Sole Proprietorship Registration is one of the most opted forms of business establishments in India. When a single person opens a proprietor firm, then it is called a Sole Proprietorship. Furthermore, you can validate your Sole Proprietorship firm by taking government licenses based on the type of business you are running. What to know more about Sole Proprietorship Registration? Keep reading this blog to know more about Sole Proprietorship firm and how to register one for yourself.
Introduction to Sole Proprietorship Firm Registration
Sole Proprietorship Registration is the process of registering a Sole Proprietorship firm. Although there is no government or formal procedure of registering this kind of entity, you can take other government registrations like MSME Registration, GST Registration or Shop and Establishment Act License based on the type and eligibility of your business.
What is a Sole proprietorship firm?
When a person solely runs a proprietor firm, then that type of firm is called a sole proprietorship firm. Also, this type of business has the minimum compliance and another requirement along with least registration fees. However, there is no formal way of registering a Sole Proprietorship firm. Thus, you can obtain other government licenses and authorizations to prove the validity of your business.
Salient features of a Sole Proprietorship Firm
The key features of a sole proprietor firm are as follows;
- Single ownership
- Common identity
- Unlimited liability
- Not governed under any special legislation
- Only one person is the owner of all the profits and losses coming from the business
- It is tedious to manage, raise and maintain capital
Who can opt for Sole Proprietorship Registration?
Any person who wishes to initiate a business with minimal investment amount can go for this type of entity model. You can get started within 10-15 days. Also, the whole control of the entity is solely in your hands.
Benefits and drawbacks of Sole Proprietorship Firm
There are numerous advantages and disadvantages of Incorporating a Sole Proprietorship Firm.
Let’s look at them one by one.
Advantages of Sole proprietorship firm
- It can be incorporated by a single person
- The compliance requirements are very low as compared to other types of entities
- It is not very expensive to incorporate this type of firm
- Also, there is no requirement of paying any corporate taxes
- Only one person is responsible for the decision- making and control of the business
Disadvantages of Sole proprietorship firm
- The proprietor has limited liability. She/he is personally liable for all the profits and loss of the firm
- The entity comes at the brink of extinction if anything happens to the sole proprietor
- Also, it becomes difficult to raise fund as only a single person is liable for all work-related responsibilities
- Sometimes the government also don’t prefer this kind of entity and do not offer much support to them
Process of Sole Proprietorship Registration
The procedure for registration of a sole proprietorship firm is as follows;
Step 1: Obtaining PAN
You need to apply for obtaining the Permanent Account Number or PAN from the government to be able to run your business.
Step 2: Name your business
You should always opt for a name for your entity which clearly defines the purpose of your business and is unique. Also, you need to pay attention that the name you are choosing is not in use by any other business.
Step 3: Opening Current bank account and entity registration
Then you need to open a current bank account in the name of your entity. However, as there is no requirement for formal registration, you can go for other government licenses as per the legal requirements of your business.
Step 4: Registration under MSME
Although it is not necessary, you can go for MSME Registration or SME Registration under the Micro, Small and Medium Enterprises Development Act, 2006. Getting registered under the MSMED Act can help you take benefits from the government schemes for such enterprises.
Step 5: Getting GST Registration
You can also get GST Registration if the turnover of your business exceeds the limit for the same in your respective state.
The documents required for Sole proprietorship registration is very less. For example;
- Utility Bill of the business location
- KYC documents of the Bank
- A license issued by the Shops and Establishment Act
- Details of Income Tax Returns of the Proprietor
- Address proof of the registered office
- Bank account details
- PAN Card
- Aadhar card
Although you do not need any specific registration for your sole proprietorship firm getting these Government Licenses can help you run your business with ease:
- MSME/ SSI Registration
- GST Registration
- Shop and Establishment Act License
Compliance requirements of a Sole Proprietorship Firm
As a sole proprietor, you need to fulfil the following compliance requirements;
- File income tax return annually within the stipulated time period
- Also, you have to file GST Returns if you are registered under GST
- Moreover, you would also require to deduct TDS and file TDS Return in case your entity is eligible for Tax Audits
The sole proprietorship is a type of firm in India that requires only one person as the owner, manager and proprietor of the entity. Such a person is solely responsible for the losses that take place in the company but also have the right at the time of profits. Not to mention, the greatest disadvantage of this type of entity is that the entity is not separate from the person itself. Additionally, any problem with the owner or death of the owner endangers the very existence of the entity.
Read our article:A Complete Guide on One Person Company Registration in India