A sole proprietorship (also known as a sole trader) is a business run by an individual. The only proprietor is the single manager and proprietor. He is responsible for all business transactions. The owner is the final decision maker and has no interference. That is the simplest and most common form of business structure in Pakistan.
Features of a Sole Proprietorship:
A sole Proprietorship is not a separate legal entity; the sole proprietor will be entitled to take all of the profits. Similarly, he will be responsible for bearing all losses of the business. The owner also has all the control, liability, and debts from the business.
Registration of Sole Proprietorship Business in Pakistan:
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In Pakistan, a sole proprietorship business is registered with the Federal Board of Revenue (FBR). A sole proprietorship does not require any legal formalities to set up.
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Obtaining a personal National Tax Number (NTN) and filing Form 181 is adequate for establishing and operating a sole proprietorship business.
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There is no requirement to register the business with any other government agency.
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To set up the Sole Proprietorship business, the individual seeking such sole proprietorship must have a valid NTN and be an active taxpayer.
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A sole proprietorship business that deals in the sales of goods and services shall also be required to register for Sales Tax Registration. The FBR will issue such a Sales Tax Registration certificate to the business.
Advantages of a Sole Proprietorship Business:
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A sole proprietorship business is owned and operated by a single individual. He is the owner; therefore, he has complete control over the company and the business's profits. He is independent and quick in his decision-making. There is also no risk of fraud on the part of a partner.
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The Sole Proprietorship business can be set up without lengthy registrations or legal formalities. It is relatively easy to set up. The sole proprietor can even use his name or a trading name for his sole proprietorship business.
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The Sole Proprietor can hire any employees to work in the business independently.
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Ass in all other aspects, the Sole Proprietor is free to dissolve the business at any time.
Disadvantages of a Sole Proprietorship Business:
The most significant disadvantage of a sole proprietorship concern is that it is not a separate legal entity, meaning it does not have its legal existence. There is also no legal distinction between the individual and the sole proprietorship business. The liabilities of the business are that of the Sole proprietor himself. There is no difference between the liability of the owner and that of the Sole Proprietorship Business. And the sole proprietor has unlimited liability. Resultantly:
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The owner is personally responsible for all financial debts and liabilities of the business.
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A sole Proprietorship is not a separate entity from its owner; the owner is responsible for reporting the income and paying the taxes in his name. Sole Proprietor is not required to file a separate return for his Sole Proprietor Business, and he is to declare his business income for his gain.
Process for Registration of a Sole Proprietorship Business:
A step-by-step process for Sole Proprietorship Registration in Pakistan is as follows:
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Choose a unique name for your business/ Sole Proprietorship.
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To apply for Sole Proprietorship Registration, you must have a National Tax Number (NTN) to be issued by FBR. You will only receive an NTN certificate with your name and details.
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Make letterhead, stamp, and business card for your Sole proprietorship business with the name, logo, phone number and physical office address of your business.
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File such request on the letterhead signed and stamped along with your CNIC and business card with the bank of your choice for opening a business account of your Sole proprietorship Business account.
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The bank will open an account for you in the name of your business and give you a confirmation with account details and issue a maintenance certificate after your account is opened.
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Your sole proprietor business is registered on the opening of the account.
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After your account is opened, you can also register for Sales Tax (GST).
Conclusion:
Setting up a sole proprietorship business in Pakistan is easy and hassle-free. It is a very popular model for small businesses because it allows the owner maximum control over the business and legal benefits. However, the business owner's liability is unlimited in a sole proprietorship.
