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www.carajput.com; Soe Proprietorship Business
A sole proprietorship is an unincorporated company that has only one owner who pays personal income tax on profits earned from the company, also referred to as a sole trader or a proprietorship.
Due to a lack of government regulation, a sole proprietorship is the easiest type of company to establish or take apart. As such, sole owners of companies, individual self-contractors, and consultants, these types of businesses are very popular.
Many sole proprietors do business under their own names because it is not essential to create a separate business or trade name.
Proprietorship organizations are not required to submit audited financial statements to the Ministry of Corporate Affairs each and every year. The audit of the financial statements is therefore not expected.
However, a tax audit may be expected of a proprietorship organization if the turnover exceeds the prescribed limits.
In the case of a sole proprietorship business, no registration is required in India. You just need to open a bank account with the name and style you want to work with.
But if your business is liable for GST Registration, you must obtain GST Registration. Furthermore, no separate income tax PAN is required for the sole proprietorship. The owner’s PAN will be the firm’s PAN and the owner will have to file an income tax return in his own name.
Only one person is required to start a Proprietorship, and the Proprietorship will have only one Promoter.
The owner must be an Indian citizen and a resident of India. Non-Resident Indians and Persons of Indian Origin can only invest in the Proprietorship with the prior consent of the Government of India.
In order to register a sole Proprietorship, the following documents are required:
While the sole proprietor does not need any special registrations, he is recommended to obtain a few registrations to ensure that his company operates smoothly.
There is no limit to the minimum capital required to start the Proprietorship. Proprietorship may therefore begin with any amount of minimum capital
Unlike a Limited Liability Partnership or a Private Limited Company, a business operated by a proprietorship firm cannot be transferred to another person. Only the properties of the Proprietorship can be transferred to another person through the sale. Intangible properties, such as government licenses, registrations, etc., cannot be transferred to another individual. Partners in Proprietorship
Proprietorship Organizations are business entities owned, operated, and controlled by one person. As a result, Partners cannot be incorporated into a sole proprietorship.
Why you should go for Sole Proprietorship?
It’s really easy to establish a sole proprietorship company. In setting up such kind of organization, there is hardly any legal formality required. Any specific law does not govern this type of organization.
The only condition is that business practices should be legal and comply with the rules and regulations defined by local authorities. And, without any legal problems, the company may be closed whenever the proprietor desires.
All decisions relating to business operations are taken in a sole proprietary company by one person who makes the business functioning simple and easy. Changes in the scope and nature of the activity may also be brought on by the single owner. This gives business flexibility.
The only person to whom the income belongs is the sole proprietor. A direct relation exists between effort and reward. It inspires him to work hard and bear the risks of the business.
A sole proprietorship is normally structured for Small-scale businesses. This allows the family members of the proprietor to be active and working in the business. Around the same time, a company like this is therefore entitled to some government concessions. For eg, on a priority basis, a small industrial organization may get electricity and water at concessional rates.
An owner can make quick decisions about his business affairs (e.g., price policy, credit policy, discount policy, disposal of surplus funds, etc.).
As and when required, he can take spot decisions. In critical decisions, this avoids delay.
For any business, the secrets of their business are very important. The secrets may be the manufacturing process, the range of goods to be made, the use of raw materials, the marketing of products, etc. In this type of organization, trade Secrecy can be retained.
It offers self-employment, discourages wealth accumulation in a few hands, and helps to maintain personal self-reliance, self-confidence, tact, and diligence qualities.
In comparison with other types of business organisations, a sole proprietorship corporation has a minimum tax burden. The owner is individually taxed as an entity and not as a business unit.
The sole owner of such an organization has complete control over the operation of the enterprise.
The Sole Proprietorship Organization Form does not have a specific Act enforced for it. So, it runs under the minimal supervision of the government.
A sole proprietor may not be able to effectively run the business as he is not likely to have the requisite expertise for all dimensions of the business. In the growth of companies, this creates difficulties.
In general, the sole owner of a business is at a limitation in raising sufficient capital. Its own resources may be limited and its personal assets may also be insufficient for borrowing against its security. This limits the scale of business growth.
The sole owner is directly responsible for all business obligations. Unlimited liability of the owner brings him at huge risk in times of losses. His personal property can also be used for the payment of business debts if the assets of the business are limited.
