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Sole Proprietorship Registration

A sole proprietorship is like a one-person show where the owner is the star of the production. With minimal compliance requirements and an easy setup, it’s a great option for small businesses. However, it’s important to note that the proprietorship does not offer limited liability protection, so the owner’s personal assets may be at risk. For example, if a sole proprietorship is sued, the owner’s personal assets such as their home or car may be seized to settle the claim.

Note: this type of business entity is best suited for every small businesses

Who is a Sole Proprietor?

A lone ranger, a one-person show,
A sole proprietor runs the whole shebang, you know.
They own and manage their business with care,
Their success or failure, they alone will bear.
All assets and debts, they must embrace,
A responsibility they carry with grace.

— Therefore, to establish a sole proprietorship business, one must create a separate bank account and register for GST (if necessary). The individual assumes full responsibility for all assets and liabilities associated with the business.

How to check Proprietorship Status?

In India, registering a sole proprietorship isn’t mandatory. Therefore, there’s no designated platform to verify its status. However, if the proprietor has applied for GST registration, one can check the GST registration and filing status on the GST Portal to confirm the existence of the proprietorship.

For all legal and official purposes, the business owner and proprietorship are not recognized as separate entities, but are treated as one and the same.

Sole Proprietorship Registrations & Licenses

To operate a proprietorship business in India, the proprietor must obtain the following:

  • PAN Card
  • Aadhar Card
  • GST registration
  • UDYAM registration
  • Current bank account

Some states may require the proprietor to obtain a Shops & Establishment Act registration as well.

Additionally, depending on the industry, state, and local regulations, further licenses and permits may be necessary.

Advantages of Proprietorship

Easy registration: Sole proprietorship registration is hassle-free since there’s no formal incorporation or dissolution process. Still, business owners may have to acquire certain licenses and registrations to meet compliance requirements.

Lower compliance: Compliance requirements for proprietorships are typically lower than entities like LLPs or Companies that are registered with the Ministry of Corporate Affairs and must file statutory returns and undergo annual audits by a Chartered Accountant.

Simplicity: With no partners, shareholders, or directors, the proprietor can operate the business with minimal document and consent requirements. Hence, it’s best suited for very small businesses.

Business decision: Boss of your own business: the business owner makes all the decisions without needing approval from anyone else. He alone makes all decisions, with the freedom to take quick decisions and stay nimble in the face of business challenges.

Complete control: Total command: As the sole proprietor, you have absolute control over all aspects of the business operations, including assets, revenue, expenses, and more.

Disadvantages of Sole Proprietorship

Fundraising: Proprietorships rely solely on personal savings, borrowing, and credit history, making it difficult to raise funds from banks or equity investors.

Personal liability: The proprietor is personally responsible for all liabilities and debts of the business, and personal assets may be used to pay off business debts if needed.

Business continuity: The death or disability of the proprietor will result in automatic dissolution of the business, leading to a lack of continuity.

Limited scope: Proprietorships face limitations in terms of fundraising, liability, and continuity, making them suitable only for small, unorganized businesses.

Unincorporated business: Sole proprietorships are not incorporated, and there is no centralized database to check if they are active or inactive, leading to their classification as unorganized businesses.

PAN Card for Proprietorship Firm

Being a solo venture, the business owner’s PAN card is used instead of obtaining a separate PAN card for the business.

Obtaining GST Registration for Proprietorship

For GST registration, the Proprietor needs to provide the following documents:

  • their PAN, Aadhaar card (linked with mobile number), and a passport size photo for identification.
  • For commercial purposes, a registered rent/lease agreement in the proprietor’s name and the latest electricity bill are required.

Obtaining UDYAM Registration for Proprietorship

  • To access benefits for small and medium-sized businesses, Udyam Registration can be acquired online.
  • Post GST registration, the team will assist in acquiring UDYAM registration by submitting Aadhaar card, PAN card, and GST certificate to the Government.

Bank Account for Proprietorship

To open a current account for a proprietorship, the business owner’s PAN card is used and proof of business must be submitted.

Two of the following documents needs to be submitted in the name of proprietorship:

  1. GST registration certificate,
  2. Shop & Establishment Act license,
  3. Certificate from a Chartered Accountant.

Obtaining Shops & Establishment Act License for Proprietorship

The acquisition process & time taken to acquire it, may vary across different states.

  • Both online and offline facilities are available.
  • It is usually obtained within a week’s time.

Timelines for Sole Proprietorship Registration

Typically, registration of a sole proprietorship in India takes less than 15 days, but actual processing timelines may vary based on government and bank procedures.

Proprietorship Business Activities

Proprietorships can operate in most sectors and industries in India, except for activities like banking, insurance, financial services, lending, defence, and telecommunications, which require specialized approval. Thus, proprietorships are best suited for small-scale businesses.

