how to start a sole proprietorship in India Read Compilation By Sarah Bhandari



Lot of people have this confusion in regard to the registration of sole proprietorship business and procedure related thereto. We are going to discuss the sole-proprietorship form of business and things to keep in mind while choosing sole-proprietorship as a form of business organization.    

If we talk about the registration of sole proprietorship there is no specific procedure or rules provided by the government as such, neither state nor central government has any specific mechanism provided for the registration of sole proprietorship. Therefore the existence of sole proprietorship can be obtained through one or more tax registration or business license.

For instance, License under shop and establishment Act and GST registration can be obtained in the name of the proprietor to establish that the Proprietor is operating a business as a sole proprietorship.

However, this doesn’t give protection to the name of the proprietor business, when I am saying this doesn’t give protection to the name of the business it means the same name can be used by any other person. In case a proprietor wishes to protect the business name and the name is unique a trademark registration can be obtained for the business name. 

Some of the registration that can be obtained by a Proprietor to prove its existence for opening a current account and any borrowing from bank.

MSME Registration: registration under the Ministry of Micro, Small and Medium Enterprises.

TAN registration: Can be obtained from Income Tax Department in case proprietor is making salary payments wherein TDS Deduction is required

GST Registration: under goods and services tax Act, 2017

Import and Export Code: In case proprietorship business undertaking Import and / or export of goods

FSSAI Registration: In case proprietor is involved in the selling of food products or handling of Food products.

Shop and establishment Act License

Let’s know more about the sole proprietorship business.

It is basically a form of unregistered business entity owned, managed and controlled by one person. It is an Ideal business for small trading businesses, professions and rendering of personal services.

Some examples of sole-proprietorship business Laundromats, beauty parlours, repair shops, consulting agencies, small retail stores, medicine stores, dentist, accounting concerns, boarding-house, restaurants specialty ships, jobbing builders, painters, decorators, bakers, confectioners, tailoring shops, small scale shoe repairers and manufacturers, etc.

Capital Requirement

Capital requirement is one of the crucial factors affecting the choice of particular form of ownership organization. Requirement of capital is closely related to the type of business and scale of operations.

In a sole-proprietorship, the owner may raise additional capital by borrowing, by purchasing on credit and by investing additional amounts himself. Banks and suppliers however will look closely at the proprietor’s individual financial resources before sanctioning any loans or advances.

Stability of business

It is another factor that governs the choice of ownership organisation. From this point of view sole-proprietorship is not stable, although no time limit is placed on them by law.

The illness of owner may derange the business and his death cause the demise of the business.

Division of profit

Profit is the guiding force of private business and it has a tremendous influence on the selection of a particular form of business organization. An entrepreneur desiring to pocket all the profits of business will naturally prefer sole proprietorship.

Costs, procedure and government regulation

This is also an important factor that should be taken into account while choosing a particular form of business organization. Different form of business involves different procedure for establishment and are governed by different laws which affect the immediate and long term functioning of business enterprise. From this point of view, sole proprietorships are the easiest and cheapest to get started as there is no government regulation, what is necessary is the technical competence and the business acumen of the owner and the requirement of meeting tax liabilities.

Transferability of ownership

Being a one-person entity it doesn’t lend itself to transferability of ownership as the owner himself enjoys the profits and suffers the losses in his business.

Secrecy

Secrecy is supreme important, particularly in small business concerns. Accordingly, the entrepreneur would select the sole proprietorship for that reason.

Independence

The company is subject to strict government regulations. So, if the entrepreneur wants to have a freedom in business with less government interference, he can choose sole-proprietorship.

Difference between sole proprietorship and OPC (one Person Company)

The fundamental difference between a sole proprietorship and an OPC is the way liability is treated in the latter.

An OPC company is different from a sole proprietorship because it is separate legal entity that distinguishes between the promoter and the company.

The promoter’s liability is limited in an OPC in the event of a default or legal issues. On the other hand, in sole proprietorship, the liability is not restricted and extends to the individual and his or entire assets would be liable to repay the debts due by the sole proprietorship business unlike OPC.

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