A sole proprietary organization suffers from a lack of consistency. If the owner is sick, this could result in a temporary closing of the company; and if he dies, the business may be shut down permanently.
Due to its limited financial capital, the owner cannot control the market. Thus, his bargaining position is weak, both as a buyer and as a seller.
Due to capital and management limitations, the company cannot grow and develop on a large scale.
Any wrong decision taken by the owner could bring disaster to the fortunes of his company. Because no one is assisted and it can lead to inaccurate results.
Small-scale concerns cannot access the economies that large-scale business organizations enjoy in their activities due to higher demand and lower operating costs per unit. Their cost of production is higher and they cannot meet competition from large units.
The sole proprietorship of businesses has restricted employment prospects, which means that they are unable to attract skilled and qualified people.
As eventually as business income increases, several sole proprietors are becoming aware of the need to differentiate their accounts and tax filings from those of the business.
There are several other reasons why the conversion of your sole proprietorship into an LLP is a smart decision. This conversion allows you to take advantage of the dual benefits of keeping your goodwill and brand value in close contact while enjoying perpetual structure. Other key benefits include the following:
Well, at a later stage, there are procedures to convert the Sole proprietorship business into a company or an LLP. Documents are required for LLP conversion are as follows:
DSC is required and must be obtained by the designated LLP partners. The documents which are required to be submitted contain Identity Proof & Address Proof to receive this DSC.
The conversion phase is a prerequisite for DPIN. This specific DPIN number should be processed or approved by the appointed partners and they should obtain a provisional DPIN. Partners should provide photos, proof of identity, and proof of address to obtain the DPIN.
The application to convert the business as an LLP is expected to be completed in the FORM-1 for the organization’s availability of a name. A maximum of 6 names in the order of priority may be suggested by the partner, and the application must then be sent to the respective ROC for approval of the name.
If the ROC suggests any change in the name application, it must be complied with and if the ROC finds that the name is not suitable for the business, he/she will reject the name.
Several documents must be submitted to the ROC. The MOA or AOA must be submitted immediately after the designated partners have verified it and must be sent for the purpose of printing. A Stamping is also needed for multiple Document such as:
You must follow up with the ROC and make the required changes to the MOA or AOA or other stated documents as given priority by the ROC to fill in all of the above mandatory documents with the ROC. Below are the mandatory steps to be taken,
All the firm’s assets and liabilities become the LLP’s assets and liabilities immediately before the conversion.
All the company’s movable and immovable assets are deposited automatically in the LLP. No transfer instrument is required to be executed, and no stamp duty is therefore required to be paid.
No tax on capital gains is imposed on the transfer of assets from the Sole Proprietorship business to the LLP.
The business’s cumulative loss and unabsorbed depreciation is known to be the loss/depreciation of the LLP successor for the previous year in which the conversion was carried out. This failure can also be taken into the possession of the successor LLP for an additional eight years.
You will have more opportunities for business expansion after Conversion into LLP from Sole Proprietorship.
Can have better management skills to effectively run the business as by converting Sole Proprietorship to LLP, because more than one person will operate the business with designated partners skills and mutual terms/agreement
However, the procedures to convert a proprietorship business into a Company or LLP are cumbersome, expensive, and time-consuming. Therefore, it is wise for many entrepreneurs to consider and start an LLP or Company instead of a Proprietorship.
Rajput Jain & Associates Associate will understand your business requirements and help you start a Proprietorship by obtaining the relevant registrations. We will help obtain the necessary registrations to help the Proprietor open a bank account in the name of the business, thereby proving an identity for the business.
Rajput Jain & Associates can help startup a Proprietorship in 4 to 7 days, subject to Government processing time. Since the proprietorship is itself not distinguishable from its owner hence there is no registration or approval is required to start a proprietorship business.
Proprietorships do not have a process of incorporation. Therefore, our Business Advisors will advise you on the way the identity of the Proprietorship business can be established through other Government registrations.
RJA is a robust choice for this work – With 5 offices, 12+ plus years of industry experience, competitive; we have a team of professional specialists who will Convert your Sole Proprietorship firm to LLP in India within possible turnaround time. Specialists +91 9555 555 480 NOW!!!
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