Starting a sole proprietorship is among the easiest forms of business to start. A sole proprietorship does not require registration with the state, unlike corporations or LLCs. To operate legally, you must acquire permits and licenses, and you are personally responsible for debts, lawsuits, or taxes incurred by your company.
This article discusses a few aspects involved in the conversion of sole proprietorship to private limited company in india.
Sole Proprietorship Types:
As an independent contractor (a freelancer), as a business owner, or as a franchisee, a sole proprietor may operate in three different ways.
- Independent Contractor: Generally speaking, an independent contractor works on a contract basis with a client on a project basis. While they have the freedom to choose their clients, they are subject to their requirements.
- Business Owner: In contrast to contractors, business owners have much more autonomy over how they complete customer work, and the operations themselves may be more complex as well as involve employees and/or intellectual property.
- Franchisee: Franchisees may be sole proprietors. Franchisors retain royalties in exchange for guiding franchisees, managing their brands, developing business models, etc.
Starting a Sole Proprietorship:
As a sole proprietorship, you’re faced with big risks. Increased liability, difficulty raising capital, and perceived lack of professionalism are just a few of the pitfalls you have to steer clear of.
It may still be worth taking the risk if you properly plan before launching your new business, weigh the advantages and disadvantages, and weigh the potential financial rewards.
In this section, we’ll take a closer look at the pros and cons of each option:
Pros of a Sole Proprietorship:
- Authority to make all decisions
- It is easy to set up (no state registry is required)
- It is free to start (other fees may apply, but you won’t pay the startup fee)
- Filing taxes is simple
- Tax rates are low
- There is no requirement by the IRS for balance sheets
- Revenue control
Cons of a Sole Proprietorship:
- Assets belonging to individuals are at risk
- Personal liability for lawsuits is increased
- Bankruptcy affects both businesses and individuals
- Raising capital is difficult
- Taxes on self-employment
- Before lending money to a business, many banks require it to be incorporated
- Professionalism perceived to be lacking
One of the biggest decisions you’ll ever make is launching your own business. Although the risk is great, the rewards are great, especially if you don’t need to lease a building or hire employees.
