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Quick Guide to Starting a Sole Proprietorship in India

A business that is independently owned and operated by a single individual is known as a sole proprietorship. One-person businesses, also known as sole proprietorships, do not need to go through the formal registration process because it is non-mandatory. One exception to this rule is that foreigners are not permitted to establish a sole proprietorship in India.

There is only one owner with a sole proprietorship, and it takes only ten to sixteen days to get this kind of business off the ground at the very least. It is not possible for a sole proprietorship to have its own distinct legal entity. Because of this, ownership cannot be transferred, and the liability is virtually limitless. When the sole proprietorship’s owner passes away, the business itself will come to an end.

A One Person Company (OPC) is not to be confused with a sole proprietorship, which is a business structure. The Indian OPC is a hybrid business structure that combines elements of a sole proprietorship and a private limited company. In addition to being required to register with the Ministry of Corporate Affairs (MCA), it is permitted to have a maximum of two individuals with it. There is a distinct legal personality for it, and its responsibility is restricted to the amount of share capital that it possesses.

Moreover, OPCs permit international ownership so long as at least one of the owners is a local. Due to the fact that it is a separate legal entity, ownership can be transferred, and it is not affected by the individuals who own it passing away.

In India, the process of registering a sole proprietorship and the benefits of doing so:

One of the most prevalent types of business structures in India is the establishment of a sole proprietorship. The establishment and management of a sole proprietorship business are carried out by a single individual. Those individuals who are interested in beginning a business with a smaller initial expenditure are the ideal candidates for this sort of business form. In most cases, there is no need to register for it in the traditional sense.

Using a small amount of capital, a sole proprietorship business can be established either at home or at a physical location. The only proprietor or owner who has financially invested in the company is the only one who has the authority to make decisions regarding the company. He is responsible for all of the losses that the company incurs and reaps all of the profits. Despite the fact that he has the ability to designate individuals to run the business, he will retain complete ownership of the company.

Establishing a sole proprietorship business allows for the establishment of a wide variety of local enterprises, including grocery stores, parlors, boutiques, retail stores, and many others. It is possible for even the smallest manufacturers and merchants to create a sole proprietorship business.

Who has the ability to work as a sole proprietor?

It is possible for everyone who is interested in beginning a business with a smaller initial expenditure to choose this sort of business form. It is possible to get started on it within a period of ten to fifteen days. Additionally, the control of the company does not rest with anybody else but you.

Benefits of Operating as a Sole Proprietorship:

With fewer compliances

For a single individual, starting a firm as a sole proprietorship is a simple and affordable option. In order to get it incorporated, there is minimal compliance that needs to be adhered to. A limited liability partnership (LLP) or a company is more expensive to establish than this type of organization, making it more cost-effective.

Command and management of the company

When it comes to the firm, the sole proprietor will have full control over everything. He is going to be responsible for managing every facet of the company. Due to the fact that there is just one person running the business, confidentiality can be preserved.

Instantaneous decision-making

Any and all business decisions are made by the sole proprietor of the company. There is only one individual who has the authority to make decisions. As a result, judgments can be made rapidly and without delay, without the need to consult with anybody else.

The drawbacks of operating as a sole proprietorship:

The liability is unlimited.

When a lone proprietor is involved, they are subject to unlimited liability. It is his sole responsibility to be responsible for all of the commercial transactions that he engages in. It is expected that he will be responsible for bearing the entirety of any loss that occurs out of his personal estate.

There is no permanent succession.

There is no such thing as permanent succession, which means that it is possible for it to come to an end if the lone person who is responsible for the firm sustains an accident or illness. It is able to turn off at any time. As a result, the company is rendered unreliable, and it becomes challenging to earn the trust of the general public in order to enter into agreements or contracts that would increase the firm.

It is challenging to get financial resources.

The fact that the company is managed by a single individual makes it difficult to acquire financial backing. The sole proprietor is the one who is responsible for making the investments that are used to fund the business. Legally speaking, the single proprietorship business does not have a status that is distinct from that of the owner. Because there is no separate entity and it can end at any point, it is difficult to get funding from third parties. This is because there is no separate entity

Registration of Sole Proprietorship

The procedure for incorporating a sole proprietorship firm is as follows:

  • Apply for a PAN card.
  • After obtaining a PAN card or if the proprietor already has one, the next step is to choose a name for the sole proprietorship business.
  • Subsequently, open a bank account in the name of the business. All transactions of the business will be conducted through this bank account.

