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Sole Proprietorship Registration

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  • Overview
  • Rules
  • Eligibility
  • Benefits
  • Demerits
  • Methods
  • Requirements
  • Documents
  • Process
  • Validity
  • Renewal
  • How Can ApkaTax Assist you
  • FAQs

What is Sole Proprietorship Firm Registration?

A sole proprietorship firm is a prevalent business structure in India, wherein a single individual establishes and manages the business. This form of business is particularly suitable for those looking to start a venture with limited investment, and typically, formal registration is not required. One can easily initiate a sole proprietorship from home or a small premise with minimal funds. In Sole Proprietorship Firm Registration, the sole proprietor has complete control over the business, being both the owner and investor. Consequently, they assume full responsibility for any losses incurred by the business, but also enjoy all the profits. While the proprietor can appoint individuals to help run the business, the ownership remains solely with them. Numerous local businesses, including grocery stores, parlours, boutiques, retail stores, and more, can be established as sole proprietorships firm. Even small traders and manufacturers find this form of business an appealing option.

 

What is Sole Proprietorship Firm Registration Rules?

A sole proprietorship firm is commonly described as a one-man business, where an individual takes full responsibility for managing all business activities. It is not precisely defined in legal terms, but it essentially refers to an individual running the business alone. In India, there are no specific laws or regulations governing the registration of a sole proprietorship firm, making the registration process undefined. Unlike other business entities, a sole proprietorship firm does not enjoy the principle of a separate legal entity, and as a result, the business cannot be transferred to others. To qualify as a sole proprietor, one must be a resident Indian.

 

What is Sole Proprietorship Firm Registration Eligibility?

The sole proprietorship firm business form offers an attractive option for individuals seeking to initiate a business with limited investment. The setup process can be completed within a reasonably short timeframe of 10-15 days. Any Indian citizen having a current account under their business name is eligible for Sole Proprietorship Firm Registration. The necessity of registration depends on the nature of the planned business, as some may require it while others may not. Nonetheless, opening a current account usually necessitates obtaining a Shops & Establishments Registration from the banks.

 

What are the Benefits of a Sole Proprietorship Firm?

Advantages of a sole proprietorship firm registration are as follows:

  • Simplified Compliance: Starting a sole proprietorship firm is a straightforward process managed by a single individual. The minimal compliance requirements for incorporation make it an economical choice compared to forming a company or LLP.
  • Full Business Control: The sole proprietor enjoys complete autonomy over the business, overseeing all aspects personally. With only one person managing the business, confidentiality can be easily maintained.
  • Swift Decision-Making: As the sole proprietor is the sole decision-maker, the business can make quick and immediate decisions without the need for consultation with others. This agility in decision-making is a significant advantage of this business form.

 

What is Sole Proprietorship Firm Registration Demerits?

Demerits of Sole Proprietorship firm are as follows:

  • Unlimited Liability: The sole proprietor bears unlimited liability for all business transactions, personally risking their assets. Any losses incurred by the business must be borne solely by the proprietor, potentially leading to financial strain.
  • No Perpetual Succession: The absence of perpetual succession means that the sole proprietorship firm can cease to exist if something happens to the individual running the business. This lack of continuity makes the business less reliable and can hinder gaining public trust for expanding through agreements or contracts.
  • Difficulty In Raising Funds: Due to the sole proprietor being the sole manager, raising capital becomes challenging. The business’s capital is solely dependent on the proprietor’s investments, and without a separate legal entity status, obtaining funds from external sources becomes difficult. The uncertainty regarding the business’s continuity can also deter third parties from providing financial support. 

 

What is Sole Proprietorship Firm Registration Methods?

The various types of Sole Proprietorship Firm Registration are as follows:

  • Registration under Shop and Establishment Act.
  • Obtaining Udyog Aadhar under the Ministry of MSME.
  • GST Registration.

 

Sole Proprietorship Firm Registration under the Shop and Establishment Act

The Shop and Establishment Act provides a means for sole proprietorship firm registration specifically for shops and establishments. To determine which entities fall under the category of “shops,” it’s important to note that factories, cafeterias, residential hotels, restaurants, commercial facilities, theatres, or public entertainment locations are not considered as such.

Premises that qualify as shops include those where goods are sold (wholesale or retail) or services are offered to customers. This definition extends to offices, warehouses, sheds, or workplaces associated with such businesses, whether located on the same premises or elsewhere.

