A sole proprietorship is the most common form of a business entity where one person is the owner who is personally liable for all the debts and liabilities of the business. It is the simplest form of an entity with minimal compliance procedures.

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What is Sole Proprietorship?

Sole Proprietorship is a business enterprise that is owned and controlled by one person who possesses the entire authority & responsibility with respect to the business. He can hire employees and pay them salaries, but legal responsibility for the obligations of the business is on the sole proprietor. The practical implication of such an arrangement is that an owner alone gets the entire profit, but he is also personally liable. This is so as a proprietorship is not a distinct entity unto itself, rather the business and its owner are clubbed together.

Who can opt for sole proprietorship?

Any person who wants to start a business with less investment can opt for this type of business form. Also, the control of the business is solely in your hands.


  • Less Compliances: The sole proprietorship business can be started easily by just one person. There is minimum compliance that is required to be adhered to get it incorporated and run the business. This form of business is economical as it is relatively less expensive to start than One person company.
  • Flexible business decisions: Since one person owns the business and has absolute control and he can always make quick decisions and be flexible as well (since even fundamental changes to the business are subject only to his will).
  • Control of the business and over the financials: The sole proprietor will have complete control over the business. He will look after all the aspects of the business.
  • Confidentiality: Ensuring the safety of business secrets is also a much easier task in this form of business organization than any other. Since only one person is running the business, secrecy can be maintained.
  • Quick Decision making: The sole proprietor takes all decisions of the business. The decision-making rests with a single person. Thus, the decisions can be taken quickly and immediately without the need for consulting anyone.
  • Lower tax: As income of the proprietorship is subject to be taxed in the hands of the individual owner, the business can benefit from basic exemption limit and slab tax rates.


  • Unlimited Liability:There is an unlimited liability on the sole proprietor. He is personally liable for all the transactions he enters in the business. If any loss occurs, he will have to bear the whole loss out of his personal estate.
  • Difficult to hire and retain employees: Expansion of the business beyond a certain point becomes very tough as since the proprietor cannot be an expert in every aspect of business management more employees are needed.
  • No perpetual succession: It can exist only for as long as the owner exists (an end can be put to the business by the owner’s death or insolvency).
  • Difficult to raise funds: Since a single person manages the business, it is not easy to raise capital. The capital of the business is from the investments put in by the sole proprietor. The sole proprietorship firm has no separate legal entity status from the owner. As it can come to an end at any time and there is no separate entity, it is difficult to obtain funds from third parties.

Sole Proprietorship Vs OPC (One person company)

Stability and scale of business are some of the factors to be considered while making the choice of business organisation to be established. From this point of view sole proprietorships are not suitable though they involve low cost and less compliances. In this case, OPC (one person company) can be a good option. Below is a comparison of features of sole proprietorship and One person company to make a learned choice:

ParticularsSole ProprietorshipOne Person Company (OPC)
RegistrationNo specific registrationRegister as OPC under Companies Act 2013
Separate legal statusDoes not have a separate legal statusHas a separate legal status
LiabilitySole proprietor has unlimited liabilityMember has limited liability
NomineeDoes not require a nominee Minimum of one nominee required to establish an OPC
DirectorsNo directors requiredMinimum of one director is required
Foreign ownershipNot allowedAllowed when one is the director and the other is the nominee but both cannot be foreign citizens
TransferabilityCannot be transferredCan be transferred to the nominee
SuccessionComes to end upon the death or retirement of the sole proprietorExistence is independent of member since the nominee or director will continue OPC upon the member’s death
TaxationTaxed in the individual slab rateCorporate tax rate is applicable
Annual filingsFiling of only income tax returnsFilings with the Registrar of Companies (ROC) as per the Companies Act, 2013 and Income Tax Act

Document Required

3 ways to Register a sole proprietorship in India:
There is no system specified by the Government of India for the enrolment of a Proprietorship. As a result, the presence of a proprietorship must be set up through duty enlistments and different business enrolments that a business is required to have according to the standards and directions.

  1. Register under the Shop and Establishment Act.
  2. Get a Udyog Aadhaar under the Ministry of MSME.
  3. Get a GST registration (If turnover exceeds Rs.20 crores or voluntarily).

Regular compliances

As a sole proprietor, you must file Income Tax Return annually. Also, you need to file your GST Return if you are registered under GST. A sole proprietor should also deduct TDS and file TDS return if liable for Tax Audit.


The registration process takes approximately 3 to 7 days, subject to departmental approval and reverts from the respective departments