Sole Trading Concern

Sole Trading Concern

A sole trading concern is a form of business ownership that is owned and run by a single person who has full control and responsibility over the business. The owner is also liable for all the debts and obligations of the business. A sole trading concern is easy to start and dissolve, but it has limited resources and growth potential.

In Nepal, there is no specific law regarding the regulation of sole trading concern, but it is guided by the Private Firm Registration Act, 2014. According to the act, a private firm refers to any industrial enterprise that is conducted by an individual in his own name or in the name of a relative. A sole trading concern should be registered in the Department of Commerce and Industry by providing the required documentation.

According to Prof. James L. Lundy, “The sole proprietorship is an informal type of business owned by one person”.

a. Features of Sole Trading Concern

Some of the features of sole trading concern are:

1. Sole ownership: The sole trader is the sole owner of the business and has full control and responsibility over it. He or she can make all the decisions and enjoy all the profits of the business.

2. Sole management and control: The sole trader manages and operates the business by using his or her own skills and abilities. He or she does not have to consult or report to anyone else.

3. Easy to establish: A sole trading concern is easy to establish even with minimum capital and knowledge. It does not require any complex legal formalities or procedures. After obtaining a registration certificate from the concerned department of the government of Nepal, a sole trader can start the business and get the facilities provided by the government.

4. Easy to dissolve: A sole trading concern is easy to dissolve as well. A sole trader can dissolve the business if he or she thinks that the scope of economic gain from the business is not possible. Only submission of an application in the concerned department of the government is sufficient.

5. No sharing of profit or loss: The sole trader is the sole beneficiary of the profit or loss of the business. He or she does not have to share the profit or loss with anyone else.

6. Unlimited liability: The sole trader has unlimited liability for the debts and obligations of the business. This means that he or she is personally responsible for paying off the debts and liabilities of the business, even if it requires selling his or her personal assets.

b. Reasons for starting sole trading concern (Merits/ Advantages)

Some of the reasons for starting a sole trading concern are:

1. Independence: A sole trader can enjoy the freedom and independence of running his or her own business. He or she can make all the decisions and implement them according to his or her own will and vision.

2. Satisfaction: A sole trader can derive satisfaction and pride from owning and operating his or her own business. He or she can also express his or her creativity and innovation in the business.

3. Flexibility: A sole trader can adapt and adjust to the changing market conditions and customer preferences. He or she can also modify the products and services according to the needs and demands of the customers.

4. Low cost: A sole trader can start and run the business with low cost and investment. He or she does not have to pay any fees or taxes to the government or any other entity. He or she can also save on the expenses of hiring and managing employees.

5. Personal touch: A sole trader can establish a personal and direct relationship with the customers and suppliers. He or she can also provide customized and personalized services to the customers and gain their loyalty and trust.

6. Social service: A sole trader can contribute to the social and economic development of the society and the country. He or she can also fulfill his or her social and moral obligations and responsibilities.

Disadvantages/ Demerits of a Sole Trading Concern

Some of the demerits of sole trading concern are:

1. Unlimited liability: The sole trader is personally liable for all the debts and obligations of the business. This means that if the business fails or faces legal issues, the sole trader's personal assets, such as property, savings, or vehicles, can be seized by the creditors or the court. This exposes the sole trader to a high degree of financial risk and insecurity.

2. Limited capital: The sole trader can only invest his or her own savings and borrowings from relatives and friends in the business. This limits the amount of funds available for the business and restricts its growth and expansion. The sole trader may also face difficulties in obtaining loans from banks or other financial institutions, as they may require collateral or guarantees that the sole trader may not have.

3. Limited managerial abilities: The sole trader has to perform all the functions of the business, such as planning, organizing, directing, controlling, and coordinating. This may be beyond the capacity and expertise of a single person, especially when the business grows in size and complexity. The sole trader may not be able to hire or retain qualified and skilled employees, as he or she may not be able to offer competitive salaries, benefits, or incentives. The sole trader may also lack the time and resources to update his or her knowledge and skills, or to adopt new technologies and innovations.

4. Uncertain life: The life of the sole trading concern depends entirely on the life of the sole trader. If the sole trader dies, retires, becomes incapacitated, or loses interest in the business, the business may come to an end. The sole trader may not have a successor or a partner who can take over the business and continue its operations. The sole trader may also face difficulties in transferring or selling the business, as the goodwill and reputation of the business are attached to his or her personal name and identity.

5. Limited scope for expansion: The sole trading concern has a limited scope for expanding its market share, customer base, product range, or geographical coverage. This is because the sole trader faces constraints in terms of capital, management, and risk-bearing. The sole trader may not be able to compete with larger and more established businesses that have more resources, economies of scale, and diversification. The sole trader may also miss out on the opportunities and benefits of collaboration, networking, or joint ventures with other businesses.

