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Learn how to register a sole proprietorship business effortlessly. A sole proprietorship is owned and managed by a single individual, making it simple and straightforward. Discover the benefits, process, and requirements for setting up your own sole proprietorship firm. No formal registration needed!
5 May 2024
Afinthrive Advisory
The government of India has not prescribed any sole proprietorship firm rules and regulations, nor is there a specific registration mechanism for Sole Proprietorship Firm registration. Therefore, the registration of a proprietorship can only be recognized through tax registrations that the business is required to have, according to the applicable laws and regulations.
These tax registrations may include GST Registration, SSI/MSME/Udyam Aadhar Registration, and/or Shop and Establishment Registration, which should be obtained in the name of the Proprietor to establish that the individual is operating a business as a sole proprietorship.
How to Start a Sole Proprietorship
Starting a sole proprietorship in India is a straightforward process. As there is no separate legal structure for sole proprietorships, the business is typically registered under the proprietor's name and does not require formal incorporation.
Key Features of a Sole Proprietorship Firm:
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Points to make your decision easy
Control over all business decisions remains in the hands of the owner. This ensures quicker business decision making and hence, faster execution. Owners have complete and direct control over all decision making.
Decision Making
The registration process for starting a sole proprietorship firm is very easy compared to other business structures. One can get Registration Certificate within 1 working day. Obtaining a GST registration is also very quick and easy.
Easy To Start
The owner of a sole proprietorship is not required to file a separate business tax report. The business will be taxed at the rates applied to personal income, and not corporate tax rates. This means huge tax savings.
Tax benefits
The dissolution or sale of the Proprietorship firm is very easy. As there is no legal distinction between the proprietor and the proprietorship firm, not much regulatory formalities are required for closing of a proprietorship.
Easy to close
The owner of Proprietorship firm, himself is self-employed and this creates various employment opportunities. Also because the owner is in the hands of a single person, there are fewer chances of leakage of business secrets.
Self employment
A Sole Proprietorship registration is inexpensive as compared to all other forms of organizations. Also on account of the minimum compliance requirements, it proves to be an advantage as it is inexpensive even in long run also.
Inexpensive
All you should know about compliance of Sole Proprietorship firm
GST registration is one of the ways to get a proprietorship registration done. You can get yourself registered under GST if your annual turnover is more than Rs. 40 lakhs. Also, if you are doing online business (selling through amazon, flipkart etc.), you are required to get a GST number under goods and service tax Act.
The proprietorship firms registered under GST are required to file the GST return on a monthly, quarterly and annual basis. GST return is a document that contains the details of the income of the taxpayer. As filing of GST returns is mandatory for all the registered Taxpayers including Partnership firms.
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 loan for the business. Also getting Udyam Aadhar Registration will be very beneficial.
The accounting for a sole proprietorship does not require a separate set of accounting records, since the owner is considered to be inseparable from the business. Nonetheless, it is always advisable to maintain records for business activities of a Proprietorship firm, in order to judge whether these operations are generating a profit.
Income tax filing must be filed by all proprietorship having a taxable income over the exemption threshold. In some cases, a tax audit would also be required. Since proprietorship is considered to be one and same as the proprietor, the income tax return filing procedure for a proprietorship is similar to individual income tax return filing.
There is no obligation for a sole proprietor under any law to get the accounts except in case where the turnover of a proprietary business in any financial year exceeds 1 Crores Rupees and gross receipt from profession exceeds 50 Lakhs Rupees. In both cases, the audit of accounts is compulsory for a proprietor under the Income Tax Act.
Here is the check list of documents required.
Get Answers to your most asked questions.
A sole proprietorship firm is a type of business entity owned and operated by a single individual. It is the simplest form of business structure where the owner is personally responsible for all aspects of the business.
Unlike partnerships or corporations, a sole proprietorship has no separate legal existence from its owner. The owner is personally liable for all debts and obligations of the business, and there is no legal distinction between the owner’s personal assets and those of the business.
Some advantages include simplicity of formation and operation, complete control by the owner, and minimal regulatory requirements. Additionally, the owner receives all profits and has flexibility in decision-making.
Disadvantages may include unlimited personal liability, limited access to capital, potential difficulty in raising funds, and the absence of perpetual existence as the business is closely tied to the owner.
In many jurisdictions, there is no formal registration requirement for a sole proprietorship. However, the business may need to obtain licenses or permits depending on its activities and location. It’s advisable to check local regulations.
In most cases, the business income is reported on the owner’s personal income tax return. The owner is responsible for paying income taxes on the profits generated by the business. Additionally, self-employment taxes may apply.
Yes, a sole proprietorship can hire employees. The owner assumes the role of employer and is responsible for complying with labor laws, withholding payroll taxes, and providing benefits where required.
While specific requirements may vary by jurisdiction, typical accounting records include income and expense statements, balance sheets, sales records, purchase invoices, bank statements, and tax records.
Yes, a sole proprietorship can be converted into a partnership, corporation, or other business entity if desired. The process may involve legal and tax implications, so it’s advisable to consult with professionals before making the change.
Upon the owner’s death or incapacity, the sole proprietorship may cease to exist unless provisions have been made for its continuation or transfer of ownership through estate planning, such as a will or trust.
In many jurisdictions, you can operate your sole proprietorship under your own legal name without registering a separate business name. However, if you wish to operate under a different name (a “doing business as” or DBA name), you may need to register it with the appropriate authority.
Yes, a sole proprietorship can operate in multiple locations. However, you may need to comply with additional registration or licensing requirements for each location, such as obtaining permits or business licenses specific to those areas.
