Overview of Sole Proprietorship Registration

The simplest type of company structure in India is the sole proprietorship, which requires little setup work and is not subject to any particular laws. A firm owned and operated by one person is known as a sole proprietorship. There is just one person in charge of managing and making decisions for the company. However, the lone owner will be responsible for any business losses due to their limitless liability. There are also not many documentations needed to start a single proprietorship.

Understanding the Sole Proprietorship business

In India, a sole proprietorship is registered for businesses with a single owner. Profits and income taxes are handled by sole proprietors using either their own names or a trade name. It's a popular option for sole proprietors and small enterprises.

A business is referred to as a sole proprietorship when it is owned and operated by one individual. This kind of business is among the most popular business structures to start in the unsystematic sector, especially among merchants and small dealers, because it may be incorporated in fifteen days or less.

In India, registering a proprietorship requires a different procedure because this type of company structure does not have a specific government-mandated registration method. Rather, a proprietorship becomes recognized by virtue of tax registrations that are required by applicable laws and regulations. To formally obtain the proprietorship status of the company, one essential tax registration that has to be obtained under the proprietor's name is the GST (Goods and Services Tax) Registration. This registration provides proof that the owner is operating within the legal structure of a proprietorship.

Requirements for Sole Proprietorship Registration

The requirements for sole proprietorship registration are mentioned below:

A license or certificate granted by municipal authorities in accordance with the Shop and Establishment Act.
The Institute of Chartered Accountants of India issues the license that is granted by Registering authorities, such as the Certificate of Practice.
The Central Government or the State Government Authority/Department, etc., issues the registration or license document in the name of the proprietary firm.
The Importer Exporter Code (IEC) that the DGFT office provided to the proprietary firm may also be accepted by banks as identification when opening a bank account, among other things.
Complete the online income tax return in the sole proprietor's name, ensuring that all of the firm's income is shown and that it has been properly validated and acknowledged by the income tax authorities.
Utility bills in the name of the proprietary firm, including those for power, water, and landline.
Issue of a GST registration or certificate.

What are the benefits of Sole Proprietorship Registration?

There are many benefits of registering a sole proprietorship firm, a few of such benefits are mentioned below:

Simple registration

Since a sole proprietorship is the same as a proprietorship, there is no formal incorporation or dissolution procedure. To comply with Indian rules and regulations, the owner of a business may need to secure specific licenses and registrations in order to operate.

No Profit Distribution

As the only owners of a company, sole proprietors take pride in having complete control over their earnings.

Reduced compliance

Since most proprietorships merely register with government agencies such as GST and Income Tax, there would be less work to be done in terms of compliance. However, organizations such as LLPs and companies must register with the Ministry of Corporate Affairs, file a number of statutory filings, and undergo an annual audit by a chartered accountant.

Less Taxes

Tax authorities do not distinguish between a sole proprietor and a sole proprietorship. They are therefore exempt from having to deal with individual tax responsibilities. Sole proprietors are required by the IT Act to file an income tax return. It is a method of revealing earnings and profits made for the specific fiscal year before to the tax authorities. Tax estimation is done using the taxpayer's appropriate income tax slab rates. As a result, the sole proprietorship business is exempt from the need to submit a separate tax return.

Simplicity

The owner may run this company with less paperwork and permission because it doesn't have shareholders, partners, or directors. Therefore, very small enterprises are the ideal candidates for this kind of company structure.

Business decision

The owner of a proprietorship takes all the decisions for his business. No other person's permission or consent is necessary. As a result, an owner is typically able to make judgments about his business matters quickly.

Total control

The sole proprietor is the only owner of a sole proprietorship. He or she is in total charge of the company's resources, earnings, outlays, and daily activities.

Documents required for Sole Proprietorship Registration

Here are the documents required for sole proprietorship registration:

PAN, passport sized photograph and Aadhar card of the owner.
Utility bills for the company, such as those for power or water.
Copy of bank statement along with further information like account number and IFSC code.
By completing the necessary e-application on the GST site, applicants can take advantage of GST registration.
The establishment's name and address.
Bank account on the name of organisation.
Registration under the Shop and Establishment Act of the state.
A firm must register for GST if its yearly income exceeds Rs. 20 lakhs.

What is the procedure for registering a Sole Proprietorship Firm?

