Question

You decide to start a business. Distinguish between sole proprietorships and corporations on the basis of each of the following

1. Process for creation of the business

2. extent of government regulation

Answer 1

Ans: Difference betwwen sole proprietorships and corporations on the basis of process of creation of business is:

A sole proprietorship is the most common form of business entity where one person is the owner and is personally liable for all debts and liabilities of the business.Creation of business in India can be done in three ways:

(a) Register under Shop and Establishment Act:

(b) Get A Udyog Aadhar under MSME

(c) Get GST Registration

A sole Proprietor can register under Shop and Establishment Act if he has shop as a place of business:

A shop means a premises where:

(a) where goods can be sold,either by retail or wholesale

(b) a place where services are provided to customers

(c) it includes aoffice, storehouse, godown , warehouse,residential hotel etc.

A Udyog Aadhar is a unique identification number provided by MSME to business owners.

A corporation is a legal identity which needs to register under Companies Act 2013 where sole proprietorship is operated under owner's name. Business owners have to file memorandum and articles of incorporation wit the state business registrar to form a corporation. The incorporation process requires a big cost to do the registration whereas some states do not require the sole proprietors to register before they start business. As long as you operate the business on your own name you don't have to pay for the upfront costs.

Extent of Gvernment Regulation

Certain types of government regulation applies to business regardless of form of organization . License or permits will be required wherever applicable of all the business entities.The sole proprietorship, as a form of business organization, is not generally regulated by the state. Other than tax filings and specialized reports applicable to certain kinds of businesses (e.g., hazardous waste generators), no special governmental filings or reports are required, making the sole proprietorship the least restrictive, most private form of organization.

Wheras in case of corporations rules are established by laws of state of corporation and the article of incorporation. These rules are more complex and formal than the sole proprietorship, Tax filings in case of corporations are more complex than applicable to partnership and proprietorship.Any corporation that issues resitered securities have to make periodic filings with the state and federal regulators and must comply with other regulatory requirements.

Thus the extent of government regulation is more in case of corporations.