Sole Proprietorship Registration Process

Sole Proprietorship is undoubtedly one of the most well-liked business models in India. Unlike other businesses, it abides by minimum compliances that streamline the business process. In this type of organization, one individual is in charge of every aspect of the firm. A sole proprietorship forbids other parties from interfering with the operation of the business or any other elements unless the owner expressly permits it.

What is a Sole Proprietorship Registration?

You can start & operate the Business with minimum regulatory compliance. However, there is no full-fledged way to register your Proprietorship by the Indian Government. Tax registration and other business registrations are the right way to show the existence of your proprietary Business. Following registrations can be used to demonstrate the existence of your proprietary Business

Professional Tax Registration.

GST Registration.

Shop and Establishment Registration.

Privileges Enjoyed by a Sole Proprietorship Firm

The owner of a sole proprietorship firm generally signs agreements in their name because the sole proprietorship firm has no distinct individuality under the law. 

The sole proprietor owner will typically have clients write checks in the owner's name, even if the company uses an invented name. 

Sole proprietor owners can, and often do, mix personal & Business property & funds, something that partnership(s), LLCs. 

Sole proprietors need not follow formalities such as voting & meetings associated with the more difficult business forms. 

Different types of Entities

Type

Proprietorship

Partnership

LLP

Private Limited

OPC

Members

Maximum one

2-20

2-Unlimited

2-200

1

Legal Status

Not a separate legal entity

Not a separate legal entity

It is a separate legal entity

It is a separate legal entity

It is a separate legal entity

Members Liability

Unlimited

Unlimited

Limited liability of the members'

Limited to the scope of share capital

Limited to the area of share capital

Registration

It is not compulsory

Option/it can be registered under the Partnership Act

Registered under MCA

Registered under MCA

Registered under MCA and the Companies Act

Transferability option

It is not allowed

It is not allowed

It can be transferred

It can be transferred

Allowed to one person only

Taxation

As in Individual

30% of the company's profit

30% of Profit Plus CESS & Surcharges are applicable

30% of Profit Plus CESS & Surcharges are applicable

30% of Profit Plus CESS & Surcharges are applicable

Annual Filings

Income Tax Returns with the ROC

Income Tax Returns with the ROC

Filed with the ROC

Filed with the ROC

Filed with the ROC

Advantages of Sole Proprietorship Registration

There are some advantages of Sole Proprietorship Registration that are as follows:

Easy to Establish

An applicant seeking to run their business matters as a Sole Proprietor doesn't need to undergo any registration process. Instead, they only need to secure business-specific licenses or registrations to run their business legally.

Seek Nominal Investment

Since the Sole Proprietorship model is a godsend for low-cost company concepts, small firms like retail stores, supermarket shops, and so on frequently choose it.

OPC seeks significant capital expenditure in incorporating a business structure akin to a private limited company, as opposed to nothing in the case of a sole proprietorship.

Ensures No Profit Distribution

The sole proprietors function as the sole owner of their companies & rejoice in uncompromised control over their profit.

Adheres To Nominal Compliances

The Sole Proprietorship corporation doesn't come under the ambit of any specific law; hence, it is free to utilise without tedious compliances. Unlike entities functioning under the Company Act, 2013, they are unrestricted to work without a Certificate of Incorporation or Registration. Also, they are not bound to disclose annual reports to the MCA. However, such businesses need to stay with applicable GST compliances. Because of this, they are also instructed to register under the prevailing GST Act.

Attract Fewer Taxes

Tax authorities doesn't treat Sole Proprietorship and Sole proprietors differently.  Predominant IT Act directs a sole proprietor to file an income tax return. It is a way to disclose profit & income developed before the tax authority for the given FY.

Please remember that tax estimation is done per the income tax slab rates applicable to the taxpayer. Therefore, there is no requirement to file a separate tax return for the Sole Proprietorship firm.

Problem-free Decision Making

When it comes to decision-making, sole proprietorship businesses are superior than other business models. It gives the owner the discretion to decide on any matter pertaining to company matters without outside interference.

No Auditing requirement for a low-income firm

The monetary accounts of the Sole Proprietor company are not disclosed to mandatory auditing needs. It only comes into play when a company's income exceeds the certain turnover point underpinned by the concerned authority.

Process of Sole Proprietorship Registration

Step 1: Obtaining the Aadhaar Card

Aadhar is a must-have requirement for legalizing any business in India. Also, an IT return can only be filed if the taxpayer has synced their PAN card with PAN. Therefore, the applicant can legitimately approach the nearest Aadhar, Seva Kendra or E-Mitra to secure the Aadhar number.

Step 2: Application for PAN Card

You cannot file for an IT return in the absence of a PAN. A dedicated government portal enables a person to apply for PAN at a nominal fee. The necessary documents needed for PAN include an applicant photograph, identity proof, & residence proof.

The online compliance of the PAN application can be made after validating it via Aadhar e-KYC. After this, it is examined at NSDL for confirmation. Post successful confirmation, the authority bestows the PAN number to the applicant within a week. The hard copy of the same is given to the registered address within 15-20 days.

Step 3: Opening the Bank Account in the name of the company

Once you have secured the PAN and Aadhar Number, you can approach any designated bank to open a current account. Standard documents required for serving this purpose include PAN, Aadhar Number, GST registration, and address and identification proof.

Step 4: Secure Shop and Establishment Act Licence

A business enterprise that sells customers goods or services is required by law to have a shop & establishment licence. Being the proprietor of a small business, such as a shop, requires the owner to obtain a licence in order to operate legally.

Step 5: Register under the GST Act

All types of businesses that have an annual revenue greater than the specified criteria must register for GST. Businesses who have an annual revenue of more than forty lakh are required to get this registration. Take into consideration that internet company owners are also subject to GST.

Documents Required for Sole Proprietorship Registration

The following papers are necessary to establish a sole proprietorship:

PAN cards, rental agreements, KYC paperwork, and evidence of address and identity (in case of Shops & Establishment Act Registration).

What Paperwork Is Necessary To Open A Current Account?

The aforementioned papers must be presented in order to create a current account;

Evidence of your company's existence Shops & Establishments Act Registration

Address and identity evidence on PAN cards

Conclusion

A sole proprietorship company is owned and run by only one person. This sort of business is one of the most popular ones to start in the unsystematic sector, especially among merchants and small dealers, because it may be incorporated in 15 days. A Sole Proprietorship company does not need to register because it is recognised by other registrations, such as GST registrations. However, it has an unlimited responsibility and a finite existence.

FAQs

Can any person start a sole proprietorship firm?

Yes, a sole proprietorship can be started by any Indian citizen who has a present bank account in the name of their firm. Depending on the proposed company model, registration may or may not be necessary. To create a current account, however, banks normally require a Shops & Establishments Registration.

How many days are needed to register a business as a sole proprietorship?

A Sole Proprietorship registration does not take more than fifteen days to set up and start functioning. This clarity makes it famous among small traders & merchants. It's also much cheaper, of course.  

Can I transform a Sole Proprietorship into a Private limited company?

The process involved is a little bland, but it is conceivable. It is typical for sole proprietors to transform into partnerships or private limited companies at a later phase of their businesses.

Is it mandatory to have a PAN card for Sole Proprietorship registration?

Yes, it is necessary to have a Pan card for a Sole Proprietorship registration.