Proprietary Firm Registration and Tax Benefits to Owners
Registering a sole proprietary company is not mandatory, but most often entrepreneurs do it for various reasons. They are needed for opening bank accounts, to get loans, to participate in government tenders and when some customers demand to see it. The biggest benefit is however the tax benefits. There are two types of taxes that your firm will have to deal with – http://www.simplifiedlaws.com/. The other benefit of registering a firm is that you get exclusive use to its name and style.
Here are some reasons why start-up companies and small businesses take to this kind of organization.
1. It is the easiest to form – there are very little formalities to follow and all that is required is to fill up some basic information like place of business, proprietor’s name, nature of business and the capital planned to be invested. Practically anyone can form a proprietary form of business, unless they have not been forbidden by law. Foreigners however will have to follow additional regulations and in some cases have to follow a different procedure altogether.
2. It requires very little capital – anyone with a few hundred rupees to invest can start this form of business. In fact the law does not even make it a condition that the promoter should invest money into it. However, if the business goes into liquidation, the law will not look into the business and the owner as different entities. This means the promoter will have to pay from his personal assets to meet debts if any.
3. Though not absolutely a necessity, registration of the firm protects the owner from someone hijacking his or her identity. In simple terms it means, the name you choose for your business remains your property. No one else will be permitted to use it for their business. Without a registration anyone can use your business name and bring disrepute to you.
4. The proprietor is not required to share the secrets of the organization with anyone else, except for the purpose of filing of direct and indirect taxation. Taxation can come in many different forms – income tax, sales tax, excise duties, customs duties, municipal and corporation taxes and still more are but few of the taxes that come under any of the two mentioned earlier. Yet another advantage of proprietor business is that the owner can avoid double taxation. The law provides for treating proprietor type business as if it is a personal profit. In other types of business this is not possible, especially if it is a corporate company.
5. It is easier to wind up the business should the need arise. In fact there are no formalities as such to follow in the terminating process. However, the owner of the business will have to meet all the liabilities. Though a disadvantage, the owner will have to meet liabilities from his personal assets if the business consistently makes a loss.
There are however some restriction to the business as well. The most common restrictions are – the owner cannot raise money from public, there is control over the deposits that can be accepted from investors. A proprietor type business ceases to exist upon his or her demise unless his heirs choose to take it over and run it.
Proprietor type business is best suited for small ventures like starting a bakery, a trading or merchant company or a one-man service business. There is minimum book keeping and maintenance expenses overall. To register a proprietor type business, entrepreneurs use the services of an advocate or a chartered account. They will help you with deciding the name, filing tax returns and registering the firm.
