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 of Proprietorship Firm 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
Establish Proprietorship in 3 Easy Steps
Process to register Proprietorship online
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|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 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 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|
|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|
|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 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|
|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|
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