Sole proprietorship is one of the most popular types of business entities in India. In this structure, a single person is the owner and is personally liable for all of the company’s debts and liabilities. It is the most basic form of an entity, with the fewest compliance requirements.
Before starting a sole proprietorship in India, there are a few things you must be aware of.
Do You Have to Register Your Sole Proprietorship in India?
Sole proprietorships do not require any registration. Therefore, people do not have to worry about how to register a sole proprietorship in India. This legal entity is best for anyone who wants to start a business with a small investment.
As a single proprietorship firm, you can start outlets such as grocery stores, parlors, boutiques, retail stores, etc. Even small traders and producers can form a sole proprietorship.
Benefits of Sole Proprietorship in India
With nearly 62.5 percent of businesses registered as sole proprietorships in 2014, it is clear that it is the most popular form of business entity in India. The following benefits explain why it is so prominent:
Financial details can be kept private
A sole proprietorship does not have to make its financial information public or share it with anyone. Many businesses rely on this structure to keep sensitive financial information confidential.
Founders retain all the profits
In the sole proprietorship model, the founders do not have to split their profit with a business partner or other legal entities. The founders reap all the benefits of the growing business.
Minimal entry barriers
As there are no hassles in setting up a sole proprietorship in India, it is the easiest to establish. You can use any trade name (unless it is similar to an already established brand) and begin services in a short span.
Host of income tax benefits
As there is no legal distinction between a sole proprietorship business and a sole proprietor for calculating tax, businesses can legally save income tax.
To begin with, the owner of the firm does not need to submit a separate income tax for the business. They can file regular returns and then show the profits from the business. When annual revenues exceed INR 20 lakh, you need to register for GST and file your returns.
Sole proprietors below 60 years should file income tax returns according to the below table:
On the other hand, sole proprietors aged between 60 to 80 years must return taxes according to the following:
Company registration is not required
Sole proprietorships in India do not require company registration. With the least legal hassles, entrepreneurs only need the relevant licenses to start their business.
For instance, sole proprietors who have a physical shop need a license under the Shop and Establishment Act and selling items under a brand name requires a trademark registration.
Maximum freedom in decision-making
Sole proprietors do not have to deal with business partners, board meetings, and much more. The owner is solely responsible for conducting business operations without any influence or barrier.
Documents Required for Registering Your Business in India
An Aadhar number is essential for obtaining any registration in India. You can file an income tax return only if you have linked your PAN card with your Aadhar number. To get an Aadhar card, contact your nearest E-Mitra or Aadhar Seva Kendra, apply for the card and receive it at the registered address in 15-20 days.
A Permanent Account Number (PAN) card is vital for filing your income tax return. PAN card application can be conducted online with scanned copies of your photograph, proof of identity and proof of address. You can conduct online verification with Aadhar e-KYC and obtain the PAN number in around 7-8 days. The hard copy of the PAN card is sent to the registered address within 15-20 days.
With an Aadhar number and PAN, you can open a bank account for a sole proprietorship in India. You will also need a copy of each of your identity and address proof. To open a current account, sole proprietors need to submit their GST registration documents to the bank.
Registered office proof
If the business is conducted in a rented property, you need the landlord’s rent agreement and an No objection certificate (NOC). If you are operating from a self-owned property, an electricity bill or any other utility bill will suffice.
How to Register a Sole Proprietorship Company in India
A sole proprietorship does not require any registration. However, the owner can follow either of the given steps to establish the firm:
According to the MSME Act, you can register your sole proprietorship business as an SME (Small and Medium Enterprise). You can also submit applications via online portals. Registering sole proprietorships is a wise choice, as it makes it easier for business owners to obtain bank loans when needed. The government also drafts several policies to help SMEs.
Shops and establishment registration
All business entities, including shops, restaurants, commercial establishments, retail trade/businesses, charitable organizations, public amusements, etc. are covered by the Shop and Establishment license. Regardless of the type of business you create, you must register it within 30 days, whether it is fully operational or not. This license is issued by the local municipality based on the number of employees in a business.
Goods and Services Tax (GST) is a multi-stage tax that is applied to every transaction. It has substituted numerous indirect taxes, such as service tax, VAT, central sales tax, excise duty, etc. GST registration is compulsory for every business that makes inter-state goods and services and has an annual turnover of more than INR 20 lakhs (INR 40 lakhs in some states).
A GST registration establishes a company’s legal status as a service provider. Small enterprises can also take advantage of the GST composition system to decrease their taxes. As a result, they can dramatically cut their taxation and compliance costs. If a firm runs without a GST registration, fines are imposed under the GST Act.
Opening a sole proprietorship in India is straightforward for those aware of Indian laws and regulations. However, foreign companies without the know-how of the legal complications can face a daunting challenge.
Partnering with a PEO like Multiplier can help you hire, onboard, and manage employees in India without the issues of setting up a sole proprietorship in India. You can create contracts and manage payroll in local currency. Connect with us to grow your business and build diverse teams.