2022-06-14T05:11:30+00:00

Sole Proprietorship Firm Registration

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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

Benefits of Proprietorship Firm Registration

ONLINE REGISTRATION

Documents required for registration of Proprietorship Firm

How to choose a name?

Proprietorship can be recognised with individual name, but business name is preferable that it help building Brand Name

Unique Name

Check for unique sole proprietorship name that helps recognising the proprietorship firm distinctly and build brand value.

Business Object

A part of business name should suggest the business activity so that consumers can easily relate business with its offerings.

Short and Simple

The name should not be unnecessarily long and should be simple enough to spell and remember.

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Online Registration

Establish Proprietorship in 3 Easy Steps

*Subject to Government processing time

The Process

Process to register Proprietorship online

Compare 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
Applicable Law Companies Act, 2013 Companies Act, 2013 Limited Liability Partnership Act, 2008 Indian Partnership Act, 1932 No specified Act
Registration Mandatory Mandatory Mandatory Optional No
PLC must be registered with MCA under the Companies Act Same as Private Limited Company LLP must be registered with MCA under the LLP Act Partnerships can be registerd or Unregistered, there are obvious benefits to register with the State ROF No registration required. Registration under MSME or GST act are considered valid for Proprietor Firms
Number of Owners 2 – 200 Only 1 2 – Unlimited 2 – 50 Only 1
Minimum of 2 to maximum of 200 shareholders excluding present or former employees who are members Only one shareholder Minimum 2 Designated Partners are required. No limit on the number of maximum partners Minimum 2 partners, and maximum 50 partners The proprietor can be the only owner of the firm
Separate Legal Entity Yes Yes Yes No No
PLC is a separate legal entity, and can enter into contracts or own assets in it’s own name Same as Private Limited Comapany Same as Private Limited Comapany Partnership firm does not have any separate identity from its partners Proprietor and business are the same, and hold same PAN number
Liability Protection Limited Limited Limited Unlimited Unlimited
Limited to the share capital subscribed (may vary if defined as limited by guarantee or unlimited liability in the MOA) Same as Private Limited Company Limited to the capital contribution agreed by the partner in the LLP Agreement Partners are jointly and severally liable to pay the debts of the Partnership Firm Paying off the liabilities of the firm is the proprietor’s responsibility
Statutory Audit Mandatory Mandatory Based On Applicability Not Mandatory Not Mandatory
Required to appoint a statutory auditor within 30 days of company incorporation Same as Private Limited Company Statutory audit required when turnover exceeds INR 40 Lac or contribution exceeds INR 25 Lac No statutory audit required. Tax audit applicable on basis of total turnover Same as Partnership Firm
Ownership Transferability Yes Yes (Restricted) Yes Yes (Restricted) No
Shares are easily transferable, so it makes it a most preferred option for raising capital through external investors There is only one owner in OPC. 100% shares need to be tranferred to change ownership Ownership can be changed with consent of other partners, by drafting a supplementary agreement Ownership is not easily transferable. Partnership deed outlines the restriction for transfer of ownership Ownership of the proprietorship is not transferable
Perpetual Existence Yes Yes Yes No No
Private Company prevails with change in ownership or management OPC has a perpetual succession, but can only have one owner at any time Change in Partners or Designated Partners does not affect the existence of an LLP Change in partner leads to dissolution or formation of another partnership firm Death or insolvency of proprietor dissolves the business
Foreign Ownership Allowed Not Allowed Allowed Allowed Not Allowed
Foreign nationals can invest as per RBI and FEMA guidelines, usually under the Automatic Route Member, nominee and director must be an Indian resident Foreign nationals can invest as per RBI and FEMA guidelines, usually under the Automatic Route Nnon Resident Indian (NRI) can be a partner in the Partnership Firm, subject to RBI regulations Foreign Nationals cannot own proprietorship business in India
Taxability Moderate Moderate High High Low
Lower rate of 25% for companies with gross turnover of INR 400 Crore. Additional dividend distribution tax may apply Same as Private Limited Company Tax rate of 30% on business profits, tax benefits to partners on profit distribution is high Same as LLP Tax rates for individuals apply to Proprietorship Firm, as per the Income Tax slab
Compliance Requirement High High Moderate Low Low
Private company has the highest compliance requirements, both annual and event based OPC compliance requirements are similar to PLC, except conducting an Annual General Meeting (AGM) Annual filing and few event based filings are necessary, but lesser compliance requirements as compared to company structure ITR of partnership needs to be filed annually, no major compliance requirements otherwise No requirement to file a separate ITR. Very less to no compliance hassle
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Frequently Asked Questions

Explore Sole Proprietorship Firm Registration – Its formation and registration

2022-06-11T06:56:48+00:00

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.

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Sole Proprietorship is an unorganized business structure and there is no specific law enforced for the said registration. LegalWiz.in 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.

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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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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.

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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.

2022-06-11T06:54:39+00:00

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.

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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.

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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.

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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.

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Sole Proprietorship Business entity is owned, managed and controlled by one person. So, Proprietorship firms cannot issue shares nor have investors.

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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 Proprietorships and Companies.

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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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