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Sole Proprietorship

Sole Proprietorship – Features and Advantages

Sole Proprietorship is a business owned and controlled by only one person. The proprietor who sows, reaps and harvests the output of his labor owns all the assets in his firm.

This form of business organization is one of the most popular forms in India and the reason being the advantages it offers. Here, business can be started simply after obtaining necessary manufacturing license and permit.

Advantages and Disadvantages of Proprietorship

Proprietor

Setting up Process:

Setting up a sole proprietorship entity is trouble-free as compared to other form of companies. Unlike Limited Liability Partnership (LLP) or any other private or public companies; in sole proprietorship you do not need to file an application to ROC- Registrar of Companies.

You need to choose a name for your business, open a bank account and take license for varied services including Service Tax, VAT, IEC, Shops & Establishment license, PAN, Importer Exporter Code, ESI, Professional Tax, Central Excise Duty, CST Registration, Employee Provident Fund Registration etc.

After acquiring the respective licenses one can commence with his her sole proprietorship firm in India.

Some important licenses you may need for starting a sole proprietorship firm in India:

PAN CARD

  • Permanent Account Number (PAN) is a ten-digit alphanumeric number, issued in the form of a laminated card, by the Income Tax Department. It is mandatory to quote PAN on return of income, all correspondence with any income tax authority.
  • A typical PAN is AABPS1205E.
  • A complete overview of pancard  can be seen at – http://www.incometaxindia.gov.in/pan/overview.asp
  • New PAN CARD application – https://tin.tin.nsdl.com/pan/

TAN CARD

Tax Deduction Account Number (TAN) is an alphanumeric number issued to individuals who are required to deduct tax on payments made by them under the Indian Income Tax Act, 1961. The Tax Deducted at Source on payments made by assessees has to be deposited under the following number to enable the assessees who have received the payments to claim the tax deducted in their income tax return. So TAN is the abbreviation for Tax deduction and collection Account Number.

Application for tan card – https://tin.tin.nsdl.com/tan/

SERVICE TAX REGISTRATION

Service tax has to be paid to the Government of India by the service provider who collects the same form his customers. As on 1st May, 2006,   95 services are identified as taxable services in India.  Section 64 of the Finance Act, 1994, extends the levy of service tax to the whole of India, except the State of Jammu & Kashmir. The current rate is 12.36 % on the gross value of the service.

Service tax can be paid online – https://www.aces.gov.in/

VAT AND CST

VAT (Value Added Tax) is a form of indirect tax imposed only on goods sold within a particular state, which essentially means that the buyer and the seller exist in the same state. Only when tangible goods and products are sold, VAT can be imposed. VAT (Value Added Tax) is governed by respective state Acts. Every state has a separate and distinct VAT act reserved for their state.

CST (Central Sales Tax) is a form of indirect tax imposed only on goods sold from one state to another state, which particularly takes into account that the buyer and the seller exist in two different states. CST (Central Sales Tax) is governed by Central Sales Tax Act, 1956. This tax is governed by a single central act, though the chargeability is state specific.

Registration for VAT AND CST IN Tamil Nadu – http://www.tnvat.gov.in/English/NewDealerRegist.aspx

THE BUSINESS VIABILITY CHECKLIST FOR ENTREPRENEURS

IMPORT EXPORT CODE:

DGFT – Directorate General of Foreign Trade runs various schemes for trade promotion and facilitation. Using this facility you may file, prepare and track online application in these schemes.

Application for IEC CODE: http://dgft.gov.in/

IEC (importer Exporter Code) number is a 10 digit code number given to an exporter or importer by the regional office of the Director General of Foreign Trade (DGFT), Department of Commerce, Government of India. You need Bank account and income tax PAN number. All other documents can be generated at the time of application. No export or import shall be made by any person without an IEC number unless specifically exempted.

Advantages:

  • Simplicity of organization
  • Owner’s freedom to make all decisions
  • Owner’s enjoyment of all profits
  • Minimum legal restrictions
  • Ease of discontinuance
  • Tax advantage
  • Secrecy

Disadvantages:

  • Owner’s possible lack of ability and experience
  • Limited opportunity for employees
  • Difficulty in raising capital
  • Limited life of the firm
  • Limited size
  • Unlimited liability of proprietor

sole proprietorship

Characteristics of sole proprietorship

Following are the main characteristics of sole proprietorship:
1. CapitalIn sole proprietorship, the capital is normally provided by the owner himself. However, if
additional capital is required, such capital can be increased by borrowing.
2. Easy DissolutionThe sole proprietorship can be easily dissolved, as there are no legal formalities involved in it.
3. Easily TransferableSuch type of business can easily be transferred to another person without any restriction.
4. Freedom of ActionIn sole proprietorship, single owner is the sole master of the business, therefore, he has full
freedom to take action or decision.
5. FormationFormation of sole proprietorship business is easy as compared to other business, because it
dos not require any kind of legal formality like registration etc.
6. Legal EntityIn sole proprietorship, the business has no separate legal entity apart from the sole traders.
7. Legal RestrictionThere are no legal restrictions for sole traders to set up the business. But there may be legal
restrictions for setting up a particular type of business.
8. Limited LifeThe continuity of sole proprietorship is based on good health, or life or death of the sole owner.

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