Proprietorship registration is considered to be the favorite form of business for small entrepreneurs. One can simply get start a proprietorship registration with a small capital in a short period of time. Give wings to your entrepreneurial dreams and be your own boss. Many of the entrepreneurs have questions arising like how to register a proprietorship firm, what are the procedures and the documents required to start a proprietorship registration. This article will give you a good insight into the concept, procedures, documents, and features for starting a proprietorship registration.
Meaning and definition of “Sole Proprietorship”
The term ‘Sole’ means single and ‘Proprietorship’ meaning ownership. Therefore it is a business entity owned and controlled by a single person who has the entire authority and responsibility of the whole business. The prime motive to start this kind of a business enterprise is that an owner can enjoy the entire profits and also at the same time he/ she are also personally liable for the losses. This is because a proprietorship firm is not considered to be a distinct entity unto itself. This kind of business is best suited for entrepreneurs whose product market is small and the nature of the business is simple.
One of the distinguishing features of a proprietorship firm is the ease and the informality with which it can be started and closed. As it does not need any formal registrations there is no cost involved except for certain tax-related and business specific registrations.
The government of India has not imposed any registration mechanism for registering a proprietorship firm. It is very easy to commence the business as there are few legal formalities and fewer formation costs involved. Hence, the proprietorship registration can only be recognized through tax registrations the business is required to have as per the rules and the regulations.
Most of the entrepreneurs would be wondering what key features a proprietorship firm has. You will be delighted to know that a proprietorship registration has some special features. Hope the points listed below will help to make your decision easy.
- Quick Decision Making
As a proprietorship firm consists of only a single owner decision making will be quick and faster. All business decision undertaken will be controlled and will remain in the hands of the owner. Hence decision making will be executed in a faster way.
- Easy to Start The Business
Since the process involved in a proprietorship registration is very easy, one can go ahead and start the business after getting the Certificate of Registration. To obtain a GST registration is also very easy in this form of business entity.
- Easy to Wind UP/Close The Business
A proprietorship is always a ‘One Man Show’. Hence it is very easy to close the business at any point in time. As no legal distinction separates the proprietor and the proprietorship firm, not many regulatory formalities are required for winding up the proprietorship firm.
- Savings On Tax
As you must be well aware by now that a proprietorship firm is run by a single person, the promoter or the owner is not required to file any separate business tax reports. Here, in this case, the business will be taxed based on personal income. Corporate tax rates do not apply in this business entity. This means the proprietor stands to gain huge tax savings.
- Self Employment Opportunity
As the proprietor is self-employed irrespective of the gender, it creates various employment opportunities. Any individual who is a resident of India and has attained the age of 18 and above can start a proprietorship firm.
- Business Secrecy
A proprietorship firm registration is all about a single person. Therefore whatever decisions are taken by the owner will be internal and will remain with him/ her. Business secrecy can be maintained as there are fewer chances of information being leaked to outsiders.
A sole proprietorship is least expensive compared to all other forms of business entities. Compliances are less, filings are minimal and taxes to be paid are the lowest as against other business forms. Hence it is inexpensive in one way or the other for the promoter or the proprietor who is planning to start a business.
A sole proprietorship registration will be a big boost to a manufacturer, trader or a merchant who is planning to start the business in a small way with less capital investment.
To get a proprietorship firm registered are there any documents which have to be submitted to the concerned authorities?
YES. You need to submit the documents that are mandatory to get your proprietorship firm registered. The documents required are quite simple. One needs to get the self-attested PAN Card, Aadhar Card, photo, and any utility bills for proof of address. Copy of the rental agreement, No Objection Certificate from the landlord, Sale Deed or a property tax receipt must also be submitted for proprietorship registration purpose.
No hard and fast rule has been laid down by the government. The only condition it must satisfy is that it must be formulated through tax registrations in the name of the owner to make sure that he/she is running the business. One should also apply for a GST registration which is very important to start a proprietorship firm. Director needs to have only a personal account.
Differentiating between Proprietorship and One Person Company
Many of us are still in two minds when differentiating between a proprietorship and a one person company assuming that both the terms are one and the same. But there are few differences between the two business entities.
The concept of a proprietorship firm which is in existence in many nations has gained recognition and momentum in India in recent times. With globalization and digitalization making its way in the Indian economy, proprietorship firm is getting more importance than what it was before. An OPC has a legal entity when compared with a proprietorship firm, where the proprietor and the entity are same. An OPC allows for the limitation of the liability whereas in a proprietorship the liability is unrestricted and extends to individual assets. OPC is similar to Pvt Ltd Company where board meetings have to be conducted whereas in a proprietorship firm auditing need to be conducted only as per the Income Tax Act based on the turnover exceeding the limit.
Any Indian citizen who has attained the age of 18 and above can start a sole proprietorship firm. For starting the same he/ she must not be accused in the court of law.
Any local businesses ranging from a grocery store, a fast food vendor, petty traders, or a small-time manufacturer can opt for proprietorship registration. This does not mean that large businesses do not operate as sole proprietors.
Can a sole proprietorship be named as Private Limited?
A sole proprietorship firm cannot use the term Private Limited with its name. A private limited implies a company that offers limited liability or legal protection to its shareholders. A sole proprietorship firm, on the other hand, is owned controlled and managed by an individual. There is no legal difference between the owner and the business. In this case, the liability of the proprietor is limited. Hence, using the suffix Private Limited for a Proprietorship firm is irrelevant.
Once you have decided to start your own proprietorship firm, there are certain compliances that you should be aware of.
- You must file for Income Tax Returns annually if you are a sole proprietor.
- If you are registered under the GST, then you need to file your GST Return.
- If you are liable for tax audit then you should deduct Tax Deducted at Source (TDS) and file TDS returns.
One final question Is GST required for a sole proprietorship?
Yes, sole proprietorship firm’s needs to be GST registered. Being GST registered the proprietor is required to charge for GST on the sale of the commercial properties even though you may not have paid or claimed any input tax previously.
The GST bill that came into effect from July 2017 has been getting a lot of attention lately. We all know the consequences of indirect taxes and what effect it had on the economy. Prior to GST, indirect taxes have made the price of the goods and services even dearer. Moreover, they have made the taxation procedure more complex.
But with GST coming into effect it has made the country come under one tax bracket. GST has replaced all indirect taxes like VAT, Excise Tax, CST, Service Tax, Central Excise Duty, and so on. This has immensely helped entrepreneurs who are planning to start a proprietorship firm. This means a proprietor need not worry about keeping up with VAT compliances. GST has made business activities comparatively easier as it need not deal with indirect taxes anymore.
This will further ensure improvement in the implementation of the tax system and bring in transparency in the tax regime by reducing tax-related disputes.
After reading this article you might have gained sufficient knowledge about Proprietorship registration. Hope this blog will help you to understand why a proprietorship firm registration is a far better option than the rest. “The ball is in your court”. It is up to you to take a final call on what type of business entity you should start with and will suit you the best.
Aavana Corporate Solutions is one of the outstanding business platforms which help aspiring entrepreneurs and clients with company registrations in Bangalore. We also offer services with respect to compliances, financial and business undertakings. One thing is for sure – Proprietorship registration is made simple and seamless with Aavana.