A sole proprietorship is a type of unregistered business entity that is owned, managed and controlled by one person. A sole proprietorship, also known as a sole trader or a proprietorship, is an unincorporated business with a single owner who pays Personal Income tax on profits earned from the business. Many sole proprietors do business under their own names because creating a separate business or trade name isn’t necessary.Sole proprietorship’s are one of the most common forms of business in India, used by most micro and small businesses operating in the unorganised sectors.
Because you are your business, any revenue you earn from your business is considered personal income, which you pay personal taxes on. Although you won’t have additional business taxes, you will pay self-employment taxes and estimated taxes, based on what you earned the previous quarter. Check with the IRS to learn how to track and pay those amounts.
The advantages of operating as a sole proprietor are that you don’t have to do anything to establish your business. It automatically exists as soon as you start to sell something. You also don’t have a second set of business tax forms to complete; a Schedule C and form 1040 are all the IRS requires each year, plus the SE for your self-employment taxes. Without that extra taxation, sole proprietorships have the lowest tax rates. And because you are the sole owner, you have complete control over your business and how it is run.
On the flip side, the simplicity of operating a sole proprietorship is also a liability. Because you are your business, if your company is sued, you are personally responsible for any judgment. Such a loss could be catastrophic to your financial health. Because your business is built around you, it is also harder to raise money from investors or to secure a business loan; you may be able to qualify for a personal loan that you can then use for business purposes but, once again, you are personally liable if the business fails.
Sole proprietorships are simple and easy to create, but as your business grows, you may decide that establishing a limited liability corporation or Sub-chapter S corporation could provide more legal protection against lawsuits, should your business ever run into trouble.
Documents required for registration of Proprietorship Firm