Starting a business of your own could be a huge step for any person who has developed a business idea over a period of time. Once you decide to start your entrepreneurial journey on your own, the next big question that comes into picture is what is the category of the business entity going to be. Before starting a business in India, it has to be registered under a category out of many options available such as a public limited, private limited, partnerships firm, a OPC or a sole proprietorship firm registration that depends on the number of members or partners and the size of initial investment invested in the business, which may sometimes confuse you.
Nevertheless everybody will agree that there are always equal probabilities of a business either being a successful one or a failure. If you feel the same, you can always start your business on a smaller scale, which could be in the form of a sole proprietorship. Therefore, a sole proprietorship business is one of the most commonly opted business choice for entrepreneurs in the unorganized sector and small merchants who intend to take lesser risks and start business on a lower level.
So, what is a Sole proprietorship business? A sole proprietorship business is the one of the oldest forms of business forms in India where there is only one owner with no members and partners. The process of registration of a proprietorship firm is really simple, easy and quick as compared to other forms of business entities in India and is subject to minimal regulatory compliances. Such a proprietorship firm has a sole proprietor who is primarily responsible for owning, controlling and managing the business aspects.
Further, it is not compulsory to even register such sole proprietorship firm, however, registering the same makes such business eligible to avail certain benefits which are not available otherwise. For the purpose of registration, the entity is required to acquire certain Central/state licenses for smooth functioning of business operations and registration of such business trademark is always advisable especially to the sole proprietorship business as it doesn’t have a separate legal existence as available in case of a company or an LLP.
Proprietorship Firm Registration With Legalmart
There are several ways to avail the registration of a sole proprietorship firm in India. However, each process is important and helps the business to avail such benefits available for the business. Therefore, it is advisable to rely on an expert who can guide you through out the process of registration in accordance to your convenience and benefits. Therefore, connect to Legalmart.in and start your entrepreneurial journey today.
Benefits Of Proprietorship Firm
The benefits attached with registration of a business entity as a sole proprietorship firm are multifaceted, which are-
- Simple process of registration – Unlike the registration process of a public or a private company, there is no specific requirements for the registration of a sole proprietorship firm and could be completed in more than one ways. Further, there is no mandatory requirement of registering a sole proprietorship firm and could voluntarily register using the PAN and Aadhaar of the sole proprietor, registration under Udyog Aadhaar and Trademark Registration for availing protection under the law.
- Easier Business Operations – Unlike other business forms, a sole proprietorship has a sole owner with no partner or member, a single person is only responsible for managing and decision –making for the business entity. Further, there is no requirement for board meetings or shareholder meetings as in case of a company to discuss matters and take approvals in case of a company. Thus, the business operations are considerably simpler and easier.
- Compliance & Taxation – A sole proprietorship firm is not registered with authorities like Ministry of Corporate Affairs or any other regulatory authority. Thus, a sole proprietorship firm is not subject to heavy compliances and intimations made to Government authorities in case of every important events and happenings in the business. Further, a sole proprietorship firm is not subject to higher taxation rates as applicable in case of companies or other persons, which makes it a suitable choice for small businesses.
- Complete control- A sole proprietor enjoys the privilege of absolute control over the business affairs and decision making for the business matters and doesn’t need to obtain any prior permission from any stockholders, creditors or any other person.
- Fewer costs as compared to any other entity- In comparison to other business entities like public and private company, there are fewer costs associated with time to time fillings, holding meetings, tax assessments etc. Further, the tax rates for a sole proprietorship firm are different to companies, LLP and partnerships firm, which obviously reduces these costs for the business and increase profitability.
- No mandatory requirement of Audit – A sole proprietorship firm is not under any immediate obligation to get its accounts audited every financial year as per the provisions of any specific laws. Only when the annual turnover of a company exceeds rupees 1 crore and if the receipts exceed Rs. 50 lakhs annually.
- Need of lesser capital for starting business- Dissimilar to large scale businesses under the category of public company, a sole proprietorship firm could be started with minimal amount of capital as there is no minimum amount of capital investment prescribed for starting a proprietorship firm.
- Profit Sharing – A sole proprietorship is the one where there is only one owner and no partner or members take part in business activities. Thus, the sole owner is entitled to all the profits gained by the business over time.
Disadvantages Of Proprietorship Firm
- Unlimited Liability- A sole proprietorship firm is not essentially a separate legal person in the eyes of law. Therefore, any debts or liabilities which are unable to be fulfilled by the business need to be borne by the proprietor through his personal assets apart from the business. This is the condition which makes expansion of business operations of a sole proprietorship firm risky and may consider reconsiderations.
- Limited Growth Prospects – Since it is the sole proprietor only who owns and manages the business, the scope for initial capital contribution is lesser as compared to other forms of business. Further, the fact that a sole proprietorship firm has unlimited liability makes business expansion a little risky matter and a lesser attractive choice of investment by sponsors, creditors and banks. This factor also leads to slower growth and limited business operations within a region or country itself.
