One can start a Sole Proprietorship Firm with any amount of Capital. An amount sufficient to commence the business should be introduced. As there is no restriction on infusion or withdrawal of amount, the proprietor can change capital anytime. Introducing the capital in Business is the sole decision of an owner of the firm i.e. the Proprietor.
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Overview
What is a Sole Proprietorship Firm?
Most businesses in India start individually without other’s participation. An individual carrying out business activities is the sole proprietor and its business entity is said to be a Proprietorship Firm. The identity of an individual and the business are not different from each other. But due to the lower tax rate, flexibility and multiple advantages people prefer this structure for the early stage of business.
With the inclusion of partners, the control over operation reduces. Hence, these proprietors choose to run the business single-handedly and land upon sole proprietorship firm registration. Although there is no specific Act to regulate this organization, there are many ways to register a Sole Proprietorship firm. Small businesses aiming to take lower risks prefer this structure.
Benefits
Advantages of Proprietorship Firm Registration
You Are Your Own Boss
In a sole proprietorship, the proprietor has all the rights to decide what to do and how to operate. A proprietor neither needs to report someone nor take orders from anyone else. There is no interference from a third party. Unlike a corporate firm, there are minimal compliances or disclosure requirements during the whole financial year. Hence, Government interference is also very less.
Easy To Establish
It is relatively easy to establish and register the sole proprietorship business. There is no specific process to be followed to setup this business. Also the cost of sole proprietorship registration is very less compared to any other business structure. The business runs on the identity of the proprietor himself. He can run any legal business in his own name or with a different legal name as brand.
You Own Whole Share Of Profit
The proprietor is only owner of the business and therefore he owns the whole share of the business profit. Also, the business assets are treated as assets of the proprietor and vice-versa. He can decide when to withdraw profit or to reserve.
Tax Benefits
Proprietorship business is not treated separately in for income tax purpose. The tax slab as specified for an individual’s income is only applicable to the income of the business. The rates of tax are lower compared to other business structure like company and partnership. The benefit of deductions is an added advantage with combined ITR for individual and the business.
Online Registration
Documents Required for sole proprietorship Registration
PAN Card
A self-attested copy of PAN Card of proprietor
Aadhar Card
Bank Details
Establish Proprietorship in 3 Easy Steps
ONLINE REGISTRATION
1. Answer Quick Questions
2. Experts are Here to Help
3. Your Business is incorporated
Process to register Proprietorship online
THE PROCESS
Day 1
Day 2 - 3
Day 4
Compared Related Services
Compare different business structures to choose the right entity type
| Private Limited Company | One Person Company | Limited Liability Partnership | Partnership Firm | Proprietorship Firm | |
|---|---|---|---|---|---|
| Act | Companies Act, 2013 | Companies Act, 2013 | Limited Liability Partnership Act, 2008 | Indian Partnership Act, 1932 | No specified Act |
| Registration Requirement | Mandatory | Mandatory | Mandatory | Optional | No |
| Registration under the Act is mandatory to set up business as a Private Limited Company | Registration under the Act is mandatory to set up business as One Person Company | Registration under the Act is mandatory to set up business as a Limited Liability Partnership | Both registered and unregistered partnerships are legal, but registered entity is preferred | There is no registration criteria prescribed. But, registration to establish a legal identity is recommended | |
| Number of members | 2 – 200 | Only 1 | 2 – Unlimited | 2 – 50 | Only 1 |
| Requires minimum 2 and not more than 200 shareholders | Only an individual,and an Indian resident can be the shareholder | No bar on maximum number of partners, but minimum 2 Designated Partners are required | It is formed with minimum 2 partners, but not exceeding 50 | The proprietor is the only owner of the firm | |
| Separate Legal Entity | Yes | Yes | Yes | No | No |
| Private Company is separate entity and can own assets in its name | OPC is separate entity and can own assets in its name | LLP is separate entity from partners and can own assets in its name | Partnership firm does not have any separate identity from its partners | Proprietor and business are the same and not different | |
| Liability Protection | Limited | Limited | Limited | Unlimited | Unlimited |
| Liability of members is limited to the extent of unpaid value of shares subscribed | Liability of member is limited to the extent of unpaid value of shares subscribed | Liability of partners is limited to the capital amount agreed to introduce | Partners are jointly and severally liable to pay the debts of the Partnership Firm | Proprietor’s liability is to pay-off all the debts and obligation of a firm | |
| Statutory Audit | Mandatory | Mandatory | Dependent | Not mandatory | Not mandatory |
| Auditor must be appointed within the 30 days of incorporation | Auditor must be appointed within the 30 days of incorporation | Applicable when turnover exceeds INR 40 Lakh or contribution exceeds INR 25 Lakh | Statutory audit not applicable. Tax audit may be applicable based on turnover | Statutory audit not applicable. Tax audit may be applicable based on turnover | |
| Ownership Transferability | Restricted | No | Yes | No | No |
| Shares can be transferred with the consent of other Shareholders | Shares are not transferable easily | Ownership can be changed with consent of other partners | Ownership is not transferable easily, clause of partnership deed should be referred | Firm is no different from proprietor and so ownership is not transferable | |
| Uninterrupted Existence | Yes | Yes | Yes | No | No |
