Sole proprietorship

A sole proprietorship, also known as a sole tradership, individual entrepreneurship or proprietorship, is a type of enterprise owned and run by one person and in which there is no legal distinction between the owner and the business entity. A sole trader does not necessarily work alone and may employ other people.

KEY TAKEAWAYS.

  • Sole Proprietorship will be registered in FBR (Federal Board Revenue), and FBR issue proper certificate of Business with NTN No and Business Details
  • Making Proprietor business legal, owner has to obtained NTN number to fulfill the lawful agreement as per tax laws
  • A sole proprietorship is an unincorporated business with only one owner who pays personal income tax on profits earned.
  • Sole proprietorships are easy to establish and dismantle due to a lack of government involvement, making them popular with small business owners and contractors.
  • Most small businesses start as sole proprietorships and end up transitioning to a limited liability entity or corporation as the company grows.
  • One of the main disadvantages of sole proprietorships is that they do not have any government protection, as they are not registered. This means that all liabilities extend from the business to the owner.

Documents Required for Sole Proprietorship  Registration:

  • CNIC and NTN of the Person Applying for Sole Proprietor Registration.
  • Name of the Business.
  • Address of the Business and utility bill for address verification (also require property documents or rental agreement in case property in on rent)
  • Letter Head and round stamp of the Business.
  • Electricity Bill of the Address.

 

Advantage and Disadvantages.

Advantages:

As we mentioned earlier it is the easiest way to start a business in Pakistan. There is no legal fees or registration mandatory but if we want to convert it into lawful business we can do it at any time by obtaining a license from concerned department.

  • You are a boss.
  • It is easy to organize and may be started with small amount of money.
  • It permits a high degree of flexibility to the owner since he/she is the boss of the business establishment.
  • Due to the owner’s unlimited liability, some creditors are more willing to extend credit.
  • The owner receives all the profit of the business.
  • No risk of fraud by a partner.
  • Quick decision making

Disadvantages:

The enterprise may be crippled or terminated if the owner becomes ill and in his/her absence no proper mechanism exists to manage and run the business. Since the business has the same legal entity as the proprietor, it may ceases to exist upon the proprietor’s death, and also if no one from the family is available to take over the business legitimately. Because the enterprise rests exclusively on one person, it often has difficulty in raising long-term capital.

  • Has limited resources. Banks are reluctant to grant loans to proprietorship considering its small assets and high mortality rate.
  • Unlimited liability for business debts. The single owner is responsible for paying all debts and damages of their business.
  • If the firm fails, creditors may force the sale of the proprietor’s personal property as well as their business property to satisfy their claim.
  • When the owner dies, the continuation of the business is difficult, because a new owner must typically accept all liabilities of the business.
  • Bear risk and loss alone.

 

Filling of Income tax Return

  • It is mandatory for a taxpayer to file Income Tax Returns annually.
  • Accounting Period: July 1- June 30
  • Filing Period: Annual Income Tax Returns are normally filed in September. However dates can be extended as per Government directives.
  • Every proprietor business individual has to file Income Tax Return irrespective of date of starting a business.
  • Once the status is added, you are a registered legal entity.