The sole proprietorship is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts, Profit and Losses.
In this type of business, there are no specific business taxes paid by the company. The owner pays taxes on income from the business as part of his or her personal income tax payments.
Sole proprietors need to comply with licensing requirements in the states in which they're doing business, as well as local regulations and zoning ordinances. The paperwork and formalities, however, are substantially less than those of corporations, allowing sole proprietors to open a business quickly and with relative ease - from a bureaucratic standpoint. It can also be less costly to start a business as a sole proprietor, which is attractive to many new business owners.
Advantages of a Sole Proprietorship
* A sole proprietor has complete control and decision-making power over the business.
* Sale or transfer can take place at the discretion of the sole proprietor.
* No corporate tax payments
* Minimal legal costs to forming a sole proprietorship
* Few formal business requirements
* Sole proprietor manages the business
* No need to file income tax return if total income is below 2,50,000/-
* No need to pay tax if income upto 7,00,000/- after deduction
Disadvantages of a Sole Proprietorship
* The sole proprietor of the business can be held personally liable for the debts and obligations of the business. Additionally, this risk extends to any liabilities incurred as a result of acts committed by employees of the company.
* All responsibilities and business decisions fall on the shoulders of the sole proprietor.
* Investors won't usually invest in sole proprietorships.
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