Deportation of Sole Proprietorship

Last Updated at: Oct 30, 2020

A sole proprietorship or single entrepreneurship is one of the easiest companies to set up in India. But transferring the ownership to another person requires following some careful steps along with several financial transactions. In this writeup, we dive into them for better understanding.

Any business which is controlled and owned by a single person is known as a sole trading concern. Sole trader is a person who manages the business and sole proprietorship business may also be called single entrepreneurship or individual proprietorship. The sole trader himself makes all purchases and sells on his own and maintains all the account while enjoying all his profits and losses in business.  He is the founder as well as the controller of the business.  The business runs on the principle “All is he and he is all in all”.

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Transfer ownership of sole proprietorship

It is easy to set up and manage the sole proprietor’s business. No legal formalities are required. Unlike a company, there’s no legal difference between a sole proprietorship and its owner. To transfer ownership of the business, one should transfer the ownership of the relevant assets. So the proprietor has to note down the following things before transferring his ownership.

register your sole proprietorship

Sale of assets

The sole proprietor owns the business assets just like his own asset. Some of the business assets may be used for dual purposes i.e., both for business and personal use. When the owner wants to transfer his business, he lists the assets he wants to sell to the new owner. The rest of the business assets can be used for his personal use.

Changing the business name

As a sole proprietor, he can do business under his own name or create another “doing business as” name and register with the state government. If the new owner wants to continue the business using the same DBA, the sole proprietor has to request for change of ownership form if available. It is not applicable to all the state. Some state requires a public announcement of a change generally in a recognised newspaper. Even if the state doesn’t require, it is good for the business practice to make a public announcement to prevent the new owner from liability or from any subsequent legal problems. If the new owner doesn’t want to continue the business under the same name, the sole proprietor has to request and file a cancellation form.

Relating to contracts

If the sole proprietor has some on-going contract, the new owner should take up and abide that contract. It is better to legally assign the contractual duties to the new owner. This makes the transfer of the business easier. If the contract has any clause preventing the transfer by any customer, the consent of the particular customer is required for the transfer/sale of business.


The important element for the business reputation which stands in the community is the business Goodwill. Goodwill helps maintain a good business relationship and is worth of all the business assets that he possesses. Goodwill is harder to price and to possess. If the person wants to sell his Goodwill as a part of sale, he has to take a business attorney or other expert to set a fair price for the Goodwill. After the transfer/sale of Goodwill, it is considered for taxation as a capital gain and not as business income.

Closing the sale and notifying the interested parties

Once the sole proprietor decides with the sale and fixes the price, an agreement should be made. The agreement should not only include the sale information but also all the actual terms. It should contain when should be signed, whether full payment or install payment. The agreement can also include conditions made by the sole proprietor regarding the business to whom they have to compete and not to. Once it is done, it should be signed by both the parties. After closing the sale, the transfer should be notified to all the vendors, suppliers, contractors and other businesses and creditors that transfer has been made and make sure that there are no new debts to the new owner on the date of sale.

A letter must be sent to all insurance carriers that cover the business discussing the sale with the liability insurance carrier before the sale. Also customers should be notified. It is a quite complicated matter when the particular customer is a part of sale. A letter should be sent to those customers introducing the new owner but he has to make sure he is no more liable for any of the further dealings.

Settling the accounts

Transferring a sole proprietorship usually involves several transactions. The taxation department considers each sale of asset as a separate sale while filing the tax, thereby treating different tax for different assets. Each sale may be profit or loss depending on the tax slabs. Tax Identification Number is not generally transferred and so the proprietor has to discontinue the connection. Also, all the tax and accounts should be settled before transferring to the new owner.

So the sole proprietor can transfer his ownership at will to the other person. There is no regulating act for the transfer. But by following the above mentioned, he can escape from the upcoming consequences made by the new owner.

To sum it up, when transferring the ownership of a sole proprietorship to another person, the under given steps are a must. Sales of all assets, changing the name of the business, transfer of Goodwill, abiding of all contracts, closing the deal and notifying all required parties and settling all financial accounts.

A lawyer with 14 years' experience, Vikram has worked with several well-known corporate law firms before joining Vakilsearch.