Home / Sole Proprietorship Registration

Updated on 29 Sep 2020    9.00 AM IST | 4 min read

What is Sole Proprietorship?

Sole proprietorship is a form of business entity managed by a single owner who is personally liable for the profits & losses of the company. It is the simplest form of business entity with minimal compliance requirements. There is no as such registration required for sole proprietorship as anyone can easily start this business with no formalities and few compliance requirements. In case you are not having enough cash in your hands but you still want to start your own proprietary firm or proprietary company, you can easily go with this option. This form of business entity is especially popular among small traders and merchants. Liability for this form of business entity is unlimited and doesn’t have perpetual existence.

Why Sole Proprietorship is Popular in India?

Sole proprietorship is a popular form of business now days and many business entrepreneurs prefer them over other forms of business because of the following reasons –

  • Sole proprietorship is one of the oldest and simplest business structures that a business owner can handle single handedly.
  • Simple business form to start with and close.
  • Flexibility in carrying out business activities.
  • Very economical as compared to other forms of business entity.
  • It has minimal compliance requirements.
  • You are the only decision maker – Not answerable to anybody and independent to give instructions and orders.
  • No tension of sharing income & profits with anyone.
  • Only you are responsible for the profits you earn and losses you incurred.

Legal Entity Proof for the Sole Proprietorship Registration in India

Option 1 – MSME Registration Certificate + Chartered Accountant Business Certification

If you prefer this option, Both MSME certificate and business certification by a chartered accountant is required in case of sole proprietorship registration. Sole proprietorship is considered as authenticated legal entity with the presence of both these documents. It is applicable, if you meet both the conditions mentioned below –

  • When the business operations are preferred within state only (Ex – Delhi to Delhi).
  • When the business sale is less than Rs.20 Lakh or within state expected turnover.
Option 2 – GST Registration Certificate

One of the legal entity proofs for sole proprietorship in India is GST registration that confirmssole proprietor as a registered GST tax payer. It is applicable, if you meet any of the conditions mentioned below –

  • When the business operations are performed interstate (For ex – Punjab to Delhi). It is applicable on both inter-state sale of products or services.
  • E-commerce or internet based business.
  • Trader/Retailer/Aggregator/Manufacturer – You are among any of them.
  • If you are having turnover of Rs.20 Lakh within a state.

Now, it’s upon you that which option you want to choose between these two to register your proprietorship firm.

Common Registrations for Sole Proprietorship

A legal authenticity of a sole proprietorship is established after getting various registrations & licenses. Some of the common registrations obtained by a sole proprietor are as follows –

MSME Registration

Sole proprietor needs to obtain Udyog Aadhaar or MSME Registration online within the business name in order to give legal authentication to his/her sole proprietorship firm.

GST Registration

If goods or a service sold/provided by the proprietor crosses the GST turnover threshold registration limit, it becomes necessary for the sole proprietor to apply for GST registration.

  • GST registration for traders – It is mandatory for the sole trader to obtain GST registration when the annual turnover of goods exceeds Rs.40 Lakhs annually.
  • GST registration for service providers – It is mandatory for service providers to obtain GST registration when the annual turnover of services exceeds Rs.20 Lakhs annually.

TAN Registration

When sole proprietor make salary paymentsto their workers on which TDS deduction is required, it is necessary for him to obtain TAN from the income tax department.

FSSAI Registration

When sole proprietor is involved in a business of selling or handling of food products, it becomes mandatory for him to obtain FSSAI registration.

Import Export Code Registration

If sole proprietor is engaged in the business of import and export of goods to/from India, it is necessary for him to obtain import export code from DGFT within their business name.

Bank Account Opening for Sole Proprietorship

You must have PAN card and Aadhaar number in order to open bank account for sole proprietorship. If you are having both these documents, you can visit any bank to open your bank account. In addition to these documents, you must carry identity and address proof at the time of visiting bank. It is necessary to submit GST registration document to the bank officials at the time of opening current account.