The following procedure will be followed to register a sole proprietorship anywhere in India:

Step 1: Documentation

Gather all the information you need as an owner of the proprietorship, including identification, proof of address, and pictures. Additionally, compile documentation regarding the address of your office. Verify the authenticity and currentness of each document.

Step 2: Choose an Original Name

Select a distinctive name that complies with the law for your proprietorship. Ensure the name does not infringe upon registered trademarks or breach intellectual property rights. You can use the IP India portal's trademark public database search to confirm if the suggested names are available. To protect yourself from any infringement or abuse, it is advisable to register the selected name as a trademark.

Step 3: MSME, Udyog Aadhar, and Udyam Registration

A business bank account may be opened with two necessary documents in your proprietorship's name. The MSME or Udyam Registration Certificate is the second document, while the Udyog Aadhar card is the first. These papers provide you access to online MSME services and advantages provided by several government offices, as well as benefits under the MSME Act.

Step 4: Register for GST

In the event that your sole proprietorship offers goods or services throughout India, GST registration is required. On the other hand, if your company only works in one state, you only need to register for GST if your annual revenue for products is Rs. 40 lakhs more and services is Rs. 20 lakhs or more.

Step 5: Register for Additional Taxes

Consider getting additional tax registrations as needed, depending on your business's needs and type. These might involve filing income taxes, professional taxes, or any other taxes that are related to your business.

Step 6: Registering under Shops and Establishments

You could also require a Shop and Establishment Registration in addition to other registrations. Operating a store, office, or other commercial establishment requires this registration. It is a state-level registration that aids in regulating the terms of employment, working conditions, and other regulations for team members in such enterprises. States may differ in their specific criteria and procedures for getting this registration. To obtain information, get in touch with the labor department in your area or visit their website.

Step 7: Open a Bank Account of the name of your Firm

Opening a separate bank account for your sole proprietorship is recommended in order to keep your personal and business funds apart. To open an account, select a bank that best meets your requirements and go to the nearest branch. Bring all necessary documents, including the PAN card, proprietorship registration certificate, identification verification, and proof of address, to finish the account opening procedure. When the account is successfully opened, the bank will provide you the account details.

Compliances to be followed by Sole Proprietorship

Some of the compliances that apply to a sole proprietorship are as follows:

Income Tax Return Filing: The owner of the proprietorship firm is required to file the income tax return on their personal income in form ITR-3 or ITR-4
Business Income: The business income shall be declared by the firm in the forms ITR-3 and ITR-4. Thus, in order to comply with income tax laws, proprietorships must submit form ITR-3 or ITR-4.
GST Return Filing: In accordance with the plan under which the firm is established, a proprietorship that has opted for GST registration is required to file a GST return on a monthly and quarterly basis.
TDS reports: Tax has to be deducted at source and TDS reports have to be submitted in each quarter if the proprietorship employs people or makes purchases of goods or services that exceed a specific level.

In addition to these compliances, depending on the sector and area, the proprietorship may also need to comply with additional regulations.

Frequently Asked Questions

Q1. Does a proprietorship get a certificate of incorporation?

No, the proprietorship does not get any incorporation certificate. Its presence is determined on the basis of other registration on the state level.

Q2. What is the minimum requirement to start a sole proprietorship business?

There is no minimum requirement for starting a sole proprietorship business, a single person can start a proprietorship after getting a few registrations as per requirement of the particular where it is operating.

Q3. Does a proprietorship have a perpetual succession?

No, a proprietorship is only valid till the life of its owner, there is no concept of perpetual succession as it is owned and managed by a single person.

Q4. Is it required for a sole proprietorship to get a GST registration?

It is mandatory to complete a GST registration if your company's annual sales exceed the threshold of Rs. 40 lakh. However, if their threshold limit exceeds Rs. 20 lakh, enterprises registered in special category states are required to register for GST. Regardless of their sales, every online merchant on an e-commerce aggregator platform such as Flipkart or Amazon is required to obtain a GST registration. Any person or organization considering to start their own online store must be registered with the GST.

Q5. Are self-employed and Sole Proprietors same?

Yes, they both are similar. Although, they are also self-employed, sole proprietors are far less likely to work on a contract basis for a company. Usually, though, they deal directly with consumers, offering products and services for sale on the open market.

Online Sole Proprietorship Registration in India