What are the advantages and the disadvantages of the sole proprietorship?

 Sole proprietorship is a kind of popular business most often seen in small and medium sized business and is among one of the most popular business style in the world. It is a kind of business where one person owns all the assets, and the ownership and the affairs of the business. The only person who owns the company is solely responsible for all the profit as well as loss in the company.

Today, here in this guide, we are listing you some of the advantages as well as the disadvantages of having a sole proprietorship:

Advantages of sole proprietorship

Following we are listing you some of the advantages of owing a sole proprietorship:

Easy establishment

The major advantage of the sole proprietorship is its easy establishment of the business. In order to start a sole proprietorship business, there is not much requirements for the specific registration purpose. Simply with the legal identity of the businessman, one can start the sole proprietorship business. Thus this business type do not require any specific registration, instead one can start it with any adhaar card, or the PAN card, or any other identity of the business man. In order to create and protect the identity of the business, one can easily get the Trademark registration or the UDYOG AASHAAR REGISTRATION but these are completely optional step.

Easy operation

Since only one person is the sole responsible for taking all kind of decisions and for dealing with all kind of affairs, the operation of the sole proprietorship business is kind easy. As all the affairs of the business is solely related to single owner and thus can easily operate the business. More the owner of the business, more will be opinions and this make the business operations more complicated. As the sole proprietorship business is having only one owner, thus they can take the decisions on their own opinion and do not need to consider the opinions of others. This makes the operation of the sole proprietorship business very easy.

Profit to one person only

Another benefit associated with the sole proprietorship business is that the single owner might need to work hard but will be the sole beneficiary of all the profits. In the sole proprietorship business, single person is the owner of the business. That individual person is responsible for all kind of affairs, dealing, work, and other and thus enjoys all the profit of the business alone as well. Since sole proprietorship is the single person company and thus all the profit goes to that single owner only. Other then sole proprietorship business, all other businesses, whether it is partnership or corporations, are having two or more than two owners and thus the profit also divides in them.

Taxation and compliance

Since the sole proprietorship businesses are the most simple kind of business with one owner and thus it does not require any kind of registration from the government authorities. This is why the compliance requirement with the sole proprietorship business is minimal. Other business types like corporate businesses etc are registered with government authorities like Ministry of Corporate affairs and thus need to fill much compliance. But this is not with the sole proprietorship business and thus they enjoy the low compliance.

Also, the sole proprietorship business requires to fill the income tax returns of the firm only in the  case when the income is more than 2.5 lakh rupees per annum. And, in the case when the sole proprietor of the business is more than 60years of age, then they will need to fill the tax only in the case when the net income is more than 3.0 lakh Rs per annum. And, the proprietor with the age more then 80 will need to fill the income tax return only when the income is more  than 5.0 lakh Rs per annum.

Also, the sole proprietors are giving with many facilities that they can avail in order to further reduce the tax liabilities. These includes the life insurances premium, certain provision fund, medical insurance premiums, care for disabled person, medical expenses, payment of  the rent, royalty on patents, income from royalty, handicapped person caring, loans, and many more.  

Privacy

Since the sole proprietorship business is handled by a single person, they can take their decision and maintain their privacy as well. Also, the sole proprietorship business are un registered kind of business and thus government do not maintain their data bases. This is why, these business type is more private in compare to other business types.      

Disadvantages of sole proprietorship business

After learning all the pros associated with the sole proprietorship business, following are some disadvantages of sole proprietorship business:

Unlimited liability

Since one person is handling the entire business, thus they will be the only one to bear all the losses, if any. This is  the most disturbing con of  having the sole proprietorship business. In the case of loss, the only owner will be liable to cover the loss and may need to use their personal assets for discharging the liabilities.

Difficult fund raising

Most of the investors as well as banks hesitate to lending money to the sole proprietors. Since in other kind of businesses, more than one person are responsible for handling the losses and thus get the loans easily.

Higher tax incidence

In sole proprietorship business, the tax rate is on the basis of individual tax  rates. Though the tax rate is low for income less than 10 lakh, but the tax rates will be more for the income more than 10 lakh.

The bottom line

So these are some advantages and disadvantages of having a sole proprietorship business!