Most of the people dream of owning and running their own business. Operating and managing a business firm is quite complicated, and hence, several people drop out of the idea of owning a business. Sometimes it becomes difficult to make place in the market by replacing the existing names. Sole proprietorship firm is a type of firm which can help individuals to own a business and live their dreams while not having multiple legal responsibilities of the same.
Sole proprietorship firms are considered as 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.
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 of the 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 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.
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 office can be used as the office address proof. If the entrepreneur owns a 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.
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.
Frequently Asked Questions
Q1. 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.
Q2. 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.
Q3. 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.
Q4. How much time does it take to start a proprietorship firm?
Ans. Approximately 15 days are required to start a proprietorship firm.
Q5. 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.
Q6. 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.