The rules and provisions of the Act may vary from state to state, so it is crucial to verify the specific requirements under the registrar’s office of the relevant state. Generally, the registration process follows these steps:

  1. The labor department of each state handles the processing and registration of Establishment Acts.
  2. The registration process is managed by an inspector in charge, typically the district labor officer.
  3. The owner is provided with a registration form by the inspector, requiring information about the employer and establishment, such as names, addresses, the number of employees, the opening date of the business, and the business category.
  4. Within 30 days of establishment, the owner must submit the application and registration fees to the inspector in charge.
  5. The inspector verifies the provided information, and this process usually takes around 10-20 days.
  6. If the registration meets the inspector’s requirements, the owner will receive the registration certificate.
  7. The registration certificate should be displayed within the premises and renewed periodically in accordance with regulations.

 

Sole Proprietorship Firm Registration through the Udyog Aadhaar under MSME

The Ministry of Micro, Small & Medium Enterprises (MSME) issues Udyog Aadhaar, a unique identification number, to business owners, including sole proprietors. This newer method has replaced the previous EM-I and EM-II forms for business registration.

Upon registering with the Ministry of MSME, a sole proprietor becomes eligible for various benefits, such as access to bank loans, subsidies, reimbursements, and a distinct identity known as Sole Proprietorship Firm Registration.

The process of obtaining Udyog Aadhaar is straightforward. New entrepreneurs who have not yet registered with MSME can follow these steps:

  • Step 1: Visit the website: https://udyamregistration.gov.in/UdyamRegistration.aspx
  • Step 2: Provide your Aadhaar number (of the business owner)
  • Step 3: Fill in the business owner’s name as per the Aadhaar card
  • Step 4: Click ‘Validate & Generate OTP’ to receive a One-Time Password on the linked phone number
  • Step 5: Enter the received OTP
  • Step 6: Choose the type of organization from the options provided
  • Step 7: Enter the owner’s PAN (Permanent Account Number)
  • Step 8: Validate the PAN by clicking “PAN Validate”
  • Step 9: Complete the form with the required details (many details will auto-fill using Aadhaar and PAN information)
  • Step 10: Click “Submit and generate the OTP”
  • Step 11: Fill in the OTP received on the phone and the verification code on the screen.

Upon submission, a confirmation message will indicate the successful form submission. The certificate will be provided after verification and completion of the registration process.

Sole Proprietorship Firm Registration through GST Registration

To register as a sole proprietor dealing with the exchange of goods and services, you can opt for GST registration, which now replaces the previous VAT and service tax registration requirements. The registration can be done through the official GST portal: https://www.gst.gov.in/

While GST registration offers a great way to obtain sole proprietorship firm, it comes with certain obligations. Businesses registered under GST must adhere to all GST requirements and are required to file GST returns after collecting GST from customers.

The steps to apply for GST registration are as follows:

  1. Visit the GST website.
  2. Go to the GST Portal via https://www.gst.gov.in/ > Services > Registration > New Registration option.
  3. Choose the New Registration option and complete the form details.
  4. Click Proceed and verify your identity through OTP verification. You will receive an OTP on the mobile number and email provided in the previous step.
  5. After verification, you will receive a Temporary Reference Number (TRN) to login to the GST portal.
  6. Complete all the required details step by step.
  7. Once you have filled in all the necessary information and submitted the required documents, you can proceed to submit the application.
  8. Your application will now undergo verification. You will receive an Application Reference Number via phone or email, which you can use to track the status of your GST application.

 

What are the legal Requirements for Registration of Sole Proprietorship Firm?

As a sole proprietor, you are required to fulfil certain tax-related obligations. Annually, you must file your Income Tax Return. If you are registered under GST, you also need to file your GST Return. Additionally, if liable for Tax Audit, you should deduct TDS and file the TDS return.

A sole proprietorship firm is an unincorporated business where the owner is the sole proprietor and personally liable for paying income tax on the business’s profits. Unlike other business entities like limited liability partnerships and limited liability companies, in a sole proprietorship firm, the owner’s debts are directly tied to the business’s debts.

Setting up a sole proprietorship is incredibly straightforward, making it a highly favoured choice among small business owners and contractors seeking an easy and efficient business entity.

 

What are the Documents Required for Sole Proprietorship Firm?

The essential documents needed for Sole Proprietorship Firm Registration include:

  • Aadhaar card
  • Bank account details
  • PAN card of the proprietor
  • Business name and address
  • Bank account in the business’s name
  • Registration under the Shop and Establishment Act of the respective state
  • GST registration, if the business turnover exceeds Rs. 20 lakhs
  • Proof of registered office (Rent agreement for a rented property or Electricity/utility bill for a self-owned property).

 

What is the Procedure for Registration of Sole Proprietorship Firm?

