How to register a proprietorship firm in India?

Sole Proprietorship Firms in India

It is way easier to form as compared to others and also requires fewer formalities related to registration from an authority. It is mostly suitable for entrepreneurs whose main motive is to work independently without any legal boundaries and obligations. The sole Proprietorship business model gives a complete right to an individual to run their business at their own discretion. Here, in this blog, we will be discussing the complete procedure for Sole Proprietorship registration.

A sole Proprietorship is basically one of the most popular business structures in India. Unlike other companies, it adheres to minimal compliances that make the business journey more seamless. It is the type of business structure where one person is responsible for handling the entire business affair. A sole Proprietorship doesn’t allow outsiders to intervene in the business proceeding or any other aspects unless the owner wishes them to do so.

Establishing a new business can be hectic for anyone. Starting from tedious paperwork to the procurement of manpower, one has to look into every aspect of the business model while taking the budget and foreseeable liabilities into account.

In most people’s opinion, Sole Proprietorship can be the best business. Here, in this article, we would explain the advantages and disadvantages of Sole Proprietorship registration. Sole Proprietorship is perhaps the easiest form of business in regards to establishment procedure and tax liabilities. It could be formed with minimum paperwork and short of any formal registration. This business model is primarily adopted by those who prefer to work alone and reap more profit by averting tax liabilities.

Who can be called a Sole Proprietor?

A sole proprietor is the owner of the sole proprietorship, he is recognized as an entity same as a business. As the sole proprietor is the owner of the business he is entitled to all the company’s revenue. It is completely under the control of the proprietor. Hence, he/she makes the decisions for the company.

To run a business as a sole proprietor some licenses and permits are required. The license will depend on the industry, state, and locality.

Documents required for sole proprietorship registration in India:

Aadhar Card

Pan Card

Bank Account

Proof of Registered Office

Passport size photograph

The document you will get after proprietorship registration:

Post incorporation of your sole proprietorship firm, you’ll receive the following documents:

1. GST Registration Certificate

2. Shop and Establishment Act Licence

3. MSME Certificate

Time Required for proprietorship registration:

On average, it takes around 7-10 working days for registration of a sole proprietorship firm in India subject to document verification by the concerned authorities.

Types of Registration required for sole proprietorship firm:

1. GST Registration

2. MSME Registration

3. Shop and Establishment Act Licence

Sole Proprietorship Firm registration process:

GST Registration: Depending upon the requirement of the business and GST Law, an application for GST registration has to be made with the department. GST registration usually takes around 5-10 working days.

MSME Registration: To establish the existence of your proprietorship firm and avail of various benefits, you’ll have to file an application for registering your firm as a Small and Medium Enterprise (SME) under the MSME Act. It is beneficial for the business at the time of taking out a loan. The government runs various schemes for SMEs to provide loans at low-interest rates.

Shop and Establishment Act Licence: You are required to obtain a shop and establishment license according to local laws. It is issued by the municipal corporation on the basis of the number of employees or workers in the firm.

Bank Account Opening: Once all the steps are completed, the current bank account should be opened by the proprietorship firm. You can contact us for assistance with your current bank account opening.

How to register as a sole proprietorship in India?

Starting a sole proprietorship in India is easy if all the compliances are properly met.

· Decide on a suitable business name.

· A suitable business location designated as the place of doing business should be selected.

Shops and establishment registration

The Shop and establishment registration covers all the business entities such as shops, restaurants, commercial establishments, retail trade/ business, profit-making organizations, public amusements, and so on. Irrespective of whether any business establishment whether fully functional or not it is necessary to get the business registered. The local municipal corporation issues this license and it depends on the number of employees in an establishment.

GST registration

GST has replaced many indirect taxes such as the service tax, Value added tax, Central sales tax, excise duties, additional customs duties, and so on. An individual making the interstate supply of goods and services and having an annual turnover of over Rs.40 lakh is required to get GST registration.

Getting a GST registration makes the business legally recognized as a supplier of services or goods. Small businesses can also opt for the composition scheme to lower the tax rates. Which has reduced the taxation and the compliance burden significantly. For certain businesses getting GST registration is mandatory. According to the GST Act, penalties are applicable if a business is operating without a GST registration.

Udyog Aadhar Registration

Udyog Aadhar Registration is provided to the Micro, small, and medium-sized businesses in India under the Micro, small, and medium enterprise development Act,2006.

