When single person runs a business then such kind of business is called as proprietary business
When single person runs a business then such kind of business is called as proprietary business, and the owner of the business is called as proprietor. Proprietorship is the most common form of the business which is used in India. You can start and operate the business with minimum regulatory compliance. However there is no full fledged way available to register your proprietorship by Indian Government. Tax registration and other business registration’s is the right way to show existence of your proprietary business.
A sole proprietorship structure can be used by a service provider, a manufacturer as well by a trader or a merchant.
All the business structures need to follow the formation procedures and necessary registrations. This brief yet complete procedure for sole proprietorship registration will help you to get ready with the document requirements.
1. The proprietorship registration done under the SSI/MSME Registration.
2. Obtain the GST registration certificate from the authorities.
3. Get Registration under shop and establishment Act
4. Import Export Code (IEC) Registration
Though there are no other governmental formalities required for sole proprietorship formation, it may require certain registrations depending upon the business. For example a firm dealing with import or export will need DGFT IEC code registration. For the registrations of GST, we highly recommend you to get help of our professional services available at incredibly low service charges.
The documents requirement for the sole proprietorship is quite simple. Generally it involves the basic documents to identify the proprietor and the firm.
1. Self Attested PAN Card of Applicant
2. Self Attested Aadhar Card of Applicant
3. Address Proof of Business (Rent Agreement , Electricity bill etc)
4. Business Account (Current Account)
This hassle-free registration process aloof of any real legal registration is the best feature of the sole proprietorship firm in India. It is also the oldest form of business in India. Applying for the necessary tax registrations and bank account are the only compliance to start the business.
We all come across various shops in our locality carrying out small business operations. All these are Sole Proprietorship's. They do not involve any complexities and can be handled by a single person in a comfortable manner.
Sole Proprietorship do not require mandatory registrations under any law. They only require registrations or licenses specific to the nature of business. So, any person can start his/her business easily with a trade name of his/her choice. Any trade name can be used in case it does not clash with any brand name. The name does not require any approval from registry.
Sole Proprietorship can be started with a very minimal amount of investment at the initial phase. So, it is a great opportunity for those who want to set up a business with low funds as no minimum capital is prescribed for starting a Proprietorship.
Sole Proprietor is the only person who operates and manages the whole business, so 100% of the profits belong to him/her. No one else is entitled to a share in the profits earned.
Since Sole Proprietorship are not governed by any specific law, the legal compliances are minimal. They do not have a pre-defined Certificate of Incorporation or Registration Certificate. So, the compliances depend upon registrations or licenses taken by a particular sole proprietorship. For example, if a sole proprietorship registers itself under GST law, then it will have to comply with the GST return filing, etc. There is no such requirement of uploading the Annual report or other reports on the MCA website.
Since the Sole Proprietorship involves only a Sole proprietor, hence no separate tax is required to be paid by it. Sole proprietor and the Sole Proprietorship are same for the purpose of calculation of tax liability. The assets and liabilities of the Sole Proprietorship are the assets and liabilities of the Sole Proprietor. Sole proprietor is required to file his/her normal return and show the profits earned in the business in that return itself. Separate return is not required for the Sole Proprietorship firm. Also, the tax is calculated at income tax slab rates applicable to an individual. Other tax liabilities like GST will depend upon the nature of business.
Unlike Companies, Limited Liability Partnerships, etc. where financial statements and audit reports are made public for the users through MCA (Ministry of Corporate Affairs) portal, the financial reports of Sole Proprietorship remain in private hands. Even, the list of all proprietorship is not readily available with the Government officials.
Since the Sole Proprietorship is managed and operated single handed, there is no chance of conflict of ideas or decisions. Sole Proprietors has the right to do whatever he/she thinks is correct for the business.
Sole Proprietorship is not required to get its accounts audited each financial year under any specific law. The audit will depend upon the nature of business and the threshold turnover limits specified for the conduct of the audit. Like, a tax audit is required if the turnover/sales exceed ₹ 1 crores and for professional services, the audit is required if receipts exceed Rs. 50 lakh. Similarly, GST audit is required if the turnover exceeds ₹ 2 crores.
It’s easy to start a small business by forming a Sole Proprietorship with minimal complexities. Because of lesser complexities, the sole proprietor can focus on enhancing his/her business rather than focusing on meeting various compliances. It’s a good option for those who want to provide a platform to their business idea and try out something they want to with minimal investment.