SOLE PROPRIETORSHIP REGISTRATION

SOLE PROPRIETORSHIP REGISTRATION

It is a kind of business which is run and managed by a single person. The owner of such a business is called the proprietor.


Introduction

A sole proprietorship is one of the most common forms of business that is used by the greatest number of people in the country. A sole proprietorship has no separate identity under the law as there is no difference between the owner and the business.

Anyone can form and run proprietorship business as the formation does not have any hard and fast compliance related to it. It is easy to form and run. It has to comply with the minimum regulatory compliances as compared to other forms of business.

A current bank account needs to be opened in the name of the business. There is no such registration required to start a proprietorship business as per the rules of the Government. But there are few registrations; a sole proprietorship can opt to show the existence of the business in a right and legal way.
 

A sole proprietorship business is easy to form and run without any complicated norms or compliances to follow. The owner is solely responsible for any legal issue being faced by the proprietorship business, as the owner and business have no difference in the eye of law.


No such capital is required to form a proprietorship business. In this article, we will discuss the proprietorship business in a detailed way.
 

Who is a Proprietor?

A person who single-handedly runs and manages the sole proprietorship business is known as proprietor. In the eye of the law, in case of proprietorship business, there is no difference between the business and the owner. Hence, the proprietor will be solely responsible if any legal issue arises in running the business.

The identity proof and the address proof of the proprietor is required to form the proprietorship business and the same is also used in case of any registration is required for showing the existence of the business.
 

Advantages of Sole Proprietorship Business

The sole proprietorship business has various advantages and they are: -

Easy to form: In order to form a sole proprietorship business, there is no such registration process mentioned by the government. To start a sole proprietorship business, a single person is required. That every single person will be the complete owner of the business. The owner can take any decision without any complexity the owner and the business are the same people in the eye of law.
 

Flexibility: The proprietor being the owner of the business can easily understand the concern of the business and operate the same. The only decision-maker of the business is the owner, so the decision can be made quickly for the betterment of the business. The owner can easily understand the problem being faced by the business, so without wasting any time the owner can easily take the decision for erasing the problem. 
 

Less compliance: The proprietorship business has very minimal compliance to follow. Only Income Tax return and GST return (if the business has GST registration number) have to be filed in case of a proprietorship business. PAN of the proprietor is used in the case of the proprietorship business for dealing and filing any return.
 

Benefits of Taxation: A Sole proprietorship business does not have to pay any tax if the profit of the business is up to Rs. 2.5 lakh. In the case of proprietorship business, Tax will only become liable, if the profit of the business exceeds Rs. 2.5 Lakh. It is one of the most important advantages of proprietorship business, as the small firm can easily operate and run their business without having any burden of tax liability up to Rs. 2.5 Lakh.
 

Easy to Dissolve: In order to dissolve the proprietorship business there is no such mandatory rules regulation to comply with. So, it can easily be dissolved, which saves time and money.
 

Distribution of Profit: In the case of proprietorship business, the case of distribution of profit does not arise as the business is run and managed by a single owner. The owner solely takes the profit of the business.
 

Disadvantages of Sole Proprietorship Business

The disadvantage of a Sole Proprietorship business is as follows:

1.  The continuity of the business depends on the owner. In case the owner ceases to exist or in case of the death of the owner, the proprietorship business tends to dissolve. The existence of the business depends on the existence of the owner.

2.  The proprietorship business cannot be transferred to any other person.

3.  In case of a sole proprietorship, if any legal case arises on the business, then the owner will be held liable for the same. Since in this case of business, the owner and the business are the same.

4.  It becomes very difficult for such form businesses to obtain loans from banks or any other financial institutions, as the business does not have any legal registration in the eye of law.
 

Registration of Proprietorship Business

No such specific registration is required to start a sole proprietorship business, but it is advisable to get some vital registrations for the smooth functioning of the business. The types of registrations recommended for a proprietorship firm:
 

A.  Registration under MSME

MSME registration is not compulsory but in case of obtaining loans from banks or any other financial institution, it is best to get MSME registration. This registration will also help in various legal matters if any arises in the near future. The registration process of MSME is very easy. It is an online process. It can be obtained in the name of the business.
 

B.  Goods and Services Tax (GST) Registration

The GST registration will help the business to maintain and keep track of the taxation matters for every transaction made in the name of the business. The GST registration is not mandatory, but it is important if the business takes this registration to have shown the legal existence of the business. In some states, GST registration is required for service providers whose annual revenue is more than Rs.20 lakhs and for traders whose annual revenue is more than Rs.40 lakhs.
 

