Why and Why not to Opt for Sole Proprietorship By CS Annu Sharma

Dear Folks,

Greetings of the day!! Hope You all are Doing Great.

In this write I am sharing my knowledge and understanding about Proprietorship Firm,  Sole Proprietorship is a business or an establishment which is run by a single person. He or she, in whose name the business is run, is responsible for the enterprises. The sole proprietorship type is the favorite business form for small entrepreneurs. It simply allows starting a firm with small capital, short time frame.

It requires a very simple process with minimal legal compliances and formation costs. Most of the local offline businesses prefer proprietorship. Majority of the businesses in India are unregistered with many being operated as a sole proprietorship firm business.  A sole proprietorship is one of the easiest and simplest forms of business entity to register and maintain in India. There is no formal sole proprietorship registration and to start a proprietorship only PAN number for the Proprietor, certain licenses and capital is required. In this article, we look at the process of forming a sole proprietorship in India.

Key Features of Sole Proprietorship Firm in India

Traditionally, proprietorship is the preferred way of setting up a small scale business for most of the businessmen. The main features of this business type clearly identify it from the other types:

  1. Proprietorship requires one person and is basically a one-man show.
  2. The business is owned by a single person.
  3. Due to the involvement of a single person and minimum legal compliances, it is much easier to start and dissolve the firm.
  4. Tax-related and other legal compliances are minimal.
A sole proprietorship structure can be used by a service provider, a manufacturer as well by a trader or a merchant.

How to Establish a Sole Proprietorship Firm in India

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. Passport Size Photograph of Proprietor
  2. PAN and Aadhar card of the Proprietor.
  3. Proof of Registered Office.
  4. Open a current bank account with the aforementioned Documents.
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, Documents Required to Start Proprietorship Firm, for Eatables related business FSSAI Registration and License is necessary.

The documents required for the sole proprietorship is quite simple. Generally, it involves the basic documents to identify the proprietor and the firm.

Aadhar Card

Aadhar number is now a necessity for applying for any registration in India. Also, income tax return can only be filed if the person has linked his PAN card with Aadhar number. Contact nearest E-Mitra or Aadhar Seva Kendra if you haven’t got an Aadhar number yet. After applying for Aadhar card, a hard copy of the same is received at the registered address in around 15-20 days.

PAN Card

You can’t file your income tax return until you get a PAN. So if you don’t have a PAN number, apply for it at the earliest.

PAN card can be applied online and it costs Rs. 110, approximately. For applying, you need a scanned photograph, identity proof, and address proof. The form can be submitted online by verifying it through Aadhar e-KYC.

Once PAN card application is submitted, it is checked at NSDL for verification, and if NSDL finds the information correct, it allots the PAN number within 7-8 days. Further, a hard copy of PAN card is received at the registered address within 15-20 days.

Registered office proof

If it is a Rented Property:  Rent agreement and NOC from a landlord.

If it is a Self-owned Property: Electricity bill or any other address proof.

#Registrations required in order to establish the existence of the firm:

Registering as SME

You can get yourself registered as Small and Medium Enterprise (SME) under the MSME Act. The application can be filed electronically. Although it isn’t compulsory to register as an SME, it is highly beneficial, especially at the time of taking a loan for the business. The Government runs various schemes for SMEs where loans are provided at the concessional rate of interest.

GST Registration

You can get yourself registered under GST if your annual turnover is more than Rs. 20 lakhs. Also, if you are doing online business (selling through Amazon, Flipkart etc.), you are required to get a GST number. For registering under GST, you need the following documents –

  1. PAN card, Photo and Aadhar Card of the proprietor
  2. Proof of business place (Electricity bill/ rent agreement)
  3. Bank statement copy (first page for verifying bank account number, address and IFSC code)
GST registration is easy and can be done via the GST portal. Normally GST number is received within 3-4 days of submitting the application.

Shop and Establishment Act License

This license isn’t mandatory at all places, but it is required to be obtained according to the local laws. It is issued by the municipal party and is issued on the basis of the number of employees.

Why No Sole Proprietorship Registration?

A proprietorship is an extension of its owner, the proprietor. In your absence, it ceases to exist. This is why a sole proprietorship, unlike a one-person company (OPC), has no perpetual existence.

Such a business has a few advantages – it’s easy and inexpensive to start and only a few compliances are to be met on an annual basis. It, however, has one major flaw.

Proprietors must accept unlimited liability since no legal difference exists between the person and the company or business. What this means is that in case your business cannot repay all its debts, your creditors can recover their money from your personal possessions.

With other business formations, like in case of a partnership firm, this is not the case, since the liability is shared by all the stakeholders.

#At the Conclusion of my write up in my opinion this is the hassle-free registration process aloof of any real legal registration is the best feature of the sole proprietorship firm in India. Applying for the necessary tax registrations and bank account are the only compliance to start the business only smaller businesses should continue under sole proprietorship.
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