6. Limited chances for tax planning: The sole trader is taxed as an individual, not as a separate entity. This means that the sole trader has to pay income tax on the entire profits of the business, regardless of whether he or she reinvests them in the business or withdraws them for personal use. The sole trader may also have to pay other taxes, such as sales tax, property tax, or professional tax, depending on the nature and location of the business. The sole trader may not be able to avail of the tax deductions, exemptions, or incentives that are available to other forms of business organizations.

Requirements for registering a sole trading concern in Nepal

The requirements for registering a sole trading concern in Nepal are:

1. We need to fill out an application form in the prescribed format and submit it to the concerned department, depending on the nature of our business. The application form should include the name, address, objectives, functions, and particulars of goods or commodities to be transacted by the private firm, as well as the name and address of the owner and the name of the parents and grandparents.
2. We need to prepare and attach the following documents with the application form: name of the business, address and rent agreement letter of the business, name and address of the business owner, citizenship certificate of the business owner, self-declaration letter that states the intent to register the business, and objective and function of the sole proprietorship business.
3. We need to pay the registration fee based on the capital of the firm. The fee ranges from NPR 600 to 15,000. (May vary with time)
4. We need to register at the Ward office and tax office if the capital is less than 5 lakhs, or at the Department of Commerce (as proprietor or partnership firm) and tax office if the business only does trade, or at the OCR (Office of the Company Registrar), DOC (Department of Commerce) and tax office (IRD- Inland Revenue Department) if the business has various objectives.
5. We need to obtain a registration certificate from the department that certifies the registration of the sole trading concern. The certificate will contain the registration number and date, name and address of the sole trader, name and address of the business, and the signature of the registrar.
6. We need to renew the registration certificate annually by filling up the renewal form and uploading or submitting the required documents, such as the certificate of registration, the tax clearance certificate, and the proof of payment of the annual fee.

c. Procedures of Registration of Sole Trading Concern in Nepal

The procedures of registration of sole trading concern in Nepal are as follows:

Application form: 

The sole trader has to fill up an application form and submit it to the Department of Commerce and Industry. The application form should contain the following information:

• Name and address of the sole trader
• Name and address of the business
• Nature and objectives of the business
• Capital and sources of finance
• Location and area of the business
• Other relevant details

Documents: 

The sole trader has to attach the following documents along with the application form:

• A copy of the citizenship certificate of the sole trader
• A copy of the PAN/VAT certificate of the business
• A copy of the lease agreement or ownership certificate of the business premises
• A copy of the approval letter from the concerned authority, if required
• A passport size photo of the sole trader

Fees: 

The sole trader has to pay the following fees for the registration of the business:

1. Registration fee: Rs. 1000 (May Vary with time)
2. Renewal fee: Rs. 500 per year (May Vary with time)
3. Stamp fee: Rs. 10 (May Vary with time)

Certificate: 

After verifying the application form and the documents, the Department of Commerce and Industry will issue a registration certificate to the sole trader. The certificate is issued by the Office of the Company Registrar (OCR) under the Ministry of Industry, Commerce and Supplies. The certificate is valid for one year and needs to be renewed annually. The certificate will contain the following information:

1. Registration number and date: This is a unique identification number and the date of registration of the sole trading concern. It helps to track the records and transactions of the business.

2. Name and address of the sole trader: This is the personal information of the owner of the business. It includes the full name, residential address, contact number, and email address of the sole trader.

3. Name and address of the business: This is the official name and location of the business. It should be different from the name and address of the sole trader and should reflect the nature and scope of the business. It also includes the phone number, fax number, website, and email address of the business.

Procedures of Renewal of Sole Trading Concern in Nepal: 

The renewal of the sole trading concern is a process of updating the registration details and paying the annual fee to the OCR. The renewal can be done online or offline. The steps for the renewal are as follows:

Online renewal:

1. Visit the OCR website and log in with your username and password.
2. Fill up the renewal form and upload the required documents, such as the certificate of registration, the tax clearance certificate, and the proof of payment of the annual fee.
3. Submit the form and wait for the confirmation email from the OCR.
4. Download and print the renewed certificate from the OCR website.

Offline renewal:

1. Visit the OCR office and collect the renewal form.
2. Fill up the form and attach the required documents, such as the certificate of registration, the tax clearance certificate, and the proof of payment of the annual fee.
3. Submit the form and the documents to the OCR officer and get a receipt.
4. Collect the renewed certificate from the OCR office after a few days.