C.  Shop and Establishment Act License

This License is not mandatory but as per the local laws, most of the proprietorship business has to obtain Shop and Establishment Act License. This License is issued by the municipal parties on the basis of the number of employees working in a firm. The process of registration depends as per state and to get the license one has to visit the state-wise website.
 

D.  FSSAI registration

If the business is dealing in selling or handling of food products, then it is mandatory to get the FSSAI registration from the Food Safety and Standard Authority of India. This registration is obtained under the name of the proprietor.
 

Documents Required for Proprietorship Registration

To get the above-mentioned registration for proprietorship business, the following documents are required and they are-

1.  Aadhar Card: Aadhar card number is essential for obtaining any registration. It is mandatory to link the aadhar with the PAN in order to file the Income Tax return.

2.  PAN Card: PAN is mandatory for all types of registration. An income Tax return cannot be filed if there is no PAN card. So, it is advisable to get the PAN.

3.  Bank Account: A proprietorship business has to open a current bank account in the name of the business. To get any registration done in the name of the proprietorship business, a bank account number is a must.

4.  Address Proof: Proof of address is also required to get the above-mentioned registration done in the name of the business. Rent agreement, tax receipt, utility bills, etc. are the proof of the registered office of the business.
 

Frequently Asked Questions (FAQ's)
 

What is a sole proprietorship business?

A sole proprietorship is a kind of business which is run and managed by a single person. The owner of such a business is called the proprietor. It is one of the most common forms of business that is used by the greatest number of people in the country.

A sole proprietorship has no separate identity under the law as there is no difference between the owner and the business. Anyone can form and run proprietorship business as the formation does not have any hard and fast compliance related to it. It is easy to form and run. It has to comply with the minimum regulatory compliances as compared to other forms of business.

A bank account needs to be opened in the name of the business. There is no such registration required to start a proprietorship business as per the rules of the Government. But there are few registrations; a sole proprietorship can opt to show the existence of the business in a right and legal way.
 

Who is known as a proprietor?

A person who single-handedly runs and manages the sole proprietorship business is known as proprietor. In the eye of the law, in case of proprietorship business, there is no difference between the business and the owner. Hence, the proprietor will be solely responsible if any legal issue arises in running the business.
 

Is it necessary to register a Proprietorship business?

No, it is not necessary to register a partnership business. There is no such registration required to start a proprietorship business as per the rules of the Government. But there are few registrations; a sole proprietorship can opt to show the existence of the business in a right and legal way.
 

What are the benefits of the Proprietorship business?

The benefits of Proprietorship business are:

  1. The formation of a business is easy as only a single individual is required to form a proprietorship business
  2. The owner is the only decision-maker in the business. So, no complexity in the decision-making process arises.
  3. A Sole proprietorship business does not have to pay any tax if the profit of the business is up to Rs. 2.5 lakh. In the case of proprietorship business, Tax will only become liable, if the profit of the business exceeds Rs. 2.5 Lakh.
  4. It can be easily dissolved as there is no rule for the same.
     
What are the disadvantages of a Sole Proprietorship business?

The disadvantages of a Sole Proprietorship business are:

  • The existence of the business depends on the existence of the owner.
  • The proprietorship business cannot be transferred to any other person.
  • In case of a sole proprietorship, if any legal case arises on the business, then the owner will be held liable for the same. Since in this case of business, the owner and the business are the same.
  • It becomes very difficult for such form businesses to obtain loans from banks or any other financial institutions, as the business does not have any legal registration in the eye of law.
     
What are the documents required to get any registration in the case of the Sole Proprietorship business?

The documents required to get any registration in case of Sole Proprietorship business are as follows:

  1. Aadhar Card
  2. PAN Card
  3. Bank Account
  4. Address proof like a rent agreement, tax receipt, electricity bill, etc.
     
Can a Proprietorship be converted into Partnership Firm?

Yes, a proprietorship can be converted into a partnership firm.
 

Can a Proprietorship be converted into a Private Limited Company?

Yes, a proprietorship can be converted into One Person Private Limited Company.
 

How many people are required to start a proprietorship business?

Only a single individual is required to start a proprietorship business.
 

Is minimum capital is required to start a proprietorship business?

No, the minimum capital is not required in order to start a proprietorship business.
 

Takeaway

As the maximum number of people wish to start and run a business but does not have enough capital and also don’t want to take any risk at the first step, so it is advisable to those people to form a proprietorship business and make their dream come true of owning and running a business.

This type of business is easy to form and has to follow minimum compliance as compared to other types of business.
 

Edited by Minu Mishra
 

Want to get your business journey featured on CLIQTAX ? Send an email to us at editor@cliqtax.com