Documents Required for Sole Proprietorship Registration

There are various documents which you need to submit in order to get yourself registered as a sole proprietor –

  • Latest passport size photograph – Submit a latest passport size photograph. Photograph should be recent with a clearly visible face.
  • Aadhaar number – Aadhaar card is a 12 digit unique number provided to all Indian residents for verification of their identity. Now days, Aadhaar number is the basic requirement in any type of registration in India. If you are not having Aadhaar number, visit your nearest Aadhaar seva Kendra to obtain a new Aadhar card number. When you apply for Aadhaar card number, it will be delivered to you at your home address within 15-20 days.
  • PAN card – PAN card is the most useful document needed to file tax returns to the income tax department. If you are not having PAN card, apply for it now. You only need to submit e-form, photograph, identity proof and address proof to apply your PAN card. After successfully submitting the application, it is being checked at NSDL for verification and later the PAN card is issued and delivered to the applicant’s address.
  • Bank account – As a sole proprietor, it is important for you to open a bank account for sole proprietorship registration. Any document can serve your purpose: a cancelled cheque from your personal bank account or bank statement or passbook front page.
  • Registered office proof – As a sole proprietor, you need to provide your registered office proof at the time of sole proprietorship registration –
    1. If your property is rented, you need to submit rent agreement and NOC from the landlord
    2. If your property is self-owned, you need to submit electricity bill or any other address proof of the registered place.

How to Register Sole Proprietorship in India?

Sole proprietorship is a very common form of business entity followed by many business owners now days. There is no as such registration required in the case of sole proprietorship but it can be done in 3 ways –

Registration under Shop & Establishment Act

if you are running a business from a shop, you can register your business under shop & establishment act. Shop includes –

  1. A place of selling goods in retail or wholesale
  2. A place of providing services to customers
  3. It can be office, godown, store room, warehouse used for trade/business
  4. It does not include factories, restaurant, residential hotel, eating house, theatre, a commercial establishment or a place of public entertainment.

If you are having shop as per definition given above, you can go for sole proprietorship registration under shop & establishment act. The procedure for registration of sole proprietorship under shop & establishment act is as follows –

  1. Submit an application to the area inspector in the prescribed form within 30 days of starting a shop/establishment along with the prescribed fees. Application must contain the following information –
    • Name of the employer & manager
    • Name of the establishment
    • Postal address of the establishment
    • Any other particulars prescribed
  2. After receiving the registration application along with fees, inspector verifies the application for its accuracy and correctness.
  3. If satisfied, inspector enters your details in the registrar of establishments and issues a certificate of registration for your establishment. The validity of the certificate will be 5 years and can be renewed later.
  4. The shop owner needs to display the registration certificate at his/her establishment.

Registration through Udyog Aadhaar under ministry of MSME

Udyog Aadhaar is a new procedure started by the government under ministry of MSME, under which a business owner is assigned with a unique identification number. Every business owner can apply for it - Be it a company, partnership or a sole proprietorship firm/proprietorship company.

By getting registered through Udyog Aadhaar, you will not only get the benefits offered by ministry of MSME but also a unique identity for your business.

Registration through GST

Another way of registering yourself as a sole proprietor is GST registration. If you are engaged in the business of selling of goods & services, you can apply for GST registration. It is mandatory to apply for GST registration –

  1. If your annual turnover of goods exceeds Rs.40 Lakhs
  2. If your annual turnover of services exceeds Rs.20 Lakhs

In order to understand, how to apply for GST registration, click here -

Advantages of Sole Proprietorship

There are various advantages that a sole proprietorship offers to a business owner –

  • This form of business is easy to start and manage.
  • It is owned, controlled and managed by a single person.
  • Business control and decision making is to be handled by a single person only.
  • This form of business is less expensive to start with in comparison to others.
  • A sole proprietor hasfew formalities and minimal compliance requirements.
  • You don’t have to do corporate tax payments as a sole proprietor.
  • There is no problem of sharing profits as single person is operating and managing the whole business.
  • There is no need for sole proprietor to get its accounts audited specifically every financial year. Auditing depends upon the business nature and threshold turnover limit.
  • Financial reports under sole proprietorship are not made public for the users. It remains under the wrap.

