ServicesProprietorship
Sole Proprietorship Registration
A sole proprietorship operates much like a one-person performance, where the owner takes center stage in the production. With its straightforward setup and minimal compliance demands, it proves to be an excellent choice for small businesses. However, it’s crucial to recognize that a sole proprietorship lacks limited liability protection, exposing the owner’s personal assets to potential risks. In the event of a lawsuit against the business, the owner’s personal belongings, such as their home or car, could be seized to satisfy any claims made.
Note: this type of business entity is best suited for every small businesses
Who is a Sole Proprietor?
A lone ranger, a one-person show,
A sole proprietor runs the whole shebang, you know.
They own and manage their business with care,
Their success or failure, they alone will bear.
All assets and debts, they must embrace,
A responsibility they carry with grace.
— Hence, when setting up a sole proprietorship, it’s imperative to open a distinct bank account and, if required, enroll for GST registration. The individual takes on complete responsibility for all the assets and liabilities tied to the business.
How to check Proprietorship Status?
In India, there is no compulsory requirement for registering a sole proprietorship. Consequently, there isn’t a specific platform for verifying its status. Nevertheless, if the proprietor has submitted an application for GST registration, one can verify the existence of the proprietorship by checking the GST registration and filing status on the GST Portal.
Proprietorship Legal Entity Status and Recognition
In all legal and official contexts, the business owner and the proprietorship are not distinguished as separate entities; instead, they are considered identical and treated as one.
Sole Proprietorship Registrations & Licenses
To run a proprietorship business in India, the proprietor is required to secure the following:
- PAN Card
- Aadhar Card
- GST registration
- UDYAM registration
- Current bank account
In certain states, compliance may also include obtaining registration under the Shops & Establishment Act. Furthermore, specific licenses and permits may be essential, depending on the industry and compliance with state and local regulations.
PAN Card for Proprietorship Firm
As a solitary enterprise, the business owner utilizes their personal PAN card instead of acquiring a distinct PAN card for the business.
Obtaining GST Registration for Proprietorship
To complete GST registration, the proprietor must furnish the following documents:
- Personal identification documents, including PAN, Aadhaar card (linked with a mobile number), and a passport-size photo.
- For commercial purposes, a registered rent/lease agreement in the proprietor’s name and the most recent electricity bill are essential.
Obtaining UDYAM Registration for Proprietorship
- Online acquisition of Udyam Registration enables small and medium-sized businesses to access various benefits.
- Following GST registration, the team facilitates the UDYAM registration process by submitting Aadhaar card, PAN card, and GST certificate to the Government.
Bank Account for Proprietorship
To initiate the opening of a current account for a proprietorship, the business owner’s PAN card is utilized, and proof of business must be provided.
Two of the subsequent documents should be submitted under the proprietorship’s name:
- GST registration certificate,
- Shop & Establishment Act license,
- Certificate from a Chartered Accountant.
Obtaining Shops & Establishment Act License for Proprietorship
The acquisition process and the duration to obtain it may vary among different states.
Both online and offline options are accessible, and typically, it is secured within a week.
Timelines for Sole Proprietorship Registration
Generally, the registration of a sole proprietorship in India is completed in under 15 days, although the specific processing timelines may vary depending on government and bank procedures.
Proprietorship Business Activities
Proprietorships are permitted to engage in various sectors and industries in India, with the exception of specialized fields such as banking, insurance, financial services, lending, defence, and telecommunications, which necessitate specific approvals. Consequently, proprietorships are most aptly tailored for small-scale businesses.
Compliances for Proprietorship
Regulatory Compliance for Sole Proprietorships includes the following obligations:
Personal Income Tax Filing: The proprietor of a sole proprietorship is required to file personal income tax returns using either ITR-3 or ITR-4. Consequently, the income earned by the proprietorship is taxed as the personal income of the business owner.
Business Income Declaration: Only ITR-3 and ITR-4 allow for the declaration of business income. Therefore, the proprietorship must disclose its business income on the income tax return, with all proprietorships mandated to file either ITR-3 or ITR-4 to adhere to income tax regulations.
GST Return Filing: If the proprietorship holds GST registration, it must file GST returns every month or quarter, depending on the applicable scheme. Timely submission in accordance with the registration frequency and scheme is essential.
TDS Returns: If the proprietorship has employees or engages in transactions surpassing a specified threshold, tax deduction at source (TDS) is mandatory. Quarterly filing of TDS returns is required, emphasizing the need for timely deduction and filing if applicable.
Other Compliance Requirements: Beyond the aforementioned, additional compliance obligations may apply to the proprietorship, contingent on industry and location. These could involve adherence to labor laws, environmental regulations, and other pertinent laws and regulations.
Proprietorship vs Limited Liability Partnership (LLP) vs Company
Business Structures Overview:
Proprietorship:
- Unregistered business managed by a single individual with sole ownership, entailing unlimited liability.
Partnership:
- Registered business involving a formal agreement between two or more parties, with a minimum of 2 partners and a maximum of 50, where liabilities are shared among partners.
LLP (Limited Liability Partnership):
- Registered hybrid entity combining features of a partnership and a company, requiring a minimum of 2 designated partners and offering limited liability.
Company:
- Registered entity with limited liability for owners and shareholders, necessitating a minimum of 2 directors and shareholders, and a maximum of 15 directors and 200 shareholders.
One Person Company (OPC) Specifics:
- One Director
- One Nominee Director
- Registration time of 7-9 working days
Promoter Liability:
- Unlimited liability for proprietorship
- Limited liability for partnership, LLP, and company
Documentation Required:
- MSME registration for proprietorship
- GST registration for all entities
- Partnership deed for partnership
- LLP deed for LLP
- MOA, AOA, and incorporation certificate for the company
Governance:
- Partnership governed by the Partnership Act
- LLP governed by the LLP Act, 2008
- Company governed by the Companies Act, 2013
Transferability of Ownership:
- Non-transferable for proprietorship
- Transferable if registered under the Register of Firms for partnership
- Transferable for LLP and company
Compliance Requirements:
- Income tax filing for proprietorship if turnover exceeds Rs. 2.5 lakhs using ITR 5 form
- Form 11 and Form 8 filing for LLP
- ITR 5 and ITR 6 filing for the company
- MCA filing and appointment of auditor for all entities
Proprietorship FAQ's
No, a Certificate of Incorporation is not issued.
Given the unity of the sole proprietorship and its owner, the individual is only required to file income tax and GST returns for the business.
In India, commencing a sole proprietorship entails no obligatory minimum requirements.
The continuity of sole proprietorships relies entirely on the presence and willingness of the proprietor.
The proprietor is the boss, the manager, and the whole shebang! It’s like being the king or queen of your own little business kingdom.
Operating a proprietorship business from home is allowed, provided it meets other relevant regulations.
Any official document with the proprietor’s name, photo, and address, like a driver’s license or passport, can be used as address proof. A utility or electricity bill in the proprietor’s name can also be submitted.
The licenses and registrations required for a sole proprietorship depend on the type of business activity.
GST registration is mandatory if the turnover exceeds Rs. 20 lakhs for service providers and Rs. 40 lakhs for goods providers.
Sole proprietorships are unregistered businesses owned, managed, and controlled by one person, and are preferred by micro and small businesses in the unorganized sector.
The registration process takes around 8 to 10 days, subject to government processing and document submission.