While no specific registration is required to start a sole proprietorship firm, certain essential registrations are necessary for conducting business. The basic registrations required by a sole proprietorship are:

  • The proprietor needs to obtain the Registration Certificate under the Shops and Establishment Act of the state in which the business is located.
  • The sole proprietorship should also register for GST if the business turnover exceeds Rs. 20 lakh.
  • Additionally, the sole proprietorship can register as a Micro, Small, and Medium Enterprise (MSME) under the MSME Act. Although not mandatory, it is beneficial to be registered under the same.

Documents for sole proprietorship

Registration of a sole proprietorship requires these documents:

  1. Registration in India requires an Aadhaar number. To file an income tax return, the person must link their PAN card to their Aadhaar number. A hard copy of an Aadhaar card arrives at the registered address about 15-20 days after application.
  2. You need a PAN to file your income tax return. If you don’t have a PAN, get one ASAP. PAN cards cost about Rs. 110 to apply online. A scanned photo, ID, and address proof are required to apply. 
  3. Verifying the form with Aadhar e-KYC allows online submission. NSDL verifies the PAN card application and assigns the number within 7-8 days if the information is correct. A hard copy of the PAN card arrives at the registered address within 15-20 days.
  4. Bank Account: Open an account at any bank with your Aadhaar Number and PAN. Along with Aadhaar and PAN, you require identity and address evidence. Bank authorities require a GST registration document to open a current account.
  5. Registered Office Proof
  • Rent agreement and landlord NOC for rented property.
  • Electricity bill or selling document for self-owned property.

Documentation that is necessary for sole proprietorships

  • The proprietor’s PAN card is required.
  • Both the name and the address of the company.
  • There is a bank account that is in the name of the company.
  • Registration must be obtained in accordance with the Shop and Establishment Act of the state in question.
  • If the company’s annual revenue is more than twenty lakhs of rupees, registration under the Goods and Services Tax (GST) is required.

A Timeline of Events for the Registration of Sole Proprietorships

Obtaining a tax identification number (PAN) for the proprietor, opening a bank account in the name of the firm, obtaining a Certificate of Registration under the Shop and Establishment Act of the relevant state, and registering for the Goods and Services Tax (GST) are all necessary steps for establishing a sole proprietorship. Around ten days are required to complete the registration process, which is contingent upon receiving approval from the relevant agency and receiving a response from that department.

Frequently Asked Questions

In whose name should the sole proprietorship firm’s PAN card be obtained?

The proprietorship firm’s PAN card will be in the proprietor’s name. A sole proprietorship firm does not receive a company PAN card since it lacks a separate legal existence like a corporation. The business is associated with the proprietor or firm owner, allowing them to use their own PAN for the sole proprietorship business.

Should the bank account be in the name of the single proprietorship?

Yes, the sole owner must establish a bank account under the name of their sole proprietorship business. All business activities of a sole proprietor must be conducted through the account of the sole proprietorship firm.

What documents are needed to open a bank account?

To open a sole proprietorship current account, provide proof of the sole proprietorship’s business and the registered office address. Documentation such as GST registration, MSME registration, or a Shops and Establishment Act License serves as evidence of the sole proprietorship’s existence. If these registrations are unavailable, submit any license/certificate issued for the sole proprietorship, such as a labor license, mandi license, police department permission/license, sales tax registration certificate, consent to operate document from the state/central pollution control board, gram panchayat certificate, importer-exporter code certificate, TAN/TIN certificate, etc.

What is the registered office proof for an e-commerce or online business?

Renting an office space for your e-commerce or online business requires a leasing agreement and the owner’s NOC. If operating from home, residential address or a commercial electricity bill serves as proof of the registered office address.

I have created a sole proprietorship firm from my home. What is the registered office proof?

In this case, your residential address serves as confirmation. If your home is rented, provide the rental agreement and owner’s NOC. If starting your sole proprietorship firm from home, use commercial energy or gas bills, or delivery/dispatch receipts that include your home address as proof of the office address.

What are the needed licenses for a sole proprietorship?

In most cases, no specific registration is required. A sole proprietorship needs registration under the state’s Shops and Establishment Act, along with GST registration and MSME registration.

Is a GST license required for a sole proprietorship?

If your business’s sales or turnover exceed Rs.40 lakh per year, GST registration is mandatory. Special category states require registration if the threshold exceeds Rs.20 lakh. E-commerce vendors on platforms like Flipkart or Amazon, and anyone starting their own e-commerce business, must obtain GST registration regardless of turnover.

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