Sole Proprietorship Registration
A sole proprietorship is a business that can be owned and controlled by an individual.There are no partners in the business.
The legal status of a sole proprietorship can be defined as follows:
- It is not a separate legal entity from the business owner
- The business owner has unlimited liability (i.e. the business owner is personally liable for all the debts and losses of the sole proprietorship)
- It can sue or be sued in the owner’s name
Documents Required from Proprietor
What is a Sole Proprietorship?
A sole proprietorship (also known as individual entrepreneurship, sole trader, or simply proprietorship) is a type of unincorporated entity that is owned by one individual only. It is the simplest legal form of a business entity.
A company which is owned, controlled and managed by just one person. This type of business can be formed in very short time period, making it one of the most common forms of unsystematic businesses to start, particularly among merchants and small dealers. Registration for a Sole Proprietorship business because it is recognized through other registrations, such as GST registrations / Shop Act etc. Its responsibility, on the other hand, is boundless, and it does not exist indefinitely.
Benefits of a Sole Proprietorship
Advantages of a Sole Proprietorship
Despite its simplicity, a sole proprietorship offers several advantages, including the following:
1. Easy and inexpensive process
The establishment of a sole proprietorship is generally an easy and inexpensive process. Certainly, the process varies depending on the country, state, or province of residence. However, in all cases, the process requires minimum or no fees, as well as very little paperwork.
2. Few government regulations
Sole proprietorships adhere to a few regulatory requirements. Unlike corporations, the entities do not need to spend time and resources on various government requirements such as financial information reporting to the general public.
3. Tax advantages
Unlike the shareholders of corporations, the owner of a sole proprietorship is taxed only once. The sole proprietor pays only the personal income tax on the profits earned by the entity. The entity itself does not have to pay income tax.
Disadvantages of a Sole Proprietorship
1. Unlimited liability of the owner
Since a sole proprietorship does not create a separate legal entity, the business owner faces unlimited personal liability for all debts incurred by the entity. In other words, if a business cannot meet its financial obligations, creditors can seek repayment from the entity’s owner, who must use his or her personal assets to repay outstanding debts or other financial obligations.
2. Limitations on capital raising
Unlike partnerships and corporations, sole proprietorships generally enjoy fewer options to raise capital. For example, the owner cannot sell an equity stake to obtain new funds. In addition, the ability to obtain loans depends on the owner’s personal credit history.
Source : https://corporatefinanceinstitute.com/resources/knowledge/strategy/sole-proprietorship/
Firm Registration Process
How long does it take?
How does it works?
- Our expert will understand your requirements
- They will provide basic details and documents list required for registration
Make the Payment
- You make the initial fee payment through secure payment gateway towards stamp duty and out of pocket expenses.
Application for firm registration
- Collection and Drafting of documents
- Signing of documents and getting notary attestation
- Application for firm registration
Ways To Register a Sole Proprietorship in India
A sole proprietorship is the most common form of a business entity where one person is the owner and is personally liable for all the debts and liabilities of the business. It is the most simple form of an entity with minimal compliance procedures.
Sole Proprietorship Registration can be done in 3 ways:
- Register under the Shop and Establishment Act.
- Get a Udyog Aadhaar under the Ministry of MSME.
- Get a GST registration.
1. Sole Proprietorship registration under Shop and Establishment Act
A sole proprietor can register his business under the Shop and Establishment Act, if he has a shop as a place of business.
Here, shop means any premises:
- a place where goods are sold, either by retail, wholesale, or
- a place from where services are provided to customers.
- It includes an office, a store-room, godown, warehouse or work place, whether in the same premises or otherwise, which is used in connection with such trade/ business.
It does not include a factory, a commercial establishment, residential hotel, restaurant, eating house, theater or other place of public amusement or entertainment;
If you have a shop as per the definition given above, then you can register your sole proprietorship business under the Shop and Establishment Act by making an application to the local Municipal Corporation of your city.
Sole Proprietorship Registration Process under Shop and Establishment Act
You can register your sole proprietorship under the Shop and establishment Act by following the process given here.
