Sole Proprietorship in India
Everyone has the dream of owning a business and to become a successful entrepreneur. There are many who want to start their sole proprietorship business but not sure from where to start and how!! What are the legal formalities and registrations that one needs to have!! To get the reality check of a business idea, one has to start with the formation process.
If you can see yourself in the above mentioned description, then you are at the right place to find all the answers for starting your sole proprietorship related queries.
So let’s understand the sole proprietorship & its formation process in India-
- What is Sole Proprietorship?
- Advantages & Disadvantages of Sole Proprietorship
- How to start a sole proprietor firm in India
- How to register a Sole Proprietorship Firm in India
- Other Licenses/registration according to the nature of the business
What is Sole Proprietorship?
Sole Proprietorship is a business structure in which the proprietor is the sole owner of the business. It’s entirely his/her personal liability against all business related decisions, management and debts.
In India, Sole Proprietor has no separate legal entity which means the proprietary firm and owner are considered as same. No separate tax and annual return needs to be filled as a company as the owner is accountable to fill tax and annual return as an individual. This business structure is ideal to test the business plan in practical without getting much capital or formation technicalities in place. Still it’s advised to get some necessary registration done in order to get the benefit provided by the government to the business sector.
Advantages & Disadvantages of Sole Proprietorship
Sole Proprietorship gives a freedom to proprietor to enjoy the right of owing a venture completely. With its easy formation without many regulations, one can start business with the minimal prerequisite. But a distinct drawback, in any case, is that the proprietor remains obligated for all the business’ liabilities. Thus, if a proprietor runs into a financial problem, creditors can bring claims against the proprietor. If such claims turn successful, the proprietor should pay the business obligations with their personal assets. Some of its advantages & disadvantages are-
|Easy to form||Personal accountable for all debits|
|Low startup cost and working capital||Dept, losses, lawsuits all to be born by the owner only|
|Full control on business decision and prompt action||Limited resources & growth potential|
|No profit sharing||Limited managerial skill|
|Flexible operation and management||Lack of credibility|
|Easy to dissolve|
How to start a sole proprietor firm in India
The sole proprietorship is very popular business structure to start with as its effortless, easy to form & operate as well as it is not governed by any distinctive law. To start a sole proprietorship in India, any registration is not mandatory. You need to have a current a/c in the name of the business to start with.
But before that, it all starts with two essential steps
- Select a suitable name for your business
- Select a location for your business according to your line of work
Opening current a/c in the name of the firm
To start operating your business, you need to open a current a/c with bank in order to receive the payments in the name of the business. You need to present the proof of existence of the business along with other KYC documents. The list of documents is as mentioned below
Documentation for opening a Current a/c –
- Address Proof of Sole Proprietary firm
- PAN Card and KYC Documents of proprietor
- If property is rented – Rental Agreement & NOC from the landlord
- For the self-owned property – Address proof like utility bill, registered documents
- Two government registration confirming the existence or address of the business like (VAT /CST, shop establishment registration etc.)
- GST registration
How to register a Sole Proprietorship Firm in India
A Sole Proprietorship business does not take more than 15 days to set-up and start functioning. This simplicity makes it popular among small traders and merchants. It’s also much cheaper, of course. This is the other reason why it’s the most widely used business structure.
Although there is not compulsory registration required starting a sole proprietorship business but one can register or apply for license under various laws to ensure the smooth functioning of the business.
Some of the mandatory documents required applying for any registrations/ licenses are:
- Aadhaar Card of the Proprietor– It is mandatory everywhere in India. It can be used as an Identity proof as well as Address proof.
- PAN Card of the Proprietor– It is a mandatory thing if you want to file Income Tax Returns. Also, now linking of PAN with Aadhaar is a must for filing Income tax returns.
- Address proof of Place of Business– Electricity bill, Water bill, etc. can be used as address proof if you own the place of business. If not, then Rent Agreement along with a NOC (Non-Objection Certificate) will be required additionally.
According to the nature of the business, the license issue for sole proprietorship varies. Some of them are as follows-
Registration under Shop and Establishment Act For any commercial establishment like shops, restaurants, theaters etc., it’s mandatory to get the license under Shop & Establishment act governed by State Labor Department. The objective behind this act is secured the uniform rights and privileges of employees working in such establishments. The Registration is compulsory within 30 days of commencement of commercial work. The application can be downloaded from state official website and to be submitted with other required documents which are mentioned below:
- Passport size photographs
- PAN Card
- ID Proof
- Business or Shop address proof
- Application in prescribed format
- Payment challan
- Rent Agreement if the property is rented
Submit the application and other documents to the chief inspector. If documents are in place, it takes 15-20 days to get the license. Time and fee varied from state to state.
License for Shop and Establishment has to be renewed after its prescribed time.
If you line of business includes exchange of goods and services (including online business) and annual turnover is more than 20 lacs then you need to get the GST (Goods and Services Tax) registration done and get the GST number. All the previous taxes like VAT; service tax etc. has been subsumed under single TAX that is GST. Its objective is to moderate the falling of taxes as Input Tax Credit will be accessible across products and services at each phase of supply and to bring harmonization in procedures and regulations and rate of taxes among center and state with aiming to form unified national market.
Documents required for GST Registration
- Passport Photograph, PAN card, and Aadhar Card of the owner
- Address Proof (Latest Utility bill/ rent agreement)
- Bank account details
GST registration can be done via GST portal. It takes 3-4 days to get the GST number prior submitting the application.
Udyam under MSMED Act Registration
It is mandatory for every Micro, Small and Medium scale enterprises to register under MSMED act 2006 and get Udyam in order to avail the benefits and financial assistance (Ex: getting loan of concessional Rate of Interest) provided by the government to this sector. The registration is free facility and does not include any fee. It’s easy to register on Udyam Registration Portal and can be presented as the proof of existence of the business.
Documents required for Udyam Registration
- The Aadhaar number shall be of the proprietor in the case of a proprietorship firm
- PAN number (Optional)
- Address Proof of the business
- Bank A/c information
- NIC code of the product or service the business is the dealing with
Trade Mark Registration– It is required to protect your brand or exclusive name from being misused.
Documents required for Trade Mark Registration
- Copy of the logo, preferably in black & white (Optional). In case the logo is not provided, the trademark application can be filed for the word.
- Signed Form-48 is an authorization from the proprietor to a Trademark Attorney for filing the trademark application on his/her behalf.
- ID Proof of the Proprietor
- Address Proof of the Proprietor
Other Licenses/registration according to the nature of the business
- Drug license – For the business concerning drugs/medicines (allopathic, homeopathic, ayurvedic or unani ) or cosmetics
- Labor license – For contractor engaging 20 or more contract Workers
- FSSAI License (Food Safety and Standards Authority of India) – For food business operators
- If a firm employs 10 or more employees in a year, It is mandatory to register under Provident fund act.
- Other licenses issued by registering authorities the Certificate of Practice issued by the Institute of Chartered Accountants of India and many more
Being the simplest form with least compliances the Sole proprietorship is the ideal choice of many who want to begin with less capital requirement and does not want to get into the complicated process of taxations and other process of formation a company.
Due to its minimal complexities, the proprietor can zero in on improving his/her business instead of focusing on meeting different compliances. A person can start operating his/her business within 15 days after meeting above mentioned legal formalities.