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In India, sole proprietorship is one of the most common company structures. It is a popular type of corporate entity with fewer legal complexities. The business process is smoother since it bears fewer compliance procedures. Unless the owner explicitly permits it, sole proprietorships prohibit outsiders from interfering with any aspect of the firm or the owner’s decision-making.
In a sole proprietorship, traders or business owners are qualified for the advantages provided by the Ministry of MSME. The Indian government has established no specific registration procedure for sole proprietorship firms.
What is a sole proprietorship?
In a sole proprietorship, just one individual is responsible for the business’s ownership, management, and control. Such a person earns all business gains while also taking on all associated risks and losses. Additionally, he has full authority to make all business-related decisions.
Most small and medium-sized firms, especially those that operate primarily in unorganized industries, prefer this type of corporation. It makes it possible to launch a firm quickly and with modest funding. Additionally, such a business organization handles small-scale commercial operations like bakeries, accounting firms, beauty salons, consulting businesses, etc.
Advantages of a sole proprietorship
Compared to limited liability companies or private limited companies, sole proprietorships benefit from having fewer administrative difficulties. They also benefit from the following factors:
- Forming and winding one up is simple.
- Only one person makes all of the business assessments.
- Since it is a natural person rather than a legal entity, it is not subject to double taxation. Accordingly, your whole revenue, including your sole proprietorship’s net income, will be taxed.
- The company’s profits are the sole property of the owner.
- There is no upfront cost associated with starting a sole proprietorship.
- It has a right to certain government concessions. It is due to the modest scope of activities for sole proprietorship businesses.
- The sole proprietor can retain confidentiality by keeping sensitive company information private.
- Management expenses are low. Because the owner personally oversees business operations.
Disadvantages of a sole proprietorship
The disadvantages of beginning your firm as a sole proprietorship are numerous, some of which are described below:
- Since the sole proprietor is responsible for securing all of the funding, the capital he can raise is controlled.
- A lone proprietor is liable for all obligations and may utilize his assets to satisfy those debts.
- A solo proprietor may need to be more knowledgeable about all facets of administration. Hence he needs more managerial expertise.
- It is connected to a business owner’s life. In the event of the owner’s illness, demise, or insolvency, the company may close.
- It is more difficult to transfer ownership shares in partnerships than in capital businesses like limited liability corporations and private limited companies.
- A sole owner can only increase their business up to a certain point. It is so that the sole proprietor, a single individual, cannot run the company’s activities indefinitely.
Checklist for a sole proprietorship
- An investor who is an Indian national and at least 18 years old
- Prior government approval in the case of non-resident Indian investors
- The company’s name and address.
- A bank account in the company’s name.
- Registration under the state’s Shop and Establishment Act.
- GST registration if the company’s annual revenue reaches Rs. 20 lakhs.
Documents required for sole proprietorship registration
- The proprietor’s PAN card
- Voter ID, passport, driver’s licence, or Aadhaar, as proof of the owner’s identity
- A passport-sized photo
- Address Proof of the Premises:
- A rental or lease agreement, if the space is leased or rented.
- The most recent tax payment receipt or sale deed, if the Director owns the property
- The most recent gas connection, phone, and electricity bills
- The owner’s no-objection certificate
Sole proprietorship registration procedure
Documentation of the proprietor and the primary location of the proprietorship’s operations is required to begin the registration process. Make sure the documents are current and genuine.
Choose an Original Name
Choosing a unique name for your proprietorship is the first step in registering it. The name must be legal and not violate any registered trademark’s intellectual property rights.
Udyam Registration, Udyog Aadhar, and MSME
There are two necessary documents in the name of your proprietorship that you must present to open a business bank account. The Udyog Aadhar card and the MSME or Udyam Registration Certificate are the two types of identification. Along with the benefits provided under the MSME Act, these documents allow a business owner to access online MSME services and perks provided by several government departments.
Registering for GST
If you do not register your sole proprietorship firm for GST, you cannot sell products or services across India. However, if your business operations are limited to a single state, you will only need to register for GST once your sales exceed Rs. 40 lacks for goods and Rs. 20 lacks for services, respectively.
Registrations for Other Taxes
A proprietorship firm may need TAN, IEC, and PT Registrations depending on the type of business activity and the enterprise’s prime location. While firms engaged in importing and exporting goods or services must adhere to the IEC Code, TAN must comply with TDS legislation. In some states where professional tax is mandated to be paid by professionals, proprietorships are obliged to get PT registrations.
Compliances required for a sole proprietorship
- Tax Return for Income
- Filing of TDS Return
- GST Return filing
- Filing of EPF Returns
- Financial reporting and bookkeeping
- Audit of Tax
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