Sole Proprietorship in India is a single-person establishment or one-person company wherein an individual owns, manages, controls, implements, and executes his/her business on their own. As it is not majorly governed by any law, so it becomes the easiest form of doing business in India. It is not mandatory to register as a sole proprietorship but to gain tax benefits people do register their firm as a sole proprietorship. The profit and losses of an organization, both are shared by only one person owning the company or business.
Sole proprietorship firms are considered individuals owning businesses. Sole proprietorship refers to a business where there is no distinction between the owner and the business entity. A sole proprietor is also known as a sole trader, individual entrepreneur, and various other names. Hence there are some benefits of having a proprietorship firm too.
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Proprietorship Firm Registration Process
A sole proprietorship firm does not need any specific registration, but the owner is advised to get some essential registrations for better operational functioning of the firm. The registrations required for a proprietorship firm are:
1. MSME Registration
It is not compulsory to get an MSME (Small and Medium Enterprise) registration, but it improves the chances of the business to get loans and helps in other legal matters. The MSME registration can be done through an online registration process on MSME official website. This is a simple process and makes it easy for the sole proprietors.
2. Shop and Establishment Act License
Shop and Establishment Act License is not mandatory for all sole proprietorship firms but most firms have to obtain this license, as per the local laws of the region of the business. The Shop and Establishment License is issued by the municipal party. This license is given based on the number of employees working in a company. The registration process depends state-wise and business owners need to check the specific state-wise website for the registration.
3. Goods and Services Tax (GST) Registration
Goods and Services Tax registration is necessary only if annual turnover is more than Rs 40 lakh and Rs. 20 lakh for businesses operating in North-eastern states. GST registered number is also essential if the business owner wants to sell products online on e-commerce portals, such as Amazon, Flipkart, eBay, and more. It is important to note that GST registration is not mandatory for sole proprietorship firms. Getting GST registration will help the business owner to keep his/her taxation in check throughout all the transactions made in the name of the proprietorship firm.
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4. Office Address Proof
A registered office address proof is necessary for several procedures which are essential for the functioning of the business. If the office is in a rented property, the rental agreement and a NOC from the landlord of the office can be used as the office address proof. If the entrepreneur owns an office, the electricity bill issued by the municipal corporation or any other office ownership papers can work as office address proof.
Benefits of Proprietorship Firms
Proprietorship firms have several benefits for their owners. Some of these benefits are discussed in detail below:
1. Smooth Start
There is no elaborate registration process for the establishment of proprietorship firms. A proprietorship firm uses the owner’s legal identity. Due to this provision, there is no need to register the firm separately until it is necessary. This smooth registration process makes it easier for the owners to register their firms, which is beneficial.
2. Flexible Operational Strategies
Being the sole owner of a business, it is easier to understand and operate the same. The owner is the only decision-maker. Hence, the decision is made quicker and better for the company. One owner businesses have more straightforward operational functioning because there is the only person to create and implement plans for the business.
3. Undivided Profits
In proprietorship firms, there are no firm rules for the money earned by the business since there is only one owner of the company. The owner is the only person to accumulate the profits and further invest it in the market and other ventures. Sole ownership gets rid of the benefit related conflicts in the firm. Money comes in to facilitate and maintain the processes in the firm.
Any sole proprietor is not entitled to pay income tax if the profits of the company are less than Rs. 2.5 lakh per year. This is a significant benefit for the firm to start small and save on taxes. However, it is essential to note that the firm has to pay income taxes once the profits exceed Rs. 2.5 lakh per annum.
These are some of the significant benefits of owning a sole proprietorship firm. Having a proprietorship firm can aid business loan applications which can help with investment capital for business.
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Documents Required for Sole Proprietorship Registration in India
For all the types of registrations which are recommended for the sole proprietorship firms, the following general documents are required for most of them. There can be some exceptions for specific types of registrations. The owners are advised to check the official website of the government body issuing that registration to make sure to have all the documents required for the same.
To register a sole Proprietorship, the following documents are mandatory:
- Aadhar Card: Aadhar card number is necessary for the official registration. This is important to link business along with the other details which are linked with Aadhar card
- PAN (Permanent Account Number) card: PAN card is needed at the time of proprietorship registration to file Income Tax Returns. Thus, it is also mandatory to get a GST registration number (if applicable)
- Bank account number: The bank account linked with office transactions needs to be submitted. This can also be applicant’s personal account, if he/she do not have a separate bank account for business
- Registered office proof: The certified office proof is needed for any registration mentioned above. Registered office proof is discussed in detail above
These are the documents which are necessary for registering as sole proprietorship firm. These are the essential documents and it is recommended to check the official website for any updates and changes in the same. Once these documents are sorted, sole proprietorship firm registration goes very smooth and hassle-free.
Advantages of a Sole Proprietorship
- Economical and less expensive: Can be started with even less capital
- Hassle-free registration process with less paperwork
- Less Compliance: One person can start a firm so minimum compliance work
- Ownership and control over business: As it is One-person company so privacy and confidentiality is maintained
- Decision making: Instant or Free decision making is possible as there is no involvement of any second or third partner or member
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Q. Do I need a separate bank account for the registration of proprietorship firm?
Ans. No, you can register for a proprietorship firm from your personal bank account.
Q. Can other people invest in a Proprietorship?
Ans. Yes, other people’s investment can be used in a proprietorship but instead that person’s investment cannot become a partner or member of the firm. Investors can just invest in sole proprietorship but are not allowed to become partners.
Q. Who can be a Sole Proprietor?
Ans. Any individual who plans to start his/her own business or company with less or more investment can register for a sole proprietorship. The owner will be solely responsible for managing and running the business and shall share the profit and losses by himself/herself. The control, decision making and execution will be in the hands of the sole proprietor.
Q. How to start a Sole Proprietorship in India?
Ans. To start a sole proprietorship in India, applicants need to first get your business registered as a sole proprietorship under the Registrar of Firms under Govt. of India. For that you need to have a current account and along with the application form you are required to deposit a certain amount of registration fee with the respective authority or Registrar of Firms.
Q. How can I transfer my proprietorship?
Ans. Your proprietorship can be transferred by selling its tangible and intangible goods, products and services to a new owner. The proprietorship cannot be sold but only the goods and products can be to another owner.
Q. What is the capital required to start a proprietorship?
Ans. There is no minimum amount defined to start a proprietorship, as soon as the business gets registered you can start it with as low as Rs. 10,000 or as high as Rs. 1 crore.
Q. How many people are required to start a proprietorship business?
Ans. Only one, as the name defines sole proprietorship means there is only one person owning and managing the company.
Q. Is it necessary to have the ownership of the office I am working from?
Ans. No, a rented office can also be used for the registration. You need to have the rental agreement and a NOC from the landlord for the registration application.
Q. Is GST registration mandatory for proprietorship firm registration?
Ans. GST registration is only mandatory, if your annual turnover is more than Rs 40 lakh otherwise is an add-on for your registration application. However, if you are residing in a north-eastern state of India and maintain a turnover of 20 lakh then only GST registration is mandatory.
Q. How much time does it take to start a proprietorship firm?
Ans. Approximately 15 days are required to start a proprietorship firm.
Q. Can I convert the proprietorship firm into partnership firm or private limited company?
Ans. Yes, you can do this but it requires lengthy paperwork and formalities.
Q. What bank account can I use to start a proprietorship firm?
Ans. You may need to open a current account in the name of your firm and further you can start your firm.