CLOSURE OF PROPRIETORSHIP FIRM

WHAT IS A SOLE PROPRIETORSHIP?

A sole proprietorship is a type of business which is owned, managed, controlled and run by one person and in which there is no legal distinction between the owner and the business entity.

Proprietorship is a type of unregistered entity. The micro and small businesses that are operating in the unorganized sector chose registering as a proprietorship. It is easy to start a sole proprietorship as it has very little regulatory compliance for conducting businesses. Proprietorship registration is ideal for the entrepreneurs who are getting into the business for small businesses with very limited clients. The liability of the sole proprietorships is limited and they do not have perpetual existence.

WHO IS A SOLE PROPRIETOR?

A sole proprietor is the single owner of the sole proprietorship, he is treated as an entity same as the business. As the sole proprietor is the owner of the business he is entitled to all the company's revenue and expenditures.

To run a business as a sole proprietor one need to obtain some licenses and permits. The needs of license will depend on the industry, state, and locality of the business.

WINDING UP OF PROPRITERSHIP FIRM

Before the closure of a sole proprietorship business, it is necessary for a proprietor to understand all obligations and liabilities of his entity and of himself as the sole proprietor to fulfill before the final closure of the business.

If you are a sole proprietor and you have made a final decision of closing down your proprietorship business permanently, then you need to follow all legal affirmations.

COMMON REASONS FOR CLOSURE OF SOLE PROPRIETORSHIP

Legal closure of business in India is a mandatory step to be taken to avoid future complications and legal intervention, which otherwise be faced if the business is closed without notifying government authorities.

Some common reasons for the closure of sole proprietorship business are:

BANKRUPTCY OR DEATH OF THE SOLE PROPRIETOR:
Business can be put to an end on bankruptcy or death of the sole proprietor where it cannot be transferred to any other person or the business is not able to not pay off its existing debts.

LEGAL ORDERS ISSUED AGAINST BUSINESS:
Business should have to be closed after receiving a legal orders from legal authorities if they are of the view that business is illegal or unethical.

FAILURES OR LIMITED RESOURCES:
For a sole proprietor, there is always a limited source for investment and finance. Holding business single-handedly, a proprietor has to manage his business with only a few sources he has, failures in business due to limited resources can also lead to the closure of sole proprietorship.

VOLUNTARY DISSOLUTION:
With challenges faced by a sole proprietor, he may chose to close down his business permanently or on the advisory of a legal expert stating for no future prospects the business to grow.

STEPS FOR CLOSURE OF SOLE PROPRIETORSHIP BUSINESS

SURRENDER LICENSE OF BUSINESS:
The first step for the closure of sole proprietorship business is to apply for cancellation of all registrations which the business holds and the execution of a business closure agreement which has to be sent to all authorities and parties associated with the business.

SALE OF ASSETS:
Preparation of sale agreement and declarations from the parties buying assets is to be acquiring to keep a legal record all asset transactions. Then all assets have to be sold with clearing all payments from the buyers.

THE SETTLEMENT WITH CREDITORS:
The final settlement agreement is to be formed with all the creditors, employees, suppliers, lenders, and financial Institutions after making payment of their dues pending with the business or the proprietor, maintenance of such records is necessary so that they can be used in case any future obligations from any party arise.

TERMINATION OF AGREEMENTS:
If proprietorship firm have entered into any agreement with any party or vendor during the execution of business, then the proprietorship firm have to terminate those agreements to avoid future consequences and financial liability. For example, if Proprietor has rented a place for its business, then the rental agreement must terminate so that you do not have to pay any rent in the future.

CLOSURE OF BANK ACCOUNT:
You have to close the current bank account of your firm and also return the unused cheque book, debit and credit card to the bank, so that it cannot be misused by anyone. For bank account closure Proprietor will have to make the application to the banker and have to obtain closure certificate.

STATE AUTHORITY APPROVALS:
To declare the closure of sole proprietorship legally, it is necessary to go through the approval of the appropriate state concerned authority on a legal agreement ensuring business stands strike off in the eyes of the government.

WHY YOU SHOULD WIND UP YOUR SOLE PROPRIETORSHIP LEGALLY?

LEGAL PROTECTION:
if your proprietorship is closed on a positive note but without the approval of the appropriate State, central or concerned authorities, the business will be under the obligation of fulfilling compliances or liabilities which can arise in the future. Thus, receiving government approval and approval from concerned authorities can eliminates business responsibilities from legal suits against business or proprietor.

EASY FINAL SETTLEMENT:
Dissolution of sole proprietorship through legal agreements with all creditors, employees and parties associated with a business will help in better settlement of business obligations.

ELIMINATE UNFORESEEN LIABILITIES:
After receiving the certificate from a state or concerned authority for closure of business, the business will no more be liable for any future liability.