Dreaming of starting your own business as a sole individual? Wondering how to get it registered or recognized? Before diving in, it’s crucial to understand the various forms of business structures and their implications. Let’s delve into the process of establishing a sole proprietorship in India.
How to register a sole proprietorship?
Ever wondered for starting up your own business as a sole individual?
How to get registered or recognised?
Let’s start with a small Introduction
First of all, before starting a business, the business owner shall decide what form of business he wants to venture. Choosing a right form of business is essential as it may determine how much tax needs to be paid, the compliances, the paperwork and files need to be maintained, liability of the person whether limited or unlimited, and amount to be invested etc. Generally, the formation of business is regulated by the laws of state where the company is established.
Now, after looking at the topic a question might come to your mind, can Sole Proprietorship become registered?
Before we discuss this further, first of all let’s discuss what is the meaning of Business organisation?
A business organisation is an establishment which is intended to carry the commercial business by producing goods or services and meeting the needs of customers. Most of the organisations have a standard or set of rules and regulations relating to social structure, goals and purpose, utilisation of resources in have, etc. The laws of state regulates the establishment of the business, and Income tax act works on the tax incurred on business and way it is incurred. So, how much tax business should pay depends on what form of business one owns and benefits availed.
Let us now understand about sole proprietorship which is one of the form of business organisation
What dose Sole Proprietorship mean?
A Sole Proprietorship is that business model which is owned and operated by a single individual, who is also called proprietor. It’s the most prevalent form of business structure in India, this is because of it’s simplicity and negligible regulatory requirements.
While there isn’t a specific registration process for Sole Proprietorships in India, but for obtaining tax and other necessary business registrations are crucial for it’s legal recognition. This structure accommodates a large types of enterprises and entrepreneurs such as freelancers and even many established businesses with physical premises.
Some people benefit from sole proprietorship such as, individuals like freelancers, newly launched startups, and some established creative businesses with physical offices. Some of my clients lately demanded to formalize their sole proprietorship firms, by opting for a valid taxation and business registrations to establish its presence legally.
What are the Benefits of establishing a Sole Proprietorship firm?
Firstly, as you know, it is very easy to start a Sole Proprietorship firm in India, similarly one can also easily dissolve the same, sell it to other party, or may terminate the same, as being in a proprietorship concern, you are not required to fulfil any major legal formalities like obtaining TDS registeration, EPF, ESI registeration etc. Also, being a proprietor one can easily sell their assets to any person or an organisation.
Secondly there is very less compliance, which means, this type of business can be started very easily by just a one single person. There is negligible compliance and laws which needs to be fulfilled to get it registered. Also doing business in this form is very economical as it is less expensive as compared to other forms like Company or Limited Liability partnership.
Third, and one of the main advantages of a Sole Proprietorship form of business is that the owner of the business is solely entitled to all the profits which are been generated from the business. Unlike other business structures in India where profits are shared among partners or members, hence the Proprietor retains complete ownership.
Fourthly, in a Sole Proprietorship form of business, the business owner or a proprietor have the power to take all the decisions by himself with freedom as there is no consent of any other person or individual is required. Hence, an owner of a proprietorship can easily make the quick decisions regarding their business and work to be done in business.
Fifth one is enjoying the full control over the Business that means, the single owner of the Proprietorship will have complete control over the business. The owner will look after all the business aspects himself also as only one person is controlling whole business, confidentiality can also be maintained.
What is the eligibility criteria for Registration of Sole Proprietorship in India?
There is three basic conditions to fulfil the eligibility, first, the person who is willing to apply must obtain a GST Registration for their business in name of the firm or trademark he want to run his business, secondly the applicant must be a tax-paying citizen of India, and third is he shall open a Bank Account in the name of his Proprietorship firm, fulfilling these three conditions will make him eligible for registeration.
What are the documents required for Sole Proprietorship Registration?
