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
Act Companies Act, 2013 Companies Act, 2013 Limited Liability Partnership Act, 2008 Indian Partnership Act, 1932 No specified Act
Registration Requirement Mandatory Mandatory Mandatory Optional No
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 Protection Limited Limited Limited Unlimited Unlimited
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
Ownership Transferability Restricted No Yes No No
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
Uninterrupted Existence Yes Yes Yes No No
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 Rates Moderate Moderate High High Low
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
Statutory Compliances High Moderate Moderate Less Less
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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Frequently Asked Questions

Explore Sole Proprietorship Firm Registration – Its formation and registration

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

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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