The step-by-step procedure for Sole Proprietorship Firm Registration is as follows:

  1. Apply for a PAN card.
  2. Once the PAN card is obtained, or if the proprietor already possesses one, choose a name for the sole proprietorship firm business.
  3. Open a dedicated bank account in the business’s name to handle all financial transactions.
  4. While no specific registration is mandatory for starting a sole proprietorship firm, certain basic registrations are essential for conducting business legally. These include:
    • Obtaining the Registration Certificate under the Shops and Establishment Act of the respective state where the business is operating.
    • Registration for GST when the turnover of the proprietorship firm exceeds Rs. 20 lakhs.
    • The sole proprietorship firm can also register as a Small and Medium Enterprise (SME) under the MSME Act, which offers various benefits even though it is not mandatory.

 

What is Validity of Registration of Sole Proprietorship Firm?

In India, there is no fixed duration for the validity of a sole proprietorship firm registration. If the company complies with all relevant laws and regulations after registration, it can continue to operate indefinitely. Hence, there is no requirement to renew the registration after a specific period. The Registrar of Firms and Societies’ registration certificate remains valid until the owner chooses to close the business.

What is Renewal of Registration of Sole Proprietorship Firm?

While Sole Proprietorship Firm Registration does not require renewal, the owner should update the registration information if any changes occur, such as alterations in the business name or address. In such cases, the proprietor can request an amendment to their registration certificate to reflect the updated details.

How Can ApkaTax Assist you?

End-to-End Assistance

We provide thorough assistance and provide comprehensive assistance for getting your Sole Proprietorship Firm Registration.

Expert Legal Guidance

ApkaTax offers comprehensive support for the Sole Proprietorship Firm Registration process, including legal assistance based on the specific priorities of our clients.

Best in Class client Support

Our dedicated support team ensures that our clients stay informed about the latest guidelines and updates regarding Sole Proprietorship Firm Registration requirements and periodic inspections.

 

FAQs

As a sole proprietor, it is necessary to submit your Income Tax Return on an annual basis. Additionally, if you are registered under GST, you must file your GST Return. Moreover, if liable for Tax Audit, a sole proprietor should also deduct TDS (Tax Deducted at Source) and file the TDS return.

To operate your business legally, you need to possess a valid business registration certificate issued by your state or local municipality. If you intend to conduct any business beyond a sole proprietorship, you must also obtain a valid trade license. Additionally, you must ensure registration under the Shop and Establishment Act of your respective state and, if your business turnover exceeds Rs. 20 lakhs, you should also register under GST.

In India, sole proprietorships are required to register for GST if their annual turnover exceeds Rs. 20 lakhs.

Certainly, for the registration of a sole proprietorship business, you need to provide the registered office proof, along with other essential documents such as - Aadhaar card, Bank account details, PAN card of the proprietor, business name and address, bank account in the name of the business, registration under the Shop and Establishment Act of the respective state, and registration under GST, if the business turnover exceeds Rs. 20 lakhs.

Yes, PAN card is essential for the registration of a sole proprietorship business, along with other necessary documents such as - Aadhaar card, bank account details, registration under the Shop and Establishment Act of the respective state, business name and address, bank account in the name of the business, registration under GST if the business turnover exceeds Rs. 20 lakhs, and proof of the registered office (rent agreement for a rented property or electricity/utility bill for a self-owned property).

No, having a current account is not obligatory for a Proprietorship. However, it is advisable to maintain a separate account for personal and business finances.

For a proprietorship firm, it is necessary to report assets and liabilities by submitting a Balance Sheet in the Income Tax Return (ITR). Additionally, in specific instances, the ITR may require taxpayers to disclose their assets and liabilities at the year's end.

While it is not mandatory to have a separate bank account for a sole proprietorship in India, it is advisable to keep personal and business finances separate.

Yes, a proprietor can utilize a savings account for business-related transactions. As a sole proprietor, it is not mandatory to open a separate bank account specifically for the business. Legally, business owners can accept payments and conduct purchases using their existing personal bank account.

The disadvantages of sole proprietorship are as follows: • Unlimited Liability - The sole proprietor bears unlimited liability for all business transactions, personally risking their assets. Any losses incurred by the business must be borne solely by the proprietor, potentially leading to financial strain. • No Perpetual Succession - The absence of perpetual succession means that the sole proprietorship can cease to exist if something happens to the individual running the business. • Difficulty In Raising Funds - Due to the sole proprietor being the sole manager, raising capital becomes challenging. The business's capital is solely dependent on the proprietor's investments, and without a separate legal entity status, obtaining funds from external sources becomes difficult.

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