Sole Proprietorship

What is the Process of Registering a Sole Proprietorship in India?

calendar07 Jan, 2023
timeReading Time: 4 Minutes
What is the Process of Registering a Sole Proprietorship in India?

A proprietorship is known as a state of owning a business or holding property to earn profits. It has been generally seen that the term proprietorship and sole proprietorship have simultaneous usage. The sole proprietor carries the business exclusively by and for himself. He takes control of all the activities of the business. He is the sole responsible for all the losses and the profits. Therefore a sole proprietorship can operate under the name of its owner. In this article, we will the process of registering a Sole Proprietorship in India.

It is very easy to start a business as a sole proprietor, defiantly it has a lot of benefits, but the decision should be taken only after considering the circumstances, such as the availability of financial resources after and before the investment, protection of personal assets and all the tax-related situation. 

What are the Primary Features of a Sole Proprietorship in India?

Following is the list of all the features of a sole proprietorship:

  • Formation and Closure of business

To commence a business as a sole proprietorship, there are no such legal formalities to be followed; in comparison to other forms of business, it is the simplest business form. But sometimes, a licence or a registration number might be needed. 

E.g., if you want to open a medical shop, you must obtain a license under the Drugs and Cosmetic Act. 

  • Unlimited Liability

The owner of the sole proprietorship has the ultimate liability on his shoulders, unlike other business forms. The proprietor is responsible for paying all the debts, even if he has to pay them using his assets.  

To put it simply, if business funds are insufficient in a scenario, then the owner has to use their assets to pay off the debt. 

  • No separate legal entity

Like other business forms, a sole proprietorship has no separate legal entity from its owner. It means the owner bears all the responsibility for the business activity.  

A business under the sole proprietorship has no separate legal entity from that of its owners. In the eyes of the law, there is no distinction between the owner & his business. It means that the business owner has to bear all the responsibilities of their business activities.

  • No Sharing Of Profit Or Loss

As the owner is the sole person running the business, therefore there is no need to share the profit or loss.   

What Are The Demerits Of A Sole Proprietorship?

A sole proprietor has the following disadvantages:

  • Limited Resources
  • Unlimited Liability
  • Lack of Continuity of Business
  • Lack of Professional Skills and Expertise
  • Risk of Wrong Decisions

List of Documents Required For Registering A Sole Proprietorship

Before registering a sole proprietorship, you need to gather the following documents:

  • A copy of the proprietor’s PAN card.
  • Details regarding the name and address of the business.
  • Bank account details of the business.
  • Registration number received under the Shop and Establishment Act of the respective state.
  • GST registration number. (This is only required when the business turnover exceeds INR.20 lakhs.)

Steps Involved In the Process for Registering a Sole Proprietorship

Following is the step by step processes for registering a Sole Proprietorship:

STEP 1: Gathering All the Documentation

Before starting your business, the owner must gather all the documents required for the registration and decide on the principle place where you want to establish your business. A complete list of all the documents is mentioned below.

STEP 2: Selecting a Unique Name

After gathering all the documents, the proprietor must select a name for the business. The name needs to be unique in the sense that it must not infringe the intellectual property rights (IPR) of any registered trademark. For this one can conduct a trademark search on the IP Indian portal

Also, it is advised to register your name under the trademark law, to protect your business name from being copied by others.

STEP 3: Obtaining MSME / Udyam Registration / Udyog Aadhar

After selecting the name, the owner has to open a new bank account in the name of the business. But for opening a bank account, the sole proprietor needs two mandatory documents, that are Udyog Aadhar card and the MSME or Udyam Registration Certificate.

Thought these documents a business owner can seek online MSME services with the benefits offered by the various other government department, in addition to all the benefits offered under the Micro, Small and Medium Enterprises Development Act, 2006[1].

STEP 4 – GST Registration

Any business in India cannot sell goods or services without GST registration. But if the business activities of a sole proprietorship are restricted only within a state, then the owner might not need to take the GST registration.

But there is an added point to this, if the turnover of the business crosses INR Forty lakhs in a single financial year or the firms which are enrolled under particular category state and their turnover of the business crosses INR Twenty lakhs, must obtain GST registration.

In simple terms, if business turnover crosses INR 40 lakhs (in case of supply of goods) and INR 20 lakhs (in case of supply of services), must obtain GST registration.

STEP 5 – Other Tax Registrations

Based on the nature of business activity and the location of business, a proprietorship owner is required to obtain TAN, IEC and PT Registrations. TAN is required to comply with TDS laws while the IEC Code is required for businesses involved in import and export of goods or services. Proprietorships are required to obtain PT registrations in certain states where Professional Tax is mandatorily imposed on professionals.

Compliance for Proprietorship – Registering a Sole Proprietorship

The following are some of the compliance that are applicable on a sole proprietorship:

  • Income Tax Filing: The business owner of a proprietorship are required to file personal income tax return under ITR-3 or ITR-4.
  • 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.
  • 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.
  • There are some other compliances also based on the industry and the location of the sole proprietorship.


A sole proprietorship is recognised as the sole trader of the company, who is responsible for all the activities of the company. In the instance of a sole proprietorship, there is no distinction between the owner and its business. Even though this form of business has a lot of disadvantages but still it is chosen but many in India. Because this form is suitable for a small scale business where the owner can fulfil its demands. In order to sum up the discussion, it would be right to say any business form comes with its pros and cons. It seems very easy to establish a sole proprietorship, but it is not a piece of cake.

Read Our Article: An Ultimate Guide To Registration Of A Sole Proprietorship Firm In India

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