Sole Proprietorship: How to incorporate it in India

Proprietorship Firms are one of the most common structures of businesses prevailing in India, and obtaining its registration is easy as well as cost-effective. Further, the person managing and administering the concerned proprietorship firm retains the full authority and responsibility related to the business.

Further, the owner of a Sole Proprietorship is solely accountable for handling all the legal responsibility essential for managing the business. Thus, whenever a person registers his business as a sole proprietorship, it does not have a distinct identity. In fact, the owner and his concerned business are clubbed together as one. Moreover, in such business organizations, the person who manages and administers the business is considered as the sole Director and shareholder.

Furthermore, an individual can choose any of the below-provided options for the registration –

1. SME registration

2. Registration under the Shop and Establishment Act, as per the rules and regulations prescribed by the respective state

3. GST registration

Advantages of a Sole Proprietorship Firm

Following listed are the advantages of a Sole Proprietorship Firm – 

1. Provides flexibility and ease in carrying out business activities

2. One of the oldest and easiest type of business structures

3. Single hand control

4. Easy to start and close

5. A Hassle-free business format that too with very few compliances

6. Self- Accountability

7. Being your own boss means the owner concerned is not answerable to any shareholder or director

8. Decision-making power

9. Does not have to share his or her income and profits with anyone

10. No disputes among the members

Features of a Sole Proprietorship Firm

Following are the features annexed with the concept of a proprietorship firm –

1. Individual’s Investment

2. Ownership

3. No Sharing of Profit or Loss

4. Unlimited Liabilities

5.  Few Formalities

6. Control Power

Compliances Required for a Sole Proprietorship Firm

Following are the compliances required in the registration of a Proprietorship Firm –

1. TDS (Tax Deducted at Source) Return Filing

2. Filing of Income Tax Return (ITR)

3. GST (Goods and Service Tax) Compliances

4. Drafting of Financial Statements

5. Tax Audit Compliance

6. Documentation of the invoices of sales and purchases

How a Sole Proprietorship Firm different from a Partnership, LLP, OPC, Pvt Ltd

Documents Required for the Registration of a Sole Proprietorship Firm

Following are the documents required for obtaining a Sole Proprietorship Firm Registration – 

1. Aadhar Card

2. PAN card

3. Bank Account

4. Registered Address Proof

5. License OR THE Certificate issued by Municipal Authorities

6. GST certificate

7. Income tax returns (ITR) documents

8. Certificate issued by the Service Tax or  Sales Tax or Professional Tax authorities

9. Certificate issued by the Food and Drug Control Authorities and the Indian Medical Council

10. IEC (Import Export Code) issued to the proprietorship owner by the office of Director General of Foreign Trade (DGFT)

11. Utility bills such as the water bill, electricity bill and the landline telephone bills issued in the name of the proprietorship owner

Procedure for obtaining Sole Proprietorship Firm Registration

Following are the steps involved in the process of obtaining a sole proprietorship firm registration – 

1. First of all, the applicant is required to apply for PAN (Permanent Account Number). However, if he or she is already having the PAN, then ignore this process.

2. In the next step, the applicant is required to choose a unique name for his or her business.

3. Since there is no as such formal registration procedure prescribed for sole proprietorship business, the applicant is required to open a current bank account in the name of the concerned business.

4. Although it is not mandatory and compulsory, still the concerned applicant can register his or her business as SSI (Small Scale Enterprises) or MSME (Micro Small and Medium Enterprises) under the MSME Act. Moreover, by registering his or her concerned business under the MSME Act, one can avail several benefits, privileges and subsidies.

5. Further, if in case the turnover exceeds the threshold of Rs. 40 lakh, he or she is required to obtain GST registration. However, the said turnover limit reduces to Rs 20 lakh if the applicant is operating the business in some hilly region such as Himachal Pradesh etc.

6. If in case the applicant wants, he or she can also obtain registration of the business under the Shops and Establishment Act.