A sole proprietorship company is one that is owned and managed by one person. This type of business can be formed in fifteen days, making it one of the most popular types of businesses to start in the unorganised sector, particularly among merchants and small traders. Registration is not required for a sole proprietorship business because it is identified through other registrations, such as GST registrations. However, its liability is unlimited, and it does not exist indefinitely.
Checklist of Sole Proprietorship Registration Forms
● A certificate or licence issued by municipal authorities in accordance with the Shop and Establishment Act.
● The Certificate of Practice, which is issued by the Institute of Chartered Accountants, is a licence issued by registering authorities of India.
● The Central Government or a State Government Authority/Department, for example, issues the registration/licensing document in the name of the proprietary concern.
● Banks may also accept the IEC (Importer Exporter Code) issued by the DGFT office to a proprietary concern as an identity document for opening a bank account, etc.
● Complete Income Tax return (not just the acknowledgement) in the sole proprietor’s name, reflecting the firm’s income, duly authenticated and acknowledged by the Income Tax Authorities,
● Utility bills in the name of the proprietary concern, such as electricity, water, and landline telephone bills
● GST Registration/Certificate is issued.
Characteristics of a sole proprietorship firm:
● As a single entrepreneur, only one person is required.
● The company is run by a single person.
● Simple to open and simple to close.
● Complete command.
● Formation and compliance costs are nominal.
What Documents Are Required To Register A Sole Proprietorship?
The following documents are required to establish a sole proprietorship.
● Address and identity verification
● PAN card, KYC documents, and so on
● Rental agreement or purchase agreement (in case of Shops & Establishment Act Registration).
Advantages of Sole Proprietorships
Proprietorship businesses provide several advantages to their owners. Some of these advantages are discussed in greater detail below:
1. Easy Start
There is no complicated registration procedure for establishing sole proprietorship firms. A proprietorship firm operates under the legal identity of the owner. This provision eliminates the need to register the firm separately until it is required. This simple registration process makes it easier for owners to register their businesses, which is advantageous.
2. Operational Strategies That Are Versatile
It is simpler to understand and operate a business as the sole owner. The sole decision-maker is the owner. As a result, the decision is made faster and better for the company. Because there is only one person to create and implement business plans, one-owner businesses have more straightforward operational functioning.
3. Profits Undivided
Because there is only one owner of a proprietorship firm, there are no firm rules for the money earned by the business. The owner is the only one who can accumulate profits and invest them in the market and other ventures. Sole ownership eliminates benefit-related conflicts in the company. Money is brought in to help facilitate and maintain the firm’s processes.
If the profits of the company are less than Rs. 2.5 lakh per year, the sole proprietor is not required to pay income tax. This is a significant benefit for the firm because it allows it to start small and save money on taxes. It is important to note, however, that the company must pay income taxes if its profits exceed Rs. 2.5 lakh per year.
Q. How long does it take to establish a sole proprietorship?
Ans. A proprietorship firm can be established in about 15 days.
Q. Can I convert my sole proprietorship to a partnership or a private limited company?
Ans.Yes, you can do it, but it will take a lot of paperwork and formalities.
Q. What bank account can I open to start a sole proprietorship?
Ans. You may need to open a current account in your firm’s name before you can begin operations.
Q. Do I need to open a separate bank account to register a sole proprietorship firm?
Ans. No, you can open a sole proprietorship firm using your personal bank account.
Q. Can other people put money into a Proprietorship?
Ans.Yes, other people’s money can be used in a sole proprietorship, but that person’s money cannot become a partner or member of the firm. Investors can only invest in sole proprietorships and cannot become partners.
Q. Who is eligible to be a Sole Proprietor?
Ans. A sole proprietorship can be formed by any individual who wishes to start his or her own business or company with little or no investment. The owner will be solely responsible for managing and running the business and will share profits and losses. The sole proprietor will have control, decision-making authority, and execution authority.
Q. How do you establish a sole proprietorship in India?
Ans. To establish a sole proprietorship in India, applicants must first register their business as a sole proprietorship with the Government of India’s Registrar of Firms. You must have a current account and deposit a certain amount of registration fee with the respective authority or Registrar of Firms along with the application form.
Q. How do I transfer ownership of my business?
Ans. You can sell your company’s tangible and intangible goods, products, and services to a new owner. Only the goods and products can be sold to another owner, not the proprietorship.
Q. How much capital is required to start a sole proprietorship?
Ans. There is no set minimum amount required to start a proprietorship; once registered, you can start it with as little as Rs. 10,000 or as much as Rs. 1 crore.
Q. How many people are needed to start a sole proprietorship?
Ans. As the name implies, sole proprietorship means that only one person owns and manages the business.
Q. Is it necessary for me to own the office from which I work?
Ans. No, a rented office space can be used for registration. For the registration application, you must have the rental agreement and a letter of authorization from the landlord.
Q. Is GST registration required for sole proprietorship firms?
Ans. GST registration is only required if your annual turnover exceeds Rs 40 lakh; otherwise, it is an optional component of your registration application. However, if you live in a north-eastern Indian state and have a turnover of 20 lakh, only GST registration is required.