Sole Proprietorship in Business

INTRODUCTION

Proprietorship in India is a type of unregistered business entity that is owned, managed, and controlled by one person. The micro and small businesses that are operating in the unorganized sector prefer registering as a proprietorship in India. It is very easy to start a sole proprietorship in India as it has very few regulatory compliances for conducting businesses. Proprietorship registration is ideal for the entrepreneurs who are getting into the business for small businesses with very few clients.

A sole proprietor is the owner of the sole proprietorship, he is recognized as an entity same as the business. As the sole proprietor is the owner of the business he is entitled to all the company’s revenue. The sole proprietorship is completely under the control of the proprietor. Hence, he makes the decisions for the company.

To run a business as a sole proprietor some licenses and permits are required. The license will depend on the industry, state, and locality.

WHAT DOCUMENTS ARE REQUIRED TO REGISTER A SOLE PROPRIETORSHIP IN INDIA?

The process of proprietorship registration in India can be done online. All you need to do is submit the following documents:

Identity Proof of the applicant – Aadhar and the PAN Card.

Address Proof of the applicant – Latest Bank Statement

Passport size photos.

Khurana & Khurana Advocates and IP Attorneys can help you in obtaining a sole proprietorship in India in just 5-7 working days.

HOW TO REGISTER A SOLE PROPRIETORSHIP IN INDIA?

Starting a sole proprietorship in India is easy if all the compliances are properly met.

• Decide on the suitable business name.
• A suitable business location designated as the place of doing business should be selected.

SHOPS AND ESTABLISHMENT REGISTRATION

The Shop and establishment license covers all the business entities such as the shops, restaurants, commercial establishments, the retail trade/ business, profit-making organizations, public amusements, and so on. Irrespective of any business establishment whether fully functional or not it is necessary to get the business registered. The local municipal corporation issues this license and it depends on the number of employees in an establishment.

GST REGISTRATION

GST has replaced many indirect taxes such as the service tax, Value added tax, Central sales tax, excise duties, additional customs duties, and so on. An individual making the interstate supply of goods and services and having an annual turnover of over Rs.40 lakh is required to get GST registration.

Getting a GST registration makes the business legally recognized as the supplier of services or goods. Small businesses can also opt for the composition scheme to lower the tax rates.

UDYOG AADHAR REGISTRATION

Udyog Aadhar Registration is provided to the Micro, small, and medium-sized businesses in India under the Micro, small, and medium enterprise development Act,2006.

Earlier recognized as MSME registration, the process of obtaining the Udyog Aadhar registration is completely online. The major objectives of the Udyog Aadhar registrations are as follows:

• To enable the Micro, Small and Medium enterprises to compete with the international competition efficiently;
• To promote the growth of Micro, Small and Medium enterprises on a large scale to tackle the problems related to unemployment and poverty effectively.
• To extend the benefits of various government schemes at one stop to the SSI units.
• To safeguard the Small-Scale industries from financial harassment in the hands of the big industries.

TAN REGISTRATION

TAN or the Tax Deduction Collection Number is a mandatory ten-digit number required for all persons who are supposed to pay the Tax deduction at source or TDS on behalf of the Government.

The person deducting the tax at the source must deposit the deducted tax to the central Government to quote the TAN number.

A proprietorship business and other entities must deduct tax at the source, making certain payments like salary, payments to the contractor or the subcontractors, amount of rent exceeding 2,40,000 per year, etc. On deducting the TDS, the entity with TAN registration will issue a TDS certificate as proof of collection of tax.

FSSAI REGISTRATION

FSSAI registration should be obtained from the Food Safety and Standard Authority of India in the proprietor’s name if he is involved in the selling of food products or handling of the food products.

Here is a list of documents required for FSSAI registration:

• Photo of the food business operator
• Document for Identity proof like Ration card, the Voter ID card, Pan Card, Driving License, Passport, Aadhar Card, Senior Citizen Card, Department Issued ID.

Supporting Documents (if any):- NOC by the Municipality or the Panchayat, Health NOC.

WHAT ARE THE BENEFITS OF REGISTERING AS A PROPRIETORSHIP FIRM?

There are various reasons why one should register as a proprietorship firm. Here are some of them:

• Complete Control- Proprietorships firms are owned and operated by just one person. The owner has full authority and can make all the decisions as no partners are involved to consult.
• Easy Setup- As no registrations are required to start, a proprietorship can create and receive payments from clients very easily
• Easy Compliance- The significant advantage of the Proprietorship is that it doesn’t require any additional compliance in most cases. The PAN of the Proprietor and Proprietorship are the same. Hence, in most cases, only income tax returns in the form of ITR-3 must be filed every year.
• Dissolution- If an individual has to cease operation, he does not have to wind up the company significantly. This undoubtedly saves time.
• Requires less investment- Registering a proprietorship in India requires very little investment. Hence, anyone who wants to start a business with low funds can go for proprietorships as no investments are involved.
• Information is not disclosed in public- The Proprietorship firms’ financial reports are public like that of the LLPs, where the financial statements are made public.

WHAT ARE THE POST-INCORPORATION COMPLIANCES FOR THE SOLE PROPRIETORSHIP FIRMS?

The proprietorships registered in India are required to file income tax returns. As the proprietors and the proprietorships are the same the income tax return filing for the proprietor and proprietorship is the same.

AUDIT FOR PROPRIETORSHIP

An audit is required for the proprietorship firms if the total sales are over as prescribed limited for the financial year.

In a professional case, an audit is necessary if the total gross receipts are more than as prescribed

Also, an audit is required for any proprietorship firm under a presumptive taxation scheme irrespective of turnover if the income claimed is lower than the deemed profits and gains under the scheme.

Audit for Proprietorship for income tax purposes must be conducted by a practicing Chartered Accountant.

ITR FOR PROPRIETORSHIP FIRMS

Proprietorship firms are required to file Form ITR-3 or Form ITR-4-Sugam.

Form ITR-3

Form ITR-3 can be filed by a proprietor or a Hindu Undivided Family carrying out a proprietary business or profession.

Form ITR-4-Sugam

Form ITR-4-Sugam can be filed by a proprietor who would like to pay income tax under the presumptive taxation scheme. A presumptive taxation scheme is designed to help ease the compliance burden of small businesses by assuming a set profit margin on the business or profession’s total income.

Khurana & Khurana Advocates and IP Attorneys is the market leader in registration services in India, it offers a variety of business registration services like Private Company, Limited Public Company, One Person Company, Nidhi Company, Section 8 Company, Producer Company, LLP, Partnership and Proprietorship …etc.

Author: Ajay Kacher – a Legal Associate at IP & Legal Filings, in case of any queries please contact/write back to us at support@ipandlegalfilings.com.