Compliances for Proprietorship

Sole Proprietorships must comply with the following regulations:

  • Personal income tax filing using ITR-3 or ITR-4,
  • Filing GST Returns monthly or quarterly,
  • Filing TDS filing TDS quarterly,
  • And other industry/location-specific requirements

Income Tax Filing: The business owner of a proprietorship will have to file personal income tax return using form ITR-3 or ITR-4. This means that the proprietorship’s income will be taxed as personal income of the business owner.

Business Income: Only income tax forms ITR-3 and ITR-4 allow for declaring business income. Hence, the business income earned by the proprietorship must be declared on the income tax return & all proprietorships will have to file form ITR-3 or ITR-4 to be compliant with the income tax regulations.

GST Return Filing: If a proprietorship has GST registration, GST return must be filed every month and quarter as per the scheme under which the business is registered. This means that the proprietorship must file GST returns on time as per the frequency and scheme of registration.

TDS Returns: In case the proprietorship is having employees or purchasing goods/services beyond a certain threshold – tax must be deducted at source and TDS returns must be filed every quarter. This means that the proprietorship must deduct TDS and file TDS returns on time if applicable.

Other Compliance Requirements: In addition to the above, various other compliance requirements maybe applicable to the proprietorship based on industry and location. These could include compliance related to labour laws, environmental regulations, and other relevant laws and regulations.

Proprietorship vs Limited Liability Partnership (LLP) vs Company

Proprietorship: An unregistered business managed by one person with sole ownership, having unlimited liability.

Partnership: A registered business with a formal agreement between two or more parties, with a minimum of 2 partners and maximum of 50, and with liabilities shared among the partners.

LLP: A registered hybrid entity with features of both a partnership and a company, having a minimum of 2 designated partners and limited liability.

Company: A registered entity with limited liability to its owners and shareholders, having a minimum of 2 directors and shareholders and a maximum of 15 directors and 200 shareholders.

For One Person Company

  • One Director
  • One Nominee Director
  • Registration time of 7-9 working days
  • Promoter Liability:
    • Unlimited Liability for proprietorship
    • Limited Liability for partnership, LLP, and company
  • Documentation required:
    • MSME registration for proprietorship
    • GST registration for all entities
    • Partnership deed for partnership
    • LLP deed for LLP
    • MOA, AOA, and incorporation certificate for company
  • Governance:
    • Partnership governed by the Partnership Act
    • LLP governed by the LLP Act, 2008
    • Company governed by the Companies Act, 2013
  • Transferability of ownership:
    • Non-transferable for proprietorship
    • Transferable if registered under the Register of Firms for partnership
    • Transferable for LLP and company
  • Compliance requirements:
    • Income tax filing for proprietorship if turnover is more than Rs. 2.5 lakhs using ITR 5 form
    • Form 11 and Form 8 filing for LLP
    • ITR 5 and ITR 6 filing for company
    • MCA filing and appointment of auditor for all entities

One Director
One Nominee Director
Registration time of 7-9 working days

Proprietorship FAQ's

Proprietorship firm is a simple business structure managed by one person who owns the entire business. The proprietor is responsible for all the debts and liabilities. It’s easy to set up and operate, which makes it popular for small businesses and startups in India.

Proprietorship and firm are sometimes used interchangeably, but they have a subtle difference. Proprietorship is when one person owns and manages the entire business, while a firm is a group of people who come together to carry out a business activity.

The ownership and profits/losses are shared among partners in a firm, whereas in proprietorship, the proprietor has complete control and ownership over the business.

No, there is no certificate of Incorporation given.

Since the sole proprietorship and the proprietor are the same, the individual only needs to file income tax and GST returns for the firm.

In India, there is no minimum requirement for starting a sole proprietorship.

The sole proprietorships depend completely on the existence and willingness of the Proprietor.

Yes, a sole proprietor is considered to be the same as the sole proprietor.

It generally varies from state to state.
For example: in Maharashtra a Shop and Act license is required
Whereas, in West Bengal, the trade license is required.

The proprietor is the boss, the manager, and the whole shebang! It’s like being the king or queen of your own little business kingdom.

The PAN card of the proprietor of the business is used as the PAN card for the proprietorship. Hence, there is no separate PAN card for a proprietorship business.

Certainly! You can open a current account in the name of the business, but it will still be linked to the proprietor’s PAN card—This means that the proprietor will remain the ultimate owner and operator of the account for all legal and official purposes

Operating a proprietorship business from home is allowed, provided it meets other relevant regulations.

Any official document with the proprietor’s name, photo, and address, like a driver’s license or passport, can be used as address proof. A utility or electricity bill in the proprietor’s name can also be submitted.

The licenses and registrations required for a sole proprietorship depend on the type of business activity.

GST registration is mandatory if the turnover exceeds Rs. 20 lakhs for service providers and Rs. 40 lakhs for goods providers.

Sole proprietorships are unregistered businesses owned, managed, and controlled by one person, and are preferred by micro and small businesses in the unorganized sector.

Indian citizens with a current account in the name of their business can register as a sole proprietorship.

The registration process takes around 8 to 10 days, subject to government processing and document submission.

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