sole proprietorship of e-commerce website
I want to start a sole proprietorship business for selling goods online with the help of existing ecommerce websites. I am new to this field and i heard sole proprietorship is very risky due to unlimited liability. But this is my first step to test my skills so i have decided to start a sole proprietorship since its setup is less expensive. Please help me to clarify my below queries. 1. Please advise how to register my business legally to avoid any legal problems. I want to start business from my home only. I am from state Andhra Pradesh. 2. How to minimise or mitigate risk of unlimited liability in the above business.
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You are correct in your decision; a sole proprietorship is one of the simplest and easiest forms of business entity to register in India. Sole Proprietorship does not need any formal registration with the Government. You only need to take a business licences for starting your proprietor firm.
The business licenses depend on the type of business you want to do, whether it is a product based or a service based business. These licenses will also help you in getting a bank account in the name of your business entity.
You need to have a PAN card because as a sole proprietor firm you will need to file returns in your name for which a PAN card is mandatory.
If in any year your firm’s turnover increases Rs. 9 lakhs then you will have to pay service tax which is 10% and for that you need to have a service tax registration.
Since you want to start a business from your home only you won’t need Shops and Establishment License.
If your annual turnover exceeds Rs. 10 lakhs you also need to have a VAT registration certificate for your entity. However it is advisable to have a VAT registration as without it you cannot issue tax invoices on which your customer VAT dealer can claim credit for the tax. Your customer will therefore have to charge a higher price for his sales if he cannot claim a credit for the VAT. In this case he might choose to trade with another VAT dealer and you would lose business.
Coming to your second question, the primary downside to operating your business as a sole proprietorship is that a sole proprietor is personally liable for all of the debts of the business. This is known as having “unlimited liability.”
To elaborate, if anybody has a reason to sue your business, they’ll be able to come after your personal assets, not just the money that you have in your business checking account. This means that, if the suit is for enough money, you could end up losing almost all of your personal possessions — your car, your savings, and possibly even your home.
However the remedies to mitigate this are less as in sole proprietorship the identity of owner and his business is same. You can get your business insured to cover for losses arising in future as maintaining a separate legal identity for your business is not possible.
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