Sole Proprietorship: Features and Formation Process

What is Sole Proprietorship Registration?

  • A sole Proprietorship or Proprietorship is a type of enterprise which has no legal distinction between the owner and the business entity.
  • It is owned and run by one person. A sole trader does not necessarily work ‘alone’—it is possible for the sole trader to employ other people as employee.
  • A sole Proprietorship usually does not have to do incorporation or registration compliance.
  • The sole Proprietor is entitled to have all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts.
  • Proprietor is the owner of all assets and responsible for all debts of the business.
  • Trade can differ from the legal name of the sole proprietor and Proprietor may trade mark his trade name.

What are the features of Sole Proprietorship?

Single Ownership

A sole trading firm is owned by one individual with unlimited liability in which the proprietor is responsible for management and capital requirements of the business.

Personal Organization or Common Identity 

A Sole Proprietorship concern has no separate legal entity independent of the owner. The owner owns the business and he owes everything the business owes.


The capital is invested by the owner from his personal resources. Other option is to borrow money from his friends and relatives if he cannot depend solely on his personal resources.

Unlimited Liability

The liability of the Proprietor is unlimited. Dues of Business can be recovered from the personal property of the Proprietor as the business assets are not sufficient to pay their debts.

One Man Control

Sole Proprietor is one-man show. The sole trader provides management to the business. All the decisions, material procurement resources, employment of persons are controlled by the Sole proprietor. He can delegate his duty to his/her subordinate if he wants.  

Profits and Losses

The Profits earned from the business of the sole proprietorship belongs to proprietor and losses and risk are to be borne by him alone.

No Special Legislation

Sole Proprietorship is not governed by any special legislation.

What are the advantages of Sole Proprietorship?

  • All profits belong to Sole Proprietor
  • Low start-up costs
  • Maximum secrecy
  • Establishing and operating  business is simple
  • Easy to change your legal structure if circumstances change
  • Easy winding up of business.

What are the disadvantages of Sole Proprietorship?

  • Unlimited liability for debts  
  • Capacity to raise capital is limited
  • All the responsibility for making day-to-day business decisions is on Sole proprietor
  • Retaining and attraction of high-calibre employees can be difficult
  • Taxed as a single person
  • Business has limited life.

What is the Registration Process of sole proprietorship?

Name Selection

Select unique name of your proprietorship business.  Name should not trespass with others registered Trade Mark.

TAN Number

TAN is required to be applied, according to the income tax rules, a person is liable to deduct TDS (tax deducted at source) on payments of specified nature made to any other person.

MSME Registration

To avail certain benefits of Govt schemes and benefits under MSME scheme, MSME registration is required. Register your own company at Onfiling.

What is the common Registration or Licenses For Sole Proprietorship?

Shops & Establishment Registration

It is mandatory for shops and the commercial establishments to obtain establishment registration with the Labour Department within 30 days of starting their business.

It is mandatory for all states in India.

Trade License

To make sure about the citizens are not adversely suffering from hazard and nuisance by the improper carrying of trade practices a License is necessary from the municipality within 30 days of starting the business.

Goods and Services Tax (GST)

GST Registration is mandatory for each business engaged in providing services or supply of products, where the turnover exceeds Rs. 20 Lac or does even one transaction in an interstate trade.

Food License / FSSAI Registration

If you are involved in the business of producing, trading, storing, or dealing in any manner of food items. The State level FSSAI registration or Central License is mandatory based on the turnover.

Drug License

Retail Drug License is location-based and is issued by the State Government on the basis of certain norms and criteria. No entity can start or continue sale/trade of medicine without drug license.

Private Security Agency License

Private Security Agency may be a lucrative business with immense potential and it can be started or continued only after obtaining a license from the competent authority as designated by the state government.

Import Export Code (IEC)

IEC is a ten-digit pan based registration with the DGFT. IEC is a mandatory prerequisite to start a business of Import or Export in India. Only one IEC code can be issued against a pan.

What is the difference between sole proprietorship and one person company?

BASISLLPPvt. Ltd. Co.One Person CompanyPartnership FirmSole Proprietorship
Suitable forFirms such as accountancy, legal and architectureBusiness with projected growth which requires additional funding for expansionSole owner who wants to run corporate businessTraditional businessIndividual person with minimum risk factor
LiabilityLimitedLimited  LimitedUnlimited liabilityUnlimited liability
Continuity of businessYesYesYesNoNo
Tax benefitsMost efficientHigh benefitsHigh BenefitsMinimalMinimal
Cost of RegistrationLower rate of government feesCost is higher than LLPComparatively lessComparatively lessComparatively less
Ownership  StatusCorporate EntityCorporate EntitySingle Person Corporate EntityPartner BasedIndividual Base
ComplianceLess compliancesRequires more complianceMinimalMinimalMinimal
Foreign Ownership  Allowed with approval of RBI & FIPBAllowed under Automatic Approval routeNot allowedNo FDI is allowedNot allowed
Number of Directors2- unlimited2-151-15Not applicableNot applicable
Number of Members2- unlimited2-20012-201
Transfer for OwnershipTransferable with consent of all partnersEasily Transferable Easily transferableNot possibleNot applicable
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