The documents which are generally required for registeration of sole proprietorship in India are the PAN Card of the Proprietor, A registration under the Shop & Establishment Act of the respective state, In case if the turnover of the business exceeds Rs. 20 lakhs in case of services and 40 lakhs in case of goods Registration then a registration under GST act is required, else one can also take it voluntarily, next is the Bank account in the name of business along with the complete name and address of the business
For fulfilling above requirements, some of the documents which are required for the Registration of Sole Proprietorship in India are PAN Card, Proof of Identity of applicant, including valid Address Proof, A valid Sale Deed or Rental Agreement as per Shop Act Registration, which I will discuss later.
Secondly to open a current bank account, you need to submit the Address Proof, Identity Proof, PAN Card, Existence proof of your business and Shop & Establishments Registration
What is the Procedure for Sole Proprietorship Registration in India?
A form called Sole Proprietorship is the easy way to commence a business as there is legally no difference between owner and the business in the case of Sole Proprietorship.
There are three main different ways to register a Sole Proprietorship in India
1. Registering under the Shops & Establishments Act
2. Registering through GST Registration
3. Getting registeration under the Ministry of MSME (Udyam or Udyog Aadhar)
How Registeration is done via the Shops & Establishments Act?
The Shop & Establishment Act permits the registration of sole proprietorships for retail and commercial establishments in India. However, it’s important to note that certain types of businesses such as hotels, factories, commercial facilities, restaurants, cafes, movie theaters, and public entertainment venues are not classified as “shops” under this legislation and thus may be subject to different regulations.
Which type of premises that qualify as a shop?
The premise will qualify as a shop if the products are sold either retail, or even wholesale, the services are been offered to various customers comprising of offices, sheds, workplaces, or warehouses used in connection with such business whether on the same premises or elsewhere.
What is the general process of Registration?
In India, the Labour Department of each state is liable for registering & processing Establishment Acts, Whole registration process is fully handled by an inspector in charge of the state, Usually, the District Labour Officer takes charge as the inspector in charge, In this the inspector shall provide a form to the owner
What details regarding the establishment & employer should be included?
Documents like Name of the owner, Establishment, Address of the Business, Total number of Employees, Date of commencement of the business, category of the business
The owner of the business is required to send the application & the registration fees to the inspector in charge as discussed above within 30 days of establishment, The verification process by the inspector takes some days depends upon case to case.
Registration Certificate will be guaranteed to the owner of the business, if the application fulfils all the requirements, which is required to be shown within the business premises & shall be renewed on the periodic basis
How Registeration is done through the GST Registration?
If one is involved in the sale/purchase of goods and services, then he may commence a registeration of Sole Proprietorship through GST Registration under CGST and SGST Act, 2017. Previously, Service Tax & VAT Registrations were required and now as per new indirect taxation laws, GST Registration is acceptable.
Although GST registeration is the best way to get Sole Proprietorship registered but has some disadvantages. A business registered through this method must comply with all the GST requirements and is liable to collect GST from customers, and also required to file GST Returns.
How Registration is done Udyog or Udyam Aadhar Registration under MSME?
The MSME issues Udyog Aadhar are the unique identification numbers, and very simple to obtain. Even a single owner may apply for Udyog Aadhar as per MSME act. When a Sole Proprietor registers with the Ministry of MSME, they become eligible for benefits inter alia like bank loans, and reimbursements/subsidies. They also benefit from getting a unique identity for Sole Proprietorship.
What are the compliances for Sole Proprietorship in India?
Some main compliances for Sole Proprietorship in India are Filing their Income Tax Return using form ITR-3 & 4, may maintain books of accounts and subject to tax audit if their turnover increases prescribed limit.
Conclusion
Establishing a sole proprietorship in India involves fulfilling eligibility criteria such as obtaining GST registration, being a tax-paying citizen, and opening a business bank account. While there’s no specific registration process, options include registering under the Shops & Establishments Act, obtaining GST registration, or acquiring Udyam Aadhar under the Ministry of MSME. Each method has its benefits and requirements. Compliance mainly entails filing income tax returns and maintaining proper accounts. Overall, starting a sole proprietorship offers simplicity, control, and potential for growth with minimal regulatory hurdles.
Author Bio
