1. No Separate Legal Entity

• A sole proprietorship has no independent legal identity separate from its owner
  
• The business and the individual are considered the same in the eyes of the law
  
• All contracts, debts, and obligations entered into by the business are directly attributed to the proprietor
  
• The owner is fully responsible for the business conduct
  
• Unlike companies or LLPs, the proprietorship is not recognized as a legal “person”
  

2. Unlimited Personal Liability

• The proprietor bears unlimited personal liability for all business-related debts and losses
  
• If the business cannot meet its obligations, the owner’s assets can be seized to pay off liabilities
  
• There is no legal shield protecting the owner’s personal finances
  
• This increases risk, especially in high-investment or high-debt businesses
  
• Creditors can directly sue the proprietor for business defaults
  

3. Ownership and Control

• The sole proprietorship is fully owned and managed by one individual only
  
• No other legal person, partner, or shareholder is involved
  
• The owner holds complete control and decision-making authority
  
• No legal distinction is made between the person and the business they run
  
• Changes in ownership require the formation of a new entity
  

4. No Formal Incorporation

• A sole proprietorship is not incorporated under the Companies Act or any central corporate legislation
  
• It does not require registration with the Ministry of Corporate Affairs (MCA)
  
• However, local licenses (like GST, Shop Act, or Udyam registration) may be needed to operate legally
  
• Legal recognition is usually based on these supporting registrations
  
• It lacks corporate status, which may limit official recognition in large contracts or tenders
  

5. Limited Legal Rights and Recognition

• A sole proprietorship may face limitations in entering large-scale or formal business agreements
  
• It cannot sue or be sued in the business name; all legal matters are conducted in the proprietor’s personal name
  
• Certain government schemes, bank loans, and contracts may require more formally recognized entities
  
• The absence of a corporate structure may limit business opportunities
  
• Legal recognition is generally informal and dependent on business scale and registrations