It may be the simplest ever business form, but is not a legal entity. You can choose a separate trade name but in the end everything leads back to you. All the profits, debts and the losses are yours and are taxed on your personal income tax. Ever wondered what small shops around the corner of the street choose? Yes, thats exactly what a sole proprietorship is. A sole proprietorship is an unincorporated business owned by a single person. The popularity can be traced back to its ease of setup as all you require is a personal permanent account number from the income tax department.
There may be other compulsory registrations required along with it, which are discussed at a later stage in the book.
Its what the title says, easiest. You can start a sole proprietorship today by just choosing a trade name, but that’s the case if you do have a permanent account number. If not, it takes as little as 7 working days to start. If you have a time constraint, this is for you! Also, a Sole Proprietorship is extremely inexpensive to start and maintain. All you are required by law is to file your venture’s business details along with your personal income returns. There’s no extra tax on your business income till the time it does not reach 9 lakhs. If legal compliance is what scares you often, the extent of the legal compliance is only limited to the annual filing of your income tax, service, professional, sales or personal taxes.
Anybody giving you free advice, be it your chartered accountant, a family member, friend, a lawyer or whom so ever it may be, may often ask you to start with a sole proprietorship and later shift to a one person or a private limited company. Please don’t take that advice. What they don’t tell you is, if during this period which may be as little as 3 days, 3 hours or even 3 minutes you do a deal which does not end how it was supposed to, its liability is going to be traced back to your personal assets. If the other party succeeds in proving their case, you shall be forced by a court of law, if required, to sell your assets and pay them the damages they deserve. You may also not be able to accept investments from anybody.
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