A Sole Proprietorship is a one-man business organisation. Easily register a proprietorship firm online in India with Filecrat. Easy Process and Documentation.
The Sole Proprietorship is an individual who solely runs a business and poses the liability for all profits and losses in that business and the firm is called a Sole Proprietorship Firm. The sole proprietorship does not have a separate legal identity as it simply refers to a person who owns the business and is personally liable for its debts.
It is very different from the Partnership firms, Companies and limited Partnerships as there is no separate legal entity created. An individual can validate registering a sole proprietorship by taking important government licenses depending upon the type of business commenced by the individual.
Features of Sole Proprietorship
Common Identity: It has no separate legal entity independent of the owner.
Capital: The capital is provided by the proprietor himself from his personal resources.
No Special Legislation: Proprietorship Firm is not governed by any special legislation.
Non-transferable nature: A sole proprietorship has a character of non-transferability.
Liability to file Income Tax Returns: It is an obligation of the proprietor to file Income Tax Returns relating to the sole proprietorship business annually.
No restriction on number of Sole proprietorship firms: An individual may be the owner of more than one proprietorship firms having different businesses.
Profits and Losses: The surplus arising in the business of the sole proprietorship entirely belongs to the proprietor and all the losses and risk are to be borne by him alone.
Single Ownership: It can consist of maximum one member which means single ownership. It runs entirely at own risk of loss and provides both capital and management to the business.
Unlimited Liability: The proprietor has unlimited liability for the debts incurred in the business. The creditors have right to recover their dues from the personal property in case the business assets are not enough to pay their debts.
Advantages of Sole Proprietorship
- Incorporating this type of proprietorship gives less economic burden
- Proprietorship businesses are not bound to pay corporate taxes
- No need of obtaining separate PAN for proprietorship firm
- Lesser compliances than other type of entities
- Closure of proprietorship requires minimum formalities
- One person has decision making authority and liability to control the business along with incurred profit and loss
- No registration or reservation of business name is required to start a proprietorship
Disadvantages of Sole Proprietorship
- A person is personally liable for all losses in the business
- Ceases to exist with the death of the Sole Proprietor due to non-transferability
- No special legislation and less formalities mean less government support during hard times.
- Raising funds is a challenge as a single person has liability for all the investments and other financial responsibilities
Process of Sole Proprietorship Registration
STEP 1: Obtaining a PAN is the first and foremost requirement for registration. If you do not have PAN, we will get one for you.
STEP 2: Select an appropriate name for the business. The name of an entity should be unique and selected in such a way that it clearly defines the purpose of the business. However, no name approval is required from any Government authority, though it is important that the selected name must not be common and not reflect or represent any other business.
STEP 3: Opening of a current bank account and register the entity. A proprietor needs to open a current bank account in the name of the entity. A proprietor can take other government license along with the registration as per the legal requirement of the business.
STEP 4: Registration under MSME It is not compulsory to get registered under the Micro, Small and Medium Enterprises Development Act, 2006 but this can help to take benefits from the government schemes for the proprietorship.
STEP 5: GST registration is important if the turnover of the business exceeds the maximum announced limits of the respective state (in which the business is established).
Important Licenses/ Registrations
These licenses can help (as per the requirement) in smooth running of business with less government interference:
- MSME Registration
- GST Registration
- Shop and Establishment Act Registration
- TAN Registration
- Import Export Code License
- FSSAI License
Required Compliances of a Sole Proprietorship
Income Tax Returns: Income Tax required to be filed yearly for the proprietorship.
TDS Returns: If income tax audit is applicable on the proprietorship firm, the TDS Returns have to be filed every quarter and TDS payment to be done every month.
GST: GST Registration is mandatory if the turnover exceeds Rs 20 lakhs and also if you are selling your goods/ services to other states, either through e-commerce or directly. GST returns are to be filed every month (although there is a quarterly filing option if the turnover is below Rs 1.5 crores). But GST collected has to be deposited every month.
Video on Sole Proprietorship Firm Registration
- What is Sole Proprietorship
- Advantages of Sole Proprietorship
- Process of Sole Proprietorship Registration
- Important Licenses/ Registrations
- Required Compliances of a Sole Proprietorship
- Guidance on registrations required
- MSME Registration
- TAN Registration
- Aadhaar Card
- PAN Card, if any
- Latest utility bill such as electricity bill.
- KYC documents for the bank
- Bank Account details
- Address Proof of the registered office
- License issued by the Shops and Establishment Act
- Detail of Income Tax Returns of the Proprietor
Any Indian citizen can start the sole proprietorship business with a current account in the name of its business. However, to open a current account, other than PAN card and Aadhar Card of the proprietor, banks require any of the following documents - a Shop and Establishment Registration, Trade License, Professional Tax Registration or even Affidavit.
Generally, local businesses include the grocery store, fast food vendor, restaurant, beauty parlours, other small traders and manufacturers but it does not imply that large businesses do not operate as sole proprietors.
Yes, a sole proprietorship can be converted into private limited company or partnership firm. However, the process is a bit tedious. It is quite common to convert sole proprietorship into private limited company or partnership firm at a later stage.
Generally, sole proprietorship registration is not mandatory since there are no formal rules and regulation for proprietorship registration by the government but registration provides a valid existence to the business by having tax registrations and other business registrations. For instance, GST registrations could be done under the name of an individual/ proprietor which ensures that the business is operating.
A proprietorship firm has no legal entity like a registered firm. A suit cannot be instituted in the name of an unregistered proprietorship firm and the said suit is to be instituted in the name of the proprietor.
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