Overview of Sole Proprietorship Registration

Sole proprietorship registration is one of the most popular forms of business in India. This type of business is characterized by the fact that the entire concern is owned, managed, and controlled by one person. This form of business is most suitable for those who are planning to commence any business with little capital. A major advantage of a sole proprietorship is that there is no legal requirement for the business to be formed. In addition to this, the business can be conducted either at home or in a rented office setup. It is worth noting that the owner of the sole proprietorship is the only investor and gets all the profits, along with losses as well. Although the proprietor may hire some staff to work in his business or hire a manager to run the business on a day-to-day basis, ownership is still in the hands of the proprietor. This type of business is used in small businesses like grocery stores, salons, retailers, manufacturing plants, and other service providers.

Advantages of a Sole Proprietorship Registration in India 

Advantages of registration of Sole Proprietorship businesses online in India are discussed below: 

Easy to Start and Low Compliance

The sole proprietorship business structure can easily be set up. It actually involves less paperwork compared to other types of businesses or limited liability partnership businesses. The set-up and operation of a sole proprietorship business are also less expensive.

Full Control Over Business

The entire business operation will be controlled by one person. The owner handles the operation and finances alone. There will be no involvement of partners or shareholders. Hence, the business information will remain confidential.

Quick Decision-Making

Since only one person is involved in the decision-making process, it is not necessary to consult or seek the approval of anyone else. This gives the proprietor the ability to act fast on an opportunity or a threat in the business.

Disadvantages of Sole Proprietorship Registration in India 

Disadvantages of Sole Proprietorship Registration online in India are given below:

Unlimited Liability

The main disadvantage of a sole proprietorship is that it has unlimited liability. This is, the owner of the business will be responsible for all debts incurred by the business, should it incur big losses. The proprietor will use his personal funds to repay debts.

No Perpetual Existence

A sole proprietorship lacks a separate legal existence. If the proprietor dies, declares bankruptcy, or is unable to manage, a sole proprietorship may cease to exist. Hence, a sole proprietorship is less reliable for long-term contracts and expansion.

Problem in Raising Funds

Raising finance may not be easy since the business relies entirely on the savings of the entrepreneur. This is because the businessman may not have savings, and the financier may not be eager to invest in a business that lacks identity and could fold anytime.

Process for Sole Proprietorship Registration in India 

A sole proprietorship is not formally incorporated, but there are some formal registration procedures that have to be done to enable the smooth operation of the business. These steps are given below:

Acquire a PAN Card

The first basic requirement to begin all sole proprietor businesses is to have a Permanent Account Number (PAN). If the proprietor does not have a PAN card, they must apply for it. Having a PAN is necessary for filing taxes and for all financial transactions. The sole proprietor’s business is related to the proprietor’s PAN since it does not have any separate identity.

Decide on the Business Name

The owner should come up with a good and distinctive name for his or her business. The business name will be used consistently in all registration documents, accounts, bills, and other documents. The business should not use a deceptive or an already well-known brand as a business name.

Open a Bank Account in the Business Name

A current account for running one’s business needs to be opened in the name of the sole proprietorship. The bank may demand proof of the existence of a business in the form of a Shop and Establishment Registration, GST, or MSME registration, which is referred to as “Udyam Registration.” The entire income and expenses of one’s business should flow through this account.

Register Under the Shop and Establishment Act

There is an "Act" in each state in India named "The Shop and Establishment Act." The owner should register his concern following the "Act" within a stipulated time after operating the business. This registration will act as evidence of existence in the form of proof of business.

Apply for GST Registration (If Applicable)

If the annual turnover of the business is more than ₹20 lakhs (for special category states, the limit is ₹10 lakhs) and also if it is a compulsory GST business, then the proprietor must necessarily apply for a GST registration. A GST registration allows a business to charge tax from customers.

Register Under MSME (Udyam) – Optional but Beneficial

Though not an obligation, registering the business as an MSME under the Udyam portal is greatly advisable. MSME registration can help a company reap government schemes, bank loan facilitation, subsidies, and even the benefit of delayed payment protection.

Obtaining Other Licenses (if Necessary)

Depending on the type of business, there might be additional licenses required. Food businesses, for instance, require registration in the FSSAI. An additional municipal license might be required depending on the type of business.

List of Sole Proprietorship Registration Documents 

Proprietorship firm registration documents mainly includes the following: 

• PAN Card of the Proprietor: Needed for income tax purposes and to open a business account.
• Aadhaar Card of the Proprietor: As identity and address proof.
• Proof of Business Address: Electricity bill, water bill, rent agreement, or property tax receipt. If the taxi is rented, a No Objection Certificate may be required, signed by the owner.
• Bank Account Information: Current account in the business name of the sole proprietorship.
• Shop & Establishment Registration Certificate: Serves as legal proof of the existence of a business.
• GST Registration Certificate (if applicable): Mandatory if the turnover exceeds ₹20 lakhs or if the GST registration is mandatory.
• MSME (Udyam) Registration Certificate: Assist with benefits entitlement and loan access by the government.

Post Sole Proprietorship Registration Compliances in India 

A sole proprietor is required to fulfill the following responsibilities after it got registered in India: 

• File your income-tax returns every year, provided your income is below the taxable level
• File the GST return based on the requirements if the company has GST registration
• Obtaining a PAN card
• Opening an account in a bank
• Registering for the Shop and Establishment Act
• Apply for GST, if applicable. 

Sole proprietorship registration is a common form of business operation that is easily adopted in India. In fact, it is liked due to its simplicity, lower costs, and flexibility. This form provides flexibility to work as you want, no strict regulations, it is a private form, and you get direct profit access. However, a sole proprietorship also has some drawbacks, such as unlimited liability or a lack of growth opportunities. Hence, one must carefully weigh all options before selecting a sole proprietorship.