Proprietorship Firm

A sole proprietorship is the oldest and the most common form of business. It is a one-man organisation where a single individual owns, manages and controls the business. Its main features are :-

  • Ease of formation since it does not require to go through elaborate legal formalities. No agreement is to be made and registration of the firm is also not essential. However, the owner may be required to obtain a license specific to the line of business from the local administration.
  • The capital required by the organisation is fully infusedĀ  by the owner himself and he depends largely on his own savings and profits of his business.
  • Owner has complete control over all the aspects of his business and it is he who takes all the decisions though he may engage the services of a few others to carry out the day-to-day activities.
  • Owner alone enjoys the benefits or profits of the business and he alone bears the losses.
  • The firm has no legal existence separate from its owner.
  • The liability of the proprietor is unlimited i.e. it extends beyond the capital invested by him in the firm.
  • Lack of continuity i.e. the existence of a sole proprietorship business is dependent on the life of the proprietor and illness, death etc. of the owner brings an end to the business. The continuity of business operation is therefore uncertain.


  • Ease of formation
  • Maximum incentive for work
  • Secrecy of business
  • Quick decisions and flexibility of operations


  • Limited capital
  • Limited managerial ability
  • Limited life
  • Unlimited liability

Hence, this form of organisation is suitable for the businesses which involve moderate risk, small financial resources, capital requirement is small and risk involvement is not high.

Association of Person (AOP) & Body of Individuals (BOI)

An AOP under Income Tax Act is an entity or unit of assessment.

It means two or more persons who joins for a common purpose with a view to earn an income. The term person includes any company or association or body of individuals, whether incorporated or not. Therefore , if two or more persons join hands to carry on a business but do not constitute a partnership, they may be assessed as an AOP.

BOI means a conglomeration of individuals who carry on some activity with the objective of earning some income. It consist of only individuals.

Interest paid by AOP / BOI to its member is not allowed as deduction from the income of AOP / BOI (Section 40(ba) of Income Tax Act, 1961)

Any salary, bonus, commission or remuneration , by whatever name called, paid by AOP / BOI to a member is not allowed as deduction from the income of AOP / BOI

Total Income of AOP / BOI is taxable , either at the rates applicable to an individual, or at the maximum marginal rate or at a rate higher than the maximum marginal rate as the case may be.