Compliances Required for Sole Proprietorship

The most important compliances which an individual needs to follow as a sole proprietor to remain compliant and to run his/her business smoothly are as follows –

  • Annual filing of income tax return.
  • ST return in case you are a GST registered user.
  • Deduction and filing of TDS return if you are liable for tax audit.

Entity Comparison Guide

Type Proprietorship Partnership LLP Private Limited Company One Person Company
Members Maximum 1 person can start a sole proprietorship firm Minimum 2 members and maximum 20 members can start a partnership firm Minimum 2 members can start an LLP and unlimited number of members can join Minimum 2 members and maximum 200 members can start a private limited company Maximum 1person can start a one person company
Legal Status of Entity It is not considered as a separate legal entity It is not considered as a separate legal entity It is considered as a separate Legal entity It is considered as a separate Legal entity It is considered as a separate Legal entity
Liability Liability of the owner is unlimited Liability of the partners are unlimited The Liability of each member or shareholder is limited Liability of the members are limited to the extent of share capital Liability of the members are Limited to the extent of share capital
Registration It is not compulsory to register for Sole proprietorship Its Registration is Optional or Can be Registered under partnership Act 1932 It has to be Registered Under Ministry of corporate affairs (MCA) It has to be Registered Under Ministry of corporate affairs (MCA) It has to be Registered Under MCA and Companies Act 2013
Transferability Option You are not allowed to transfer sole proprietorship firm to any other person You are not allowed to transfer partnership firm to any other person It can be transferred It can be Transferred You are not allowed to transfer one person company
Taxation Tax paid as an individual – rate levied as per the tax slabs Tax levied at 30% along with Education CESS and Surcharges applicable Tax levied at 30% along with Education CESS and Surcharges applicable Tax levied at 30% along with Education CESS and Surcharges applicable Tax levied at 30% along with Education CESS and Surcharges applicable
Annual Filings Annual income tax return Annual income Tax Return Both MCA annual return and income tax return Both MCA annual return and income tax return Both MCA annual return and income tax return
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Sole Proprietorship FAQ’s

As per law, No minimum amount of capital is specified in order to start sole proprietorship firm like a private company. You can start your sole proprietorship firm with any amount you like as it is not required to show on paper.

Yes, it is possible to convert a proprietorship firm into private limited company, partnership or an LLP. This process is little bit complex but it is still possible.
A proprietorship business cannot be transferred to another person unlike private limited company or an LLP. You can transfer the assets of proprietary firm to another person by sale but intangible assets like registrations; government approvals etc. cannot be transferred.
Any individual with current account in the name of his business can start a sole proprietorship firm. In order to open a bank account, Shops & Establishment registration is required by bank.
Any individual can start a sole proprietorship business within 15 days. It is specifically started by small traders & merchants because of its cheap cost.
Yes, you can apply for sole proprietorship registration online with Finacbooks.
Yes, you can convert sole proprietorship firm into private limited company or partnership firm. The procedure is bit long but it is possible. Many sole proprietors convert their proprietorship firm into partnership firm or a private limited company at a later stage.

How FinacBooks Help With Sole Proprietorship Firm Registration In India?

FinacBooks is a leading Indian portal providing accounting, finance & taxation services to small businesses. We are having more than 10 years of experience helping individuals registering as sole proprietors and filing their annual tax returns at a least possible price. We will guide you through the entire process of Sole proprietorship registration. To avail the best deals on Sole proprietorship, kindly call us at 8800221252 or you can also e-mail us at info@finacbooks.com

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