PROPRIETORSHIP

Proprietorship Registration

What is Sole Proprietorship in India?

Proprietorship is one of the most popular unregistered business entities in India. It is solely owned, operated and managed by only one registered person. Many micro businesses and startups operating in the unorganized sector prefer Proprietorship registration.
To conduct a business sole proprietorship is a great option. It requires few regulatory compliances and legal formalities for the operation. A proprietorship is indeed a great option for new entrepreneurs who are entering the business world with few clients.

Who is a Sole Proprietor?

A sole proprietorship is the owner of the proprietorship business. It is different from any company or legal entity. As per law both proprietor and proprietorship are the same entity.
For Proprietorship, PAN is required to obtain any registration or licenses. The proprietor is solely responsible for all the proprietorship-related business and liabilities.

How to start a Proprietorship in India?

Proprietorship firm operation in India doesn't require any formalities or registration. A proprietor must obtain a license from the state/central government. Moreover, if your business has a unique name or idea, it is better to register a trademark.

  • Business Licence – All businesses irrespective of the business type must have a business license. Before applying for the business license for Proprietorship, a proprietor must understand the framework and operation process in India.
  • Tax Registration – You must have tax registration to carry out business operations. The registration will be based on the activity type of the proprietorship business. The tax registration includes GST registration, ESI/PF registration, or ITR.
  • Trademark Registration: As there is no registration required for proprietorship in India, it can be usually operated under any name unless the name doesn't conflict with any trademark registration. If the proprietor has a unique idea and name for the proprietorship business, then s/he should get Trademark registration to maintain the authenticity of the business.
  • Capital goods for business – If you have any unique capital goods or exempted supplies for personal use, you can register a trademark for the goods.
  • ITC reversed – ITC is calculated after filling the annual return successfully. When the overall input of exempted purpose is more than the actual ITC reversed during the year, then the difference will be added to the liability output. Interest will be applicable.

What are the benefits of Proprietorship Registration?

  • Authority – Proprietorship firms are owned and managed by one person. The owner has the authority to make any decisions and no partners are involved.
  • Easy Setup – There are no requirements for the payment registration. A proprietorship can create and receive payments from clients smoothly.
  • Easy to Compile – one of the significant advantages of proprietorship is that it doesn't need any additional compliance mostly. In most cases, ITR 3 must be filed every year.
  • Dissolution – A proprietorship doesn't have to follow any kind of procedure to run the operations. It saves a lot of time for the proprietor.
  • Less investment required – You don’t need millions to start your proprietorship firm. Anyone with low investment can start their own business with low funds under the proprietorship option.
  • Easy to close – As there is no formality needed to start a proprietorship, you can easily wind up the proprietorship firm without any formalities.

What are the disadvantages of Proprietorship firms?

Liabilities

As the proprietor is the sole owner of the proprietorship, s/he will be held liable for any loss and harm as there is no limited liability protection.

Transferability

License obtained for the proprietorship can not be transferred to another business or person.

Lifespan

The life period of the proprietorship is tied with the proprietor. Proprietorship can not exist without the proprietor.

Cannot raise funds:

You can not raise equity funds from angel investors or venture capital firms on proprietorship. Also, banks can lend specific amounts to them.

Documents Required for Proprietorship

  • PAN
  • Adhar Card
  • Applicant’s passport size photograph
  • Bank Passbook
  • Bank Statement of the first page
  • Latest electricity bill on the name of GST
  • registered person
  • Business address proof document
  • Property tax receipt or Municipal Khata or Electricity bill (if the proprietor own the place)
    Property Tax or Municipal Khata or Electricity bill, along with consent letter (if someone else owns the place)
  • For rented premises – rent and lease agreement on the name of proprietorship along with property tax or Municipal Khata or Electricity bill

Frequently Asked Questions

Will my proprietorship firm have a separate legal identity?

No, the proprietor and proprietorship are the same legally. The PAN will be the same for both proprietor and firm. The assets and liabilities will also be the same for both. 

How can I transfer my proprietorship?

A business operated under a specific proprietor can not be transferred to another person. Only the assets can be transferred to another person through the sale. 

Can another person invest in proprietorship?

Proprietorship firms are owned and managed by one person. They do not issue shares or have multiple investors. 

Can I convert my proprietorship into a company or LLP?

Yes, you can convert your proprietorship business into a company or LLP by following certain procedures. The procedure is quite expensive and time-consuming. It is advisable to start a service as a company or LLP.