- Lesser room for right decisions- Since there is only one business owner with no partner or member, the sole owner enjoys greater autonomy in his decisions without any discussions or approvals, leaving bigger room for making wrong decisions which could also lead to shutdown of business operations.
- Difficulty in selling business undertaking- Due to non-availability of more members, partners or sponsors in the business, there is limited scope for a sole proprietorship firm to grow bigger and expand its business operations globally, and even if they do, the process is painfully slower, to become an attractive choice for investors and competitors who intend to purchase the business of such sole proprietor. Therefore lack of capital, limited business operations, lack of market knowledge and skills, knowledge of consumer preferences, sole proprietorship concerns are the least choice for business purchases in the order of preferences for market competitors and thus, a sole proprietor may find it difficult to sell his business.
- Difficulty in raising capital- As mentioned before, there is limited scope for initial capital contribution and even lesser prospects for rapid expansion in case of a sole proprietorship concern as compared to any other business entity. Thus, lending organizations like banks and financial institutions, do not show much enthusiasm towards lending funds to a sole proprietorship concern, which makes it difficult for them to raise capital for expansion purposes.
- No perpetual succession-A sole proprietary concern is not a legal person in the eyes of law, which means that inability to continue business operations due to illness, disability or insolvency shall lead to shutdown of business operations either temporarily or even permanently.
Eligibility Criteria For Registration Of Proprietorship Firm
Since a partnership firm is not governed by any Act or any specific rules & regulations under the laws of India. There is no specific eligibility criteria for starting a sole proprietorship concern. Any natural person who intends to start a business of his own can start his proprietorship concern with minimum amount of capital. Other than this, following must be ensured before registering a sole proprietorship concern-
- Such Proprietors must hold Indian citizenship and should be an Indian resident primarily.
- Though Non Resident Indians & persons of Indian origin are not allowed to operate their businesses as a proprietorship concern, they can make investments in the same after obtaining approvals from the Government of India.
- Such sole proprietor should not be debarred from starting a business in pursuance of the laws of India.
Documents Required For Registration
- Proof of identity of the sole proprietor i.e. Aadhaar Card.
- PAN Card of the sole proprietor.
- Current business Account of the proprietor concern.
- Proof of the address where the business operations are being carried on or are proposed to be carried.
- Passport size photos of the sole proprietor.
Proprietorship Firm Registration Online
There is no specific mention of the process of registration of a sole proprietorship concern as it is voluntary to register a sole proprietorship business. However, there are different forms of registering a sole proprietorship concern such as:-
- As a Small or Medium Enterprise concern (SME)- A sole proprietorship concern could be registered as a small or medium enterprise depending upon the initial investment and turnover of the business under the provisions of the MSMED Act 2006, as registering a proprietorship concern under this category leads to avail business benefits and exemptions being provided by the government of India for encouraging smaller businesses to go bigger.
- Registration under the Shop and Establishment Act- A sole proprietorship concern can also avail registration under the Shops and Establishment Act for the purpose of carrying any trade, if such sole proprietor has a place of business in any commercial establishment. For obtaining registration, the sole proprietor has to apply and obtain a registration certificate from the local municipal body of the State where the shop is located.
- Acquiring Registration under the GST Act 2016- This is the most common way of registering a sole proprietorship concern in which the sole proprietor has to register mandatorily if his annual turnover exceeds Rs.20 lakh, where he is dealing in manufacturing or trading of goods or providing services. The GST Act is comparatively new in essence and has replaced older laws such as services tax & VAT.
- Opening a Bank Account in the name of your Sole Proprietorship- Though, the above-mentioned ways are legally valid ways to register and recognize a sole proprietorship business, but it is essential for every sole proprietorship business to open a separate business current account. Further, banks have their own criteria of bank opening eligibility and requirements and insist on acquiring GST registration for the proprietorship business. In case a sole proprietorship concern fails to acquire GST registration, banks may ask for previous ITR returns mentioning the trade name of the concern.
Finally, the step-by-step procedure for registering a proprietorship concern is as follows-
- Make an online request for allotment of PAN card of the sole proprietorship concern.
- Further, choose and decide the name of the proprietary concern and trade name of the business.
- Open a current business account with any Government recognized banking institution through which all the transactions will take place.
- Next, apply for registration of the sole proprietorship concern under any basic form under any of these following categories-
- Registration as SME.
- Registration under Shops & Establishment Act.
- Registration under GST Act.
Why You Choose Legalmart?
Therefore, it is obvious to understand that a sole proprietorship business is a good opportunity who has got the perfect balance between risks and opportunities. As there is an equal probability for a business to either flourish or fail, this acts as a test-an-try method for a proprietor with multifarious advantages such as tax benefits, fewer regulatory compliances and lower initial investment requirements. Thus, getting the assistance of expert level sites such as Legalmart can help you to understand the suitability of the basic form of registration for you and complete registration in a quick, simple and efficient manner.