Sole Proprietorship Firm Registration

A company is a sole proprietorship when one individual owns it. It is the most basic structure under which a business can function. The law does not recognise a distinct identity for this company. It may also be run under the proprietor’s name.

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Why Should You Register For A Sole Proprietorship?

A Sole Proprietorship provides maximum privacy to its owners and has an easy establishment and operational process.

What is a Sole Proprietorship?

A sole proprietorship company is one that is owned and run by just one person.

This form of business is one of the most popular ones to start in the unsystematic sector, especially among merchants and small dealers, because it may be established in just fifteen days.

A Sole Proprietorship firm does not need to register because it is recognised by other registrations, such as GST registrations. However, it does not have perpetual existence and its obligation is unbounded.

Advantages of Proprietorship

The following are some of the major advantages of proprietorship firm.

Easy to Establish
A sole proprietorship business does not have any specific registration requirements and the proprietor’s legal identity is used by the business. Hence, a proprietorship can be started without any registration. Using the PAN and Aadhaar of the promoter, Udyog Aadhaar registration and Trademark Registration can be obtained optionally to create and protect the identity of the business.

Easier to Operate
As a single person is at the helm of affairs, it is easier to operate as the particular person will be the sole decision maker and he need not consider a plethora of opinions. There is no concept of a board meeting or approval from other persons in a proprietorship firm.

Sole Beneficiary of Profits
No other business, other than that of a sole proprietorship and one person company, entitles the owner as the sole beneficiary of profits. In all other types of an entity like a partnership, LLP or company, a minimum of atleast two persons are involved.

Compliance & Taxation
Since a proprietorship firm is not registered with any Government authority like the Ministry of Corporate Affairs, the compliance requirements are minimal. Further, the proprietor would only have to file income tax returns if the firm has taxable income of more than Rs.2.5 lakhs per annum. In case of proprietors who have attained the age of 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. In case of proprietors who have attained the age of 80 years or more during the previous year, income tax filing would be required only if the taxable income is more than Rs 5,00,000.

Finally, the sole proprietor can also reduce the income tax liability by availing the following deductions:

  • Contributions to provident fund, life insurance premium, subscription to certain equity shares or debentures etc.
  • Contribution to certain pension funds.
  • Contribution to notified pension scheme of the Central Government.
  • Medical insurance premium.
  • Caring for a dependent who is ailing with disability.
  • Medical expenses.
  • Repayment of loan availed for higher education.
  • Payment of rent.
  • Income from royalty.
  • Royalty on patents.
  • Handicapped persons.
  • Privacy

Since sole proprietorships are an unregistered form of entity, there is no database maintained by the Government with a list of all proprietorships. Hence, proprietorship firms are more private when compared to a company or LLP whose details are published on the MCA website.

Disadvantages of Proprietorship

The following disadvantages must be taken into perspective while deciding to start a sole proprietorship firm:

Unlimited Liability
This is one of the most disturbing aspects of a sole proprietorship firm. On the occurrence of a loss, the proprietor must meet the liabilities at any cost, which implies that if the need occurs, his/her personal assets may have to be used for discharging the liabilities.

Difficulty in Obtaining Funds
A sole proprietor cannot indulge in sale of business interest or shares, which deprives the entity from the receipt of any type of equity funding.

Further, banks are also wary of lending large sums of money to a proprietorship firm as the existence of the proprietorship firm is tied to the proprietor. On the other hand, in a company or LLP, more than one person would be responsible for the liability and business continuity would be assured in the event of death or insolvency of one of the promoters. Hence, it would be easier for a company or LLP to raise bank loan when compared to a proprietorship firm.

Higher Tax Incidence
Proprietorship firms are taxed similarly to an individual. Hence, income tax rate for a proprietorship firm is based on slabs. Though the income tax rate for income of upto Rs.10 lakhs is lower when compared to a company, proprietorship firms cannot enjoy various benefits enjoyed by an LLP or Company. Further, for taxable income of more than Rs.10 lakhs, the income tax rate for a proprietorship firm is higher than the income tax rate of a company. Hence, in the long-run, it would be more prudent to register a company to reduce income tax liability.

