proprietor

Extreme Advantages & Disadvantages Of Proprietorship [Official Guide]

Benefits; the stuff that makes anyone bend over it!

More likely, here we will discuss the same in the faith of proprietorship. Means that we will be illustrating proprietorship advantages & disadvantages…

Before that ~ let’s discuss a little bit about the proprietorship.

Proprietorship or you may name it Sole proprietorship!

Definition — The sole proprietorship is a nickname for the proprietor to do business. Often, this is a model for every small business in an unorganized sector.

Wherein, a proprietorship means ownership and the proprietor equals the owner.

Note: In order to learn all about the sole proprietorship  & its registration visit the Proprietorship Registration portal page, formatted by LeadingFile!

LeadingFile – Proprietorship Registration portal page will describe you all about the same in detail.

Getting back to turned page query stuff i.e, Advantages & Disadvantages Of Sole Proprietorship.

This is what to which we are here! Keep reading…

8 Advantages Of Sole Proprietorship: Quick Benefits

Advantages/Benefits of opting a sole proprietorship are illustrated as follows:

Easy to Establish

Proprietorship business does not have a specific registration requirement and the business uses the owner’s legal identity.

Therefore, a sole proprietorship can be started without any registration.

Fast forward, the minimum registration is required for a single owner. Needless to say! This is the simplest form of the business unit to start with the minimum formalities.

No Boss

One reason is that entrepreneurs prefer sole proprietorship on other business structures because they are the owners of the company, therefore, is not accountable to any owner or supervisor.

This means that the entrepreneur himself is at the top of the business and the decisions are made by him.

However, there is no need to wait for other people to get a signal to implement new rules and regulations. This privilege can prove useful during an emergency and requires an immediate decision.

Easier to Operate

As a single person is at the top of the affairs!

It is easy to operate because the special person will be the sole decision maker and he does not have to consider the considerations of opinion.

Whereon, there is no concept of the board meeting or approval from other people in a proprietorship firm.

Low Start-up Costs

In the sole proprietorship, there are no staffs to many employees, which are easy in terms of expenditure, tax and compensation.

The cost of opening a business with this structure is not required for expensive legal expenses as well as corporate taxes. Apart from this, if there are only a few employees in the business, health care insurance coverage is not actually the obligation of the business owner.

Last but not least, In the form of bonuses and incentives, few people will have to pay.

Profits Sole Beneficiary

No other business than a sole proprietorship and a person company sees the owner as the sole beneficiary of the profits.

Contiguously, all other types of units include at least two people such as partnership, LLP or company.

Total Enterprise Control

The owners of the business, who are the sole owners, have complete control over the way they take quick decisions and how to manage the business.

This can be beneficial for the entrepreneur because the owner does not need to discuss issues with business partners and will be able to handle complex problems without disagreement or debate on the proposed solutions of another person.

Apart from this, if wrong decisions are made, then the sole owner has to blame himself.

Compliance & Taxation

Because a proprietary firm is not registered with any government authority such as the Ministry of Corporate Affairs, therefore compliance requirements are minimal.

In addition, the owner will only have to file the income tax return, if the firm has to pay Rs. There is a taxable income of more than 25 lakhs.

In the case of proprietors who have attained the age of 60 years or more during the preceding year, income tax returns will be required only when taxable income exceeds Rs. 3,00,000.

In the case of proprietors who received the age of 80 years or more during the previous year, income tax filing will be required only when taxable income exceeds Rs. 5,00,000/-.

Business Privacy

Since the sole ownership is the unregistered form of the entity, therefore no database has been kept by the government with all the proprietary lists.

Fast forward, proprietorship firms are more private than any company or LLP (Limited Liability Partnership), whose details are published on the MCA website.

8 Disadvantages Of Sole Proprietorship

Disadvantages of opting a sole proprietorship are illustrated as follows:

Unlimited Liability

This is one of the most troubling aspects of a sole proprietorship firm!

At the event of a loss, the proprietor must complete the liabilities at any cost, which means that if necessary, his / her personal property can be used for the discharge of liabilities.

Business & Personal Assets

One of the deficiencies of sole ownership is that the money of the owner is tied from his business in the sense that the owner and business finance are the same and there is no legal separation between the two.

If the owner’s business faces any problem or meets the debt and other obligations, then he can take the risk of losing his personal wealth to deal with these issues. In addition, if the business fails or if it encounters legal action from disgruntled employees, then it can be opposed in the corporation, where the personal property is not related to the business properties.

And although the sole ownership is not protected from legal issues as other business structures, the owner has to deal with these problems alone, compared to the owners of the corporations where others are involved and not only are responsible.

Difficulty While Obtaining Funds

The sole owner may not be involved in the business interest or the sale of shares, which deprives the entity of the acquisition of any type of equity funding.

In addition, the bank is deprived of giving a large amount to a proprietorship firm as the existence of the proprietorship firm is associated with the proprietor.

On the other hand, in a company or LLP, more than one person will be responsible for the liability and assured in the event of a continuation of business or death of a single promoter.

Therefore, it would be easier for a company or LLP to raise a bank loan compared to the proprietorship firm.

Less Capital

Due to not being a partner in any business or other investors, capital is not coming in large quantities to start and maintain the company.

Even if business ideas are possible and appealing, then coming along with enough money to get the business can be difficult after some time if there is no additional capital

Unlike a corporation, where there is an investor who can make additional investments, the need arises, the sole proprietorship is often dependent on some of their owners’ personal finances and loans in order to operate the business.

Higher Tax Incidence

Proprietorship firms are taxed as equal to one person. Therefore, the income tax rate for a proprietary firm is based on the slab.

Although the income tax rate for income up to Rs 10 lakh is less than any company, the proprietorship firm cannot enjoy the various benefits received by the LLP or the company.

Also, for taxable income of more than Rs. 10 lakhs, the income tax rate for a proprietary firm is more than any company’s income tax rate.

Therefore, registering a company to reduce income tax liability, in the long run, would be more prudent.

Decision-Making

There are advantages and disadvantages to being the only one to make decisions.

If problems are complicated, then it helps in discussions with people with a similar ideology, whose interest is to make the business profitable.

However, when it comes to making serious decisions, there will be different ideas that will balance management.

Work-Life Balance

The only owners of businesses often find it difficult to go on vacation because they have to keep track of the company. It can be a setback because their personal life and family can suffer due to excessive work and pressure to run the company.

And in such instances, where the owner is away from work for a holiday, he or she must still be monitored or especially at the time of problems, at the top of the business.

Financial Taxes

Another drawback of running single-owned ownership and business is to pay taxes individually. Since business and owner are one and equal, therefore the owner has to pay taxes as self-employed.

On the other hand, if the business name is different from the name of the owner, then the money used to pay taxes will still come from the business owner.

Apart from this, only taxpayers are not given some tax benefits such as health insurance benefits for employees.

In this example that the owner dies, the business becomes part of the property owner’s property. Consequently, this legacy will be subject to taxes if they are beneficiaries, then they can pay expensive taxes.

All done!

Note: This being a guest post, is not the exact views of our expert.

So, in order to have the glimpse of sole proprietorship in detail & to the point, then please do visit India’s largest business service platform provider i.e, LeadingFIle!

Conclusion

Here, in this blog, we have discussed the ~~ Extreme Advantages & Disadvantages Of Proprietorship [Official Guide].

Often we concluded its layout and each’s 8 advantages & disadvantages of sole proprietorship in detail.

They add value to any blog post. And, this leads to the end of the blog.

We hope this blog helped you. Do share the blog with your peers.

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