sole Proprietorship lures no formal registrations and high setup costs.
Easily Manageable with no conflict issues
The Sole Proprietorship business is easy to run, unlike other business models. Since it is run by a single owner, the chance of conflicts within this business model is next to negligible. The proprietor of the business takes all the major decisions without being interfered by anyone.
Lures no additional taxes
Under Sole Proprietorship, the owner and the business are treated as a single taxable entity. The owner doesn’t have to pay separate taxes on the generated revenue. Every year the sole proprietorship needs to file an income tax return if their income crosses the minimum threshold limit i:e Rs.2.5 lakhs per annum.
Minimum banking hassle
Since the proprietorship business is not projected as a legal entity by the law, its owner doesn’t need to open a separate bank account to manage the transaction. Therefore, it would help the owner to stay in line every transaction with minimum confusion.
Ensured customer base
If an individual is certain about its target customer, then the Sole Proprietorship business model can help him achieve enormous success in a short period. But again, the competition is furiously high within this business model, and one needs to adopt aggressive strategies to ensure immediate success. Unlike other business models, targeting customers in the Sole Proprietorship business model is not that complicated at all.
Read our article:Here’s how you can Register Sole Proprietorship Business in India
Disadvantages of Sole Proprietorship registration
No protection on financial liabilities
A sole proprietor is solely responsible for handling debts and financial liabilities. When contrasted with other business models, Sole Proprietorship doesn’t give any sort of protection to owners in the state of the financial crisis. Sole proprietors don’t have any governmental support to prevent the creditors from seizing their property in case of loan repayment issues.
No scope of cash inflow
Unlike other business models, sole proprietorship has a low scope of attracting investors. With less credibility and fewer governmental supports at disposal, a sole proprietorship is not counted among the formidable business model options for investments.
Dissolve easily under economic crisis
Every sole proprietorship firm is likely to shut down its operation under immense economic pressure[1]. The reason being the fact that most of these firms work on a marginal profit, and fails to procure ample fund to counteract such situations. With no government certification in place, these firms always had to tough time addressing the worst scenario that impacts their existence in one way or another.
Limited scope of growth
Most of the Sole Proprietorship works on the marginal profit and they have a small customer base to cater. To ensure growth, the business needs a reliable financial backup consistently. Unfortunately, most of the Sole Proprietorship firm fails on this account.
Notable Points for better Understanding
Before we wrap up this article, let have a look at some key pointers:
- Sole Proprietorship is not a legal entity in the eyes of the law.
- The owner of the Sole Proprietorship firm has 100% access to its profit.
- The establishment of the Sole Proprietorship firm doesn’t require formal registration (fewer) from any authority whatsoever.
- The concept of double taxation is not applied to the Sole Proprietorship business model.
- The owner of such a firm needs to file Income Tax Return on an annual basis only. However, whenever their income surpasses the threshold limit, the applicable taxes become inherently active.
- One has to delve deeper into the Advantage and disadvantage of Sole Proprietorship before establishing the business.
Conclusion
A Sole Proprietorship is one of the most conducive business models for reaping profit or managing liabilities. It allows the owner to control each and every aspect of the business and delegates authorities at its own discretion. Also, the Proprietor has complete access to the profit earned over time. Henceforth, we can conclude that Sole Proprietorship offers a minimal risk on all ground when contrasted with other business models. Also, the notion of double taxation doesn’t apply to sole proprietors.
They are free to allocate their income wherever they want without being scrutinized by the tax authority. However, this business model might not suit those entities that want to operate on a bigger landscape and have a sizeable investment. In that case, they might need a proper hierarchy of management, and some government certifications to ensure protection against the crisis. After going through the Advantage and disadvantage of Sole Proprietorship, you probably won’t have confusion anymore. However, if you need some expert advice in this context, please make your way to Corpbiz’s experts.
Read our article:Procedure for Sole Proprietorship Registration: A Step by Step Guide
