A sole proprietorship is one of the oldest and simplest forms of business structure in India. It is a type of business that is owned, managed, and controlled by a single individual—the proprietor. Since the business and the proprietor are legally the same entity, setting up a proprietorship is straightforward, with minimal compliance requirements.

While a proprietorship can engage in most business activities that an Indian individual is allowed to undertake, there are limitations in certain sectors. Activities such as banking, insurance, financial services, lending, defense, and telecommunications require specialized approvals and licensing. In such cases, forming a company and obtaining the necessary government approvals is mandatory. Therefore, a proprietorship is best suited for small-scale businesses that do not fall under these regulated sectors.

It is important to note that a proprietorship cannot have partners or shareholders, as the business and the proprietor are legally the same. Additionally, there is no limited liability protection, meaning the proprietor is personally liable for all business obligations. Due to these factors, this structure is most appropriate for small businesses with no more than five employees.