The most common type of business entity is the sole proprietorship, in which the owner is personally responsible for all debts and liabilities of the company. Generally, there are minimal compliance procedures with this type of entity.
Who is eligible for a Sole Proprietorship?
This type of business form is suitable for anyone who wants to begin a business for less investment. Typically, it will also take 10-15 days for the business to get off the ground. Additionally, you have sole control over the business.
Benefits of Sole Proprietorship
Compliance rates are lower
Having a sole proprietorship is simple and can be set up by one person. Getting it incorporated also requires adhering to a minimum set of compliance requirements. Compared to companies and limited liability partnerships (LLPs), this form of business is relatively cheaper to start.
In a sole proprietorship, all business decisions will be made by the proprietor. This person is also responsible for all aspects of the business. A single individual runs the business, so there’s no need to worry about secrecy.
Decision-making on the fly
In a sole proprietorship, all decisions are taken by the owner. Moreover, there is only one decision-maker. Therefore, decisions taken swiftly without having to consult anyone.
The disadvantages of a sole proprietorship
Liability without limit
A sole proprietor has unlimited liability. The business transactions he makes are subject to his liability. In the event a loss occurs, he will also be responsible for the full loss out of his estate.
There is no perpetual succession
As there is no perpetual succession, if something happens to the sole owner, the business can cease to exist. The business may cease to exist at any time. Business agreements or contracts to expand the company becomes unreliable because of this, and public trust is difficult to gain.
Raising funds is difficult
Because only one person manages the business, raising capital has proven challenging. The sole proprietor invests in the capital of the business. There is no corporate legal entity separate from the owner of the business. Since it is unstable and has no separate entity, third parties have trouble obtaining funding from it.
Registrar of Sole Proprietorships in India: Documents required
1. Aadhar Card
2. PAN Card
3. Bank Account
4. Proof of Registered Office
- A rental agreement and a NOC from the landlord, if it is a rented property.
- In the case of a self-owned property, an electric bill or any other proof of its address submitted.
5. The registration requirements for sole proprietorships
There are also a few additional documents that need to be submitted for the firm to be legally recognized:
1. Registering as SME
Under the MSME Act, you can register as a Small and Medium Enterprise (SME). Your application can be submitted electronically. Even though it isn’t mandatory to register as an SME, it is highly beneficial, especially when applying for a loan for the business. A variety of government programs provide loans at a concessional rate of interest to SMEs.
2. License under the Shop and Establishment Act
There is no requirement to obtain this license everywhere, but you should obtain it according to the local laws. This form of government tax also imposed by municipal corporations based on employee numbers.
3. GST Registration
Register a sole proprietorship in India in 3 ways
There are three ways to register a sole proprietorship:
- Register with the Shop and Establishment Act.
- Obtain your Udyog Aadhaar through the MSME Ministry.
- Obtain a GST registration.
Sole Proprietorship Registration
To incorporate your business, follow these steps:
- PAN card application.
- The next step is to secure a name for the sole proprietorship. Alternatively, the proprietor may also already have a PAN card.
- You need to open a business bank account. Your business transactions will be handled by this account.
- Although no specific registration is needed to start a sole proprietorship firm, a sole proprietorship firm must obtain certain basic registrations before doing business. A sole proprietorship must obtain the following registrations:
- Under the Shops and Establishment Act of the state where the business is located, the proprietor must obtain a Registration Certificate.
- If the business turnover exceeds Rs.20 lakh, the sole proprietorship should also register for GST.
- Though registration under MSME Act is not mandatory, it is beneficial for the sole proprietorship to do so.
What are the required Compliances?
You must file an income tax return every year as a sole proprietor. Additionally, if you have GST registered business, you must file a GST return. If the sole proprietor is subject to a Tax Audit, they should also deduct TDS.
Registration timelines for sole proprietorships
A sole proprietorship requires opening a bank account in the business’s name, obtaining a Certificate of Registration under the Shop and Establishment Act of the state, and registering for GST. Depending on the department, the registration process can also take up to 10 days.
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