As a business owner of a shop or establishment, you are compulsorily required to get the same registered under the Shops and
Establishment Act. Here are the specific rules:
•Submit an application in the prescribed form to the Inspector of the area within 30 days of starting any work in your
shop/establishment. The application is to be submitted along with the prescribed fees and should contain the following information:
1. Your name as the employer and the name of a manager, if any;
2. The postal address of your establishment;
3. The name of your establishment;
4. Such other particulars as may be prescribed.
• Upon receiving the application for registration and the fees, the Inspector shall verify the accuracy and correctness of the application.
Once suitably satisfied, he shall enter the details in the Register of Establishments and issue a registration certificate of your
establishment to you. This certificate will be valid for 5 years and has to be renewed thereafter.
• Remember, the registration certificate has to be prominently displayed at your establishment.
2. Sole Proprietorship Registration through Udyog Aadhaar under Ministry of MSME
An Udyog Aadhaar is a unique identification number provided by the Ministry of MSME to the business owners. Along with all other entities such as company and partnership, even a sole proprietor can apply for udyog aadhaar.
Apart from getting eligible to avail the benefits offered by the Ministry of MSME, a sole proprietor has an added advantage of getting a unique identity for his business which is also considered as Sole Proprietorship Registration.
Udyog Aadhaar is a new method of registration under Ministry of MSME. It has replaced the old method of registration, where form EM-I and EM-II were used to register. Now, by applying for Udyog Aadhar any business can register itself to avail the benefits of the various schemes introduced by the Ministry of MSME.
To know more details about Udyog Aadhaar and the process of applying for the same, you can refer this article on Udyog Aadhaar Registration.
3. Sole Proprietorship Registration through GST Registration
GST registration is another way of getting your sole proprietorship registered. You can apply for GST registration if you are dealing in any kind of exchange of goods and services. It has replaced the old VAT and Service tax registration.
GST registration is a great method of getting an identity for your sole proprietorship concern. However, there are certain important considerations that must be evaluated before opting this method.
Under GST registration, the only drawback is that after registration it is mandatory to meet all the compliances. Every registered business has to compulsorily collect the tax from the customers and file the GST returns.
If a sole proprietor has a turnover of less than Rs. 20 Lakhs, it is not mandatory for him to get registered and collect GST. But if he still chooses to register in order to register his sole proprietorship then he will have to go through unnecessary added compliances which he could have avoided.
GST Registration Process for Sole Proprietorship Registration(Step-by-step guide)
To know about the registration process and other details with respect to GST registration, please refer here.
Which of the above 3 ways of Sole Proprietorship Registration is the best?
After evaluating all the three options, in our opinion if you are a sole proprietor who has a business with a turnover of more that Rs. 20 Lakhs, then you should go for the GST registration to get a business identity, as it is the most widely accepted form of identity for sole proprietorship concern.
However, if your turnover is less than 20 lakhs then GST registration may not be very beneficial for you as there are a lot of returns to be filed after obtaining a GST Number.
Opening a Bank Account in the name of your Sole Proprietorship
Most banks have their own criteria for opening of a bank account.
Although all the above 3 ways of registering a sole proprietorship are legally valid, some banks still dont accept Udyog Aadhaar or Registration under the Shop and Establishment Act.
Banks insist on a GST Registration. If the GST Registration is not there, some banks are willing to accept the Income Tax Return as a proof of registration provided your Trade Name is mentioned in your previous year’s ITR.
Some banks do not accept Udyog Aadhaar or the Registration under the Shop and Establishment Act and therefore, it is advisable that if your sole purpose of registering is to open a bank account in your name, you should first check with your banker on what are the documents which they need.
Is Sole Proprietorship Registration mandatory?
No, Sole Proprietorship Registration is not mandatory. It is optional on whether a person intends to register his sole proprietorship or not.
Although, banks insist on getting sole proprietorship registered if you intent to open a bank account in the name of your business, but as per law – it is not mandatory.
Even if you register your sole proprietorship, the govt will not issue a new PAN Card for the same. The same PAN Card of the proprietor would continue to be applicable for the sole proprietorship as well.
Source : https://www.charteredclub.com/sole-proprietorship/