Question

Why do you think most businesses are formed as sole proprietorships?

Can any type of business get this deduction if over the threshhold? Is there a phaseout component where other factors would come into play?

Answer 1

A Sole proprietorships concern is a form of private sector enterprise that is owned manged and controlled by an individuai entrepreneur. the word proprietor means owner and sole means single it is the oldest and simplest form of organization.

sole trader invests his own capital into the business and manages all the business the full the control of business rests in him. He bears the entire the risk and derives the total banefits.

Following are the reasons most businesses are formed as sole proprietorship.

1) Minimum Government Regulation :  There are minimum government regulation on the activities of sole traden Proprieetary concerns are not govenrment by any separate law and are easy to form,because no rigid legal formality has to be followed for either forming,running or closing down the organizations.

2) Unlimited Liability ; The liability of a proprietor is unlimited. The liability of the sole. Trader can be more than the capitial invested by him.

3) Freedom in Selection of Business : A sole trader can select any business as per his desire. There is no restrication on the type of business .which may be conducted by a proprietary concern

4) Direct contacts with customer and Employees : Since a proprietor usually deals directly with his customers and employees, he can maintain good relations with his employees and provide personal attention to his customers.

5) Suitables for some special Business : There are some special business and trades which require individual attention and service and can only be started as a sole trade for example,Beauty Parlour,Cake shop and Agriculture Products.

6) No Sharing of profit and risks : A  proprietor gets all the profits of the business concern and assumes all the losses and risks involved in business.

2.

Anyone claiming tax exemptions of more than Rs 2.5 lakh in a year This threshold of Rs 2.5 lakh deduction applies to income above Rs 15 lakh.If you are claiming more than Rs 50,000 as HRA exemption.