Checklist Items for a Sole Proprietorship Registration

  • A certificate/license issued by Municipal authorities under the Shop & Establishment Act.
  • The license issued by Registering authorities like the Certificate of Practice is issued by the Institute of Chartered Accountants of India.
  • The registration/licensing document is issued in the name of the proprietary concern by the Central Government or the State Government Authority/ Department, etc.
  • The banks may also accept the IEC (Importer Exporter Code) issued to the proprietary concern by the office of the DGFT as an identity document for opening of the bank account etc.
  • Complete Income Tax return (not just the acknowledgement) in the name of the sole proprietor where the firm’s income is reflected, duly authenticated and acknowledged by the Income Tax Authorities.
  • The utility bills such as electricity, water, and the landline telephone bills in the name of the proprietary concern.
  • Issue of GST Registration/Certificate.

Sole Proprietorship Registration Procedure at Parekh Consultancy

Our experts give you professional guidance on many of the processes involved in registering your business as a sole proprietorship, along with registration of service tax, sales tax, import/export code, and professional tax.

Vendor Relationship

Our team will connect you with an established vendor who will book your application and also keep you updated on its status and progress. The vendors we have onboard are well-accomplished and skillful in managing native registrations.

15 Business Days

Our team will offer full assistance with the registration process. This could vary between 5 and 15 days, depending on the task at hand for the authorities involved.

What Are The Documents Required For Registering A Sole Proprietorship?

To start a Sole Proprietorship, the following documents are required

  • Address and identity proof
  • PAN card, KYC documents and
  • Rental agreement or sale deed (in case of Shops & Establishment Act Registration).

What Are The Documents Required For Opening A Current Account?
To open a current account, the following documents are required;

  •  Proof of the existence of your business
  • Shops & Establishments Act Registration
  • PAN card
  • Address and Identity proof

Who can start a Sole Proprietorship?
Any Indian citizen with a current account in the name of his/her business can start a sole proprietorship. Registration may or may not be required, depending on the type of business that is planned to be established. However, to open a current account, banks typically require a Shops & Establishments Registration.

How long does it take to establish a business with Sole Proprietorship?
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.

What businesses are commonly run as Sole Proprietorships?
Most local businesses are run as sole proprietorships, from grocery stores to fast-food vendors, and even small traders and manufacturers. That is not to say that larger businesses cannot operate as sole proprietorships, they can! Jewellery shops are sole proprietors, but it is not recommended.

Aside from a current account, is there no need for any other registration?
This depends on the business you’re in. It is compulsory for any business whose turnover in a financial year exceeds Rs 20 lakhs (Rs 10 lakhs in the case of North Eastern states) to get a GST registration. For businesses that are involved in selling goods or services to customers out of a commercial establishment, it is mandatory to register under Shops and Establishments Act.

Is it cheaper to run an LLP than a private limited company?
Yes, it is much cheaper to run an LLP than a private limited company. Mostly because compliances, such as an audit, apply to LLPs only after their turnover is sizeable. Most LLPs spend about half as much as a private limited companies, in their first year on registrations and compliance work.

What if I wish to convert from Sole Proprietorship to Private Limited Company or Partnership?
The procedure involved is a little tedious, but it is possible. It is very common for sole proprietors to convert into partnerships or private limited companies at a later stage of their businesses.

Why Parekh Consultancy ?

Access To Experts
We are a team of reliable professionals dedicated to fulfill all your business setup requirements.

Realistic Expectations
By handling all the paperwork, we ensure a seamless interactive process with the government. We provide clarity on the incorporation process to set realistic expectations.

Young and Experienced Team
With a team of experienced business advisors and finance professionals, you are just a phone call away from the best in financial services.

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