Sole Proprietorship Company. The Advantages & Disadvantages

Sole Proprietorship Company. The Advantages & Disadvantages

Sole Proprietorship Company Registration is the most basic structure to start a new business. In layman terms it simply means a business owned by just one person with the advantage of minimum compliances and paperwork. Anyone who starts a commercial venture can form a Sole Proprietorship company. A shop, a restaurant, a florist, an artist or just about any business.

The simplicity of a sole proprietorship makes this form of business structure extremely popular among small businesses, freelancers, and other self-employed individuals. What begins as a sole proprietorship may be transformed into another, more complex business structure, such as a corporation, if the business grows substantially and begins hiring a sizeable number of employees.

There are 100s of businesses which started off as a small sole proprietorship company and went on to build million-dollar businesses. If you have an idea but wish to start small or planning to do a side gig or just want to take ownership of the entire business, this is the best way to take it forward.

Start small. Dream Big. Build your business one day at a time. When you run your business remember, its not the idea. Its your execution that makes all the difference. As a first timer, to test waters before taking a deeper plunge, start with this. It has many advantages but surely comes with a set of disadvantages too. Weigh your options carefully and choose the right structure.

What do you need to start a Sole Proprietorship firm?




The paperwork is absolutely minimal and all you need is just the following:

• Identity Proof – Aadhar & PAN Card
• Address Proof – Latest Bank Statement
• Passport size photos
• A name for your business (make sure its unique and creative and reflects the business you are in)

Keep them ready and in a matter of 7 days your business can be up and running (including a bank account opening). That is what we are here for. For a very minimal all-inclusive fee, we will help you set up your business and guide you through the process as well.

Advantages of a sole proprietorship:

1. Cost-effective: It’s the most cost effective way to start a business. If its small enough to start from your home, you can do that too. All you need is a place to operate from. The cost of setting up this business is minimal. However, if you wish you operate from a separate business premises, you may need a shops and establishment registration and in some states, a trade licence. Remember that in a sole proprietorship company the owners PAN card no. is the used for business as well. You may need a GST No. when you cross a certain threshold in turnover.
2. Flexible Decision Making: As a single owner company, you can make your decisions and guide your business in the right direction. Allows you a lot of flexibility.
3. Complete financial Control: You retain complete control of the business and the finances. All the profits are calculated as the owners income and it’s a big incentive for the owner to work harder.
4. Confidentiality: As an owner of the business it’s easier to ensure the safety of business secrets.

Disadvantages of a sole proprietorship

1. Difficult to retain talent: Unless you are hugely successful or can communicate your business goals to motivate your team enough, it’s a challenge to retain talent.  Expansion of the business beyond a certain point becomes very tough. The proprietor cannot be an expert in every aspect of business management making it necessary to add more employees.
2. Succession: Since the business is owned by one person, transition is a challenge and can exist only for as long as the owner exists. But there are ways to transition this to a different structure and ensure longevity.
3. Fund Raising: This is a big challenge for ambitious businesses. As a single owner business, its exceedingly difficult to raise capital or funding. In most cases it will either be a personal loan, or a mortgage loan and the options are limited.
4. Liability Issues: Sole proprietors have unlimited liability, which means that in a situation where a sole proprietor fails to meet his debts or business obligations and a lawsuit is filed by a consumer or a vendor or any party associated with this business, then the personal properties of the proprietor could also be disposed of to satisfy the debts.

Having said that, for those who are just starting off their business in a small way, this is still the best available options because it has very little government compliances allowing you to focus on your business and reduce the cost of running it. The business can later be restructured into a different form as it grows and meets the milestones or the scale which requires a structural change.

We encourage you to take one step at a time and build your business. At EOB, you will find a solution to every business query you may have. Needless to say, we are your catalysts for growth with a range of services that go beyond just registrations.