Sole Proprietorship Registration

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What is a Sole Proprietorship Business?

A business that is managed and owned by a single person is called a Sole Proprietorship.

It can be set up within 10 days, which makes it very popular among the unorganised sector, especially merchants and small traders. There is no registration required, proprietorships are recognised by other registrations, such as a sales/service tax registration.

All profits of the business belong to the sole proprietor as well as all losses are to be beared by him. There is no specific law that coordinates the sole proprietorship. Owners of such businesses have unlimited business liability. This includes proprietors’ personal assets could be appended to meet business obligation claims. Ownership of a Sole Proprietorship cannot next be transferred from one individual to another.

To Whom and When is it Suitable?

‘Proprietorship’ form of business is suitable for a single person who wants to start a business by himself in an informal way. There are no specific registration norms for a Proprietorship. The proprietor will not get the advantage of Limited Liability and thus cannot add partners to the organisation at any point of time. In the future a  Sole Proprietorship’ cannot be converted to OPC / LLP/ Company.

Features & Benefits of Sole Proprietorship

  • Unlimited Liability

A Sole Proprietorship has no separate existence thus it’s similar partnership firms. Thus, all debts are to be recouped from the sole owner only. Along these lines, the proprietor has boundless risk concerning all the obligations can only be recovered from the sole proprietor. It heavily discourages any risk-taking, which means that it’s suitable for only small businesses. If you plan on running a business that requires a loan or funding, it’s more suitable to look into registering an OPC [One Person Company.

  • Easy to Establish

It is relatively easy to start up as a sole proprietor. There are no specific registration requirements for a sole proprietorship business, it uses the proprietor’s legal identity. Thus it can be started without any registration. Using the PAN and Aadhaar of the Proprietor, Only government registration relevant to your business is required. 

  1. To create and protect the identity of the business Trademark Registration and Udyog Aadhaar registration can be obtained and procured optionally. 
  2. If you’re selling goods online, a proprietor would only need a GST registration additionally. 
  • Easier to Operate

Only one single person is in control of affairs, thus that person will be the sole decision maker and there are no different opinions, no concept of approval from other people or a board meeting in a proprietorship firm thus making the entire process of decision making faster and making the business easy to operate. 

  • All Profits Belong to the Sole Proprietor 

Only in a sole proprietorship business and an one person company, the owner is the sole beneficiary of all the profits. In all other types of business structures such as a company, a partnership firm or a LLP a minimum of at least two persons are involved in sharing the profits.

However, this also means that the Sole Proprietor has to bear all the losses of the business as well. 

  • Compliance & Taxation

The compliance requirements are minimal as a proprietorship firm does not have to be registered with any Government authority like the MCA [Ministry of Corporate Affairs]. 

  • The proprietor only has to file income tax returns if the firm has taxable income of more than Rs.2.5 lakhs annually. 
  • In case of proprietors who are of age 60 years or more during the previous year, income tax filing would be required only if the taxable income is more than Rs 3,00,000 per annum. 
  • For proprietors who have attained the age of 80 years or more during the previous year, income tax filing would only be required if the taxable income is greater than Rs 5,00,000.

By availing the following deductions, the sole proprietor can also reduce the income tax liability.  

  1. Life insurance premium, Provident fund contributions, subscription to certain equity shares or debentures and more.  
  2. Contribution to pension schemes notified by the Central Government.
  3. Medical insurance premium.
  4. Medical expenses.
  5. Payment of rent.
  6. Income from royalty.
  7. Contribution to certain pension funds.
  8. Expenses of a dependent who is ailing with disability.
  9. Repayment of loan availed for higher education.
  10. Royalty on patents.
  11. Handicapped persons.   
  • Privacy

As a sole proprietorships is an unregistered form of a business structure, the Government does not have any specific database with a list of all proprietorships. Thus, proprietorship firms are more private in comparison to a company or LLP whose details have to be published on the website of the MCA [Ministry of Corporate Affairs]

The documents required for Sole Proprietorship

  1. Address Proof [Utility Bill of the business place]
  2.  KYC documents of the Bank.
  3.  The license of Shops and Establishment Act.
  4.   IT Returns of the Proprietor.

For the opening of the Bank Accoung Any 2 of the documents can be submitted along with Address and Identity Proof of the proprietor.

Sole Proprietorship Registration Process

  1.   Applying for PAN. If an individual already has a PAN Card this is not required.
  2.   The next step is naming the business.
  3.   No formal registration is required, but the next step is to open a bank account in the name of the business.
  4.   An individual could also register as a Small and Medium Enterprise (SME) under MSME Act, though not compulsory, it is beneficial towards being registered under the same.
  5.   An individual could also register for GST if the turnover goes beyond Rs 20 lakh.

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