Earlier recognized as MSME registration, the process of obtaining the Udyog Aadhar registration is completely online. The major objectives of the Udyog Aadhar registrations are as follows:

To enable the micro, small and medium enterprises to compete with the international competition efficiently

To promote the growth of micro, small and medium enterprises on a large scale to tackle the problems related to unemployment and poverty effectively.

To extend the benefits of various government schemes at one stop to the SSI units.

To safeguard the small-scale industries from financial harassment in the hands of the big industries.

TAN Registration

TAN or the Tax Deduction Collection Number is a mandatory ten-digit number required for all persons who are supposed to pay the Tax deduction at source or TDS on behalf of the Government.

The person deducting the tax at the source must deposit the deducted tax to the Central Government to quote the TAN number.

Salaried individuals are not required to obtain TAN or deduct tax at the source. A proprietorship business and other entities must deduct tax at the source, making certain payments like salary, payments to the contractor or the subcontractors, amount of rent exceeding 1,80,000 per year, etc. On deducting the TDS, the entity with TAN registration will issue a TDS certificate as proof of collection of tax.

FSSAI Registration

FSSAI registration should be obtained from the Food Safety and Standard Authority of India in the proprietor’s name if he is involved in the selling of food products or handling of the food products.

Here is a list of documents required for FSSAI registration:

Photo of the food business operator

Document for Identity proof like a Ration card, Voter ID card, Pan Card, Driving Licence, Passport, Aadhar Card, Senior Citizen Card, or Department Issued ID.

Supporting Documents (if any):- NOC by the Municipality or the Panchayat, Health NOC.

Trademark Registration

Trademark Registration is required in case you wish to trade your goods or services with a special name or brand. It is profitable where there is a threat of some misuse of the name or mark used in your business.

Benefits of Proprietorship Firm Registration:

Minimal Compliances: A proprietorship firm has very minimal compliance requirements which makes it a much more preferable option than One Person Company.

Easy to Start: Sole Proprietorship is not governed by any law and does not require any mandatory registration. Hence, it is the easiest way of starting a business entity.

Lower cost: As there is minimal compliance, there is no need to hire an auditor for meeting the legal compliance requirements.

Complete control: As a proprietorship firm is owned by a single person, he has complete control over the business decisions and there are no interventions of any kind.

No Sharing Of Earned Profits: The sole proprietor is the only person who manages and operates the whole business, which means that 100% of the profits belong to only him/her. It is profitable to note that no one else is entitled to a share in the profits earned.

Minimum Legal Compliances: It is important to note that sole Proprietorships are not administered by any specific law; therefore the legal compliances are automatically minimal by its nature. They do not need to avail of the Certificate of Incorporation or Registration Certificate from the concerned authority. Subsequently, the compliances depend upon licenses or registrations taken by a specific sole proprietorship.

To make it simpler, sole proprietorship have to comply with the GST return filing if it registers themselves under GST law, or any other related laws. Therefore, there is no such obligation of uploading the Annual report or other reports on the website of the Ministry of Corporate affairs.

Minimum Income Tax: In general, no separate tax is needed to be paid because the Sole Proprietorship involves only a Sole proprietor. The sole Proprietorship and the Sole proprietor are meant to be the same for the purpose of calculation of tax liability. The assets & liabilities of the Sole Proprietorship are the assets as well as the liabilities of the Sole Proprietor.

In accordance with the Income Tax Act, the sole proprietor is needed to file his/her IT returns, showing the profits earned in the business in that IT return itself. It must be noted that the tax is calculated at income tax slab rates as applicable to an individual, therefore any separate return is not required for the Sole Proprietorship firm.

Information Remains In Private Hand: Unlike Limited Liability Partnerships, Companies, etc. where audit reports and financial statements are made public for the users via the MCA (Known as the Ministry of Corporate Affairs) portal, the financial reports of Sole Proprietorship remain private hands. Also, the list of all sole proprietorships is not easily available to Government officials/websites.

Own Decision Making: It is important to note that there is no chance of a conflict of ideas or any sort of decision in view of the fact that the Sole Proprietorship is managed & operated single-handedly. Sole Proprietors have the sole right to do whatsoever he/she thinks to do is correct for the business.

No Requirement For Audit: Sole Proprietorship is not obligatory to get its accounts audited in each and every financial year under the eye of the law. However, the audit will depend upon the nature of the business & the threshold turnover limits that have been specified for the conduct of the audit for that particular firm.