| Change in members or director does not affect the existence of Private Company | Change in members or director does not affect the existence of OPC. The nominee will take place of member |
Change in Partners or Designated Partners does not affect the existence of LLP | Change in partner leads to dissolution or formation of another partnership firm | Death or insolvency of proprietor directly affects the firm | |
| Foreign Participation | Allowed | Not Allowed | Allowed | Not Allowed | Not Allowed |
| Foreign national are allowed to invest under the Automatic Route | Member, nominee and director must be an Indian resident | Foreign nationals are allowed, subject to FDI Guidelines | Foreign nationals are not allowed to be a partner | Foreign Nationals cannot commence proprietorship business | |
| Tax Rates | Moderate | Moderate | High | High | Low |
| Tax rate applicable for small companies is reduced to 22% | Tax rate applicable for small companies is reduced to 22% | With tax rate of 30% on business profit, tax benefits to partners is high | With tax rate of 30% on business profit, tax benefits to partners is high | Tax rates of individual applied to Proprietorship Firm | |
| Statutory Compliances | High | Moderate | Moderate | Less | Less |
| Apart from Annual filings, it has to comply with various provision laid down, but less compared to public company | Apart from Annual filing, compliances are less compared to Private Company | Annual filing and few event based filings are necessary | Separate ITR of partnership is filed, else there is no filing requirement | No compliances and no requirement to file a separate ITR | |
| Know More | Know More | Know More | Know More | Get Started |
Frequently Asked Questions
Explore Sole Proprietorship Firm Registration – Its formation and registration
Does the proprietor have to be an Indian to start a Proprietorship firm?
The Proprietor must be an Indian citizen and a Resident of India. There is no approval required prior to the commencement of business. But, Non-Resident Indians (NRI) and Persons of Indian Origin can invest or start sole their proprietorship business only with prior approval of the Government of India.
Under which Government Authority is the application of Sole Proprietorship Firm Registration is submitted?
Sole Proprietorship is an unorganized business structure and there is no specific law enforced for the said registration. compliancemsme.com provides services for Sole Proprietorship registration under MSME (Micro, Small and Medium Establishments) Development Act, 2006 of Central Government. The business entity must fulfill the registration requirement.
What is the minimum amount of capital required to register sole proprietorship online?
How to open a bank account for a Proprietorship?
To open the bank account in the name of Sole Proprietorship Firm, Reserve Bank of India mandates that the proprietor need to provide two forms of registration for the Proprietorship along with the PAN Card, identity proof and address proof of the Proprietor.
The two forms of registration can be any two of the following: MSME registration, GST registration, Registration under Shop & Establishment Act, Professional license, Chartered Accountant certificate or others as provided in the RBI’s Know Your Customer norms or the requirement of the respective Banks.
How to register the name of a sole Proprietorship business?
There is no registry or regulation for registering the name of a Sole Proprietorship Firm. Therefore, the name of a sole proprietorship company can adopt any name based on its availability such that it does not infringe on registered trademarks. Since there is no registry or regulation for registering the name of a Proprietorship, the only way to ensure the exclusive use of the business name is to obtain a Trademark Registration of a business name.
Will my Proprietorship firm have a separate legal identity or new PAN card after registration?
There is no separate identity of a proprietor or its business even after the sole proprietorship firm is registered. Hence, the PAN card of the firm and the Proprietor is the same. The assets and liabilities for the proprietor and the proprietorship also remain the same.
What are the benefits of Proprietorship Firm Registration under MSMED Act?
The registered entity under MSMED Act can avail subsidies, incentives, and schemes launched by the Central Government with respect to the specific Business on the basis of a registration certificate.
Who can apply for registration under MSMED Act?
Any business entity can apply for this registration. However, recently, the Central Government has excluded the activities of Trading to be registered under this Act. The business with Trading Activities can apply for registration under Shop & Establishments Act.
Can I have partners in a Sole Proprietorship Business?
Characteristics of a Sole Proprietorship Firms is such that it cannot have any other Business Partner as it is owned and controlled by one person itself. If your Business requires the involvement of Partners, you may opt for a Partnership Firm, Private Limited Company, or Limited Liability Partnership, as the case may be.
Can other people invest in a Proprietorship?
Sole Proprietorship Business entity is owned, managed and controlled by one person. So, Proprietorship firms cannot issue shares nor have investors.
What are the compliance requirements for starting a Sole Proprietorship Firm in India?
Proprietorship will have to file their annual tax return with the Income Tax Department. Other tax filings such as GST returns filing may also be necessary from time to time, based on the business activities performed and registrations opted. However, one needs to file the annual report or accounts with the Ministry of Corporate Affairs, which is required for Limited Liability and Companies.
Can I later convert my Proprietorship Business into a Company or LLP?
A proprietorship can be taken over by the company or LLP. However, the procedures for same are cumbersome, expensive and time-consuming. Therefore, it is wise for many entrepreneurs to consider starting the LLP or Company instead of a Proprietorship after consultation with experts.
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