How to start a Sole Trade/ Proprietorship Business?

A sole-trade business is such a form of organization which requires no formalities to set it up. Any individual can set up a business whenever he likes. There is no legal requirement to form a sole trade business. However, if some business requires a prior sanction of the government then such formalities will have to be completed.

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The usual decisions for setting up every business are taken care of in sole-trade business also. The first thing to be decided is the selection of a particular line of business. To take this decision, the demand potential of a product if it is a manufacturing unit or presence of consumers if it is a retail business has to be assessed first.

Then the requirement and availability of resources has to be assessed. Generally, sole-trader depends upon the family resources for setting up a business. With the expansion of banking facilities at most of the places, sole-traders have now started availing credit.


The selection of a proper site is very important in a sole-trade business. Since most of the retail trade is in the hands of sole traders, the selection of a place for setting up the business is very important. The requirements of customers should be taken into account while selecting a business site. Though customers want to purchase their day to day necessities at their nearest place but they will prefer to visit the main shopping centre to purchase durable goods like T.V, fridge, washing machine, music system etc. The business is set only after considering various factors.

Sole-trade business can be closed at any time by the proprietor. As case of other forms of organizations, no legal formalities are required to be performed for winding up of this business. Both formation and winding up of sole- trade business is an easy affair. Following points will explain the legal position of a sole-trade business.


No Specific Law

There is no specific law under which this business requires registration etc. A Joint Stock Company has to be incorporated under Companies Act 1956; a partnership firm is governed by any such statute. So this business can be started and dissolved at the discretion of the owner without reference to any statutory provisions.

Subject to General Law

The sole-trade business will be subject to the general laws of the land. If there is a provision of getting a license for setting up a particular business, then the sole trader will also get the license before setting up such a business. A person desirous of starting a wine shop is expected to get license from the State Government. A sole trader wanting to enter this business will certainly be expected to comply with this law.

Not one and the Same thing


The sole trader and his business are one and the same thing. The business exists only which the sole trader. If he disappears from the scene due to death or some other reasons, then the business will also be dissolved. The proprietor and his business have one personality.


The liability of the sole trader is unlimited. If a business is dissolved then no distinction is made between business and private assets and business and private loans of the sole trader.

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