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What is Sole Proprietorship registration?

A sole proprietorship is a form of business run and managed by a single individual. Such businesses have the least compliance requirement and don’t require any registration. However, experts recommend obtaining the registration for availing several benefits under MSME Schemes, etc.

Sole proprietorships are one of the most common forms of businesses in India, and the registration is easy and cost-effective as well. Further, the person managing the proprietorship firm retains the full authority & responsibility related to the business.

The owner of the sole proprietorship is liable for handling all the legal responsibility essential for managing the business. Therefore, when a person registers his business as proprietorship, it’s not a distinct identity. Instead, the owner and his business both are clubbed together. In such business entities, the person managing the business is the sole director as well as the shareholder.

Who should opt for Sole Proprietorship Registration?

Any individual willing to commence a business with low capital or investment should choose this kind of business form. Let’s discuss in details on what entities should opt for sole proprietorship registration:

Small Businesses

The sole proprietorship business is preferable forsmall businesses such as retail, wholesale, etc. Such businesses havethe simple business nature, nominal or the least financial risk, no requirement of enormous debts,and have small product market.

Businesses with low investment

The business with a little or minimal capital requirements or almost risk levels can run as sole proprietorship. Now, the proprietorship business needs to registeritself under tax laws such as GST registration if it falls under a certain category.

What are the Advantages of Sole Proprietorship Registration?

If you’re running your firm as a sole proprietorship, then you have the advantage of not investing your capitals in business registration. Since, there is no compulsion or formal registration process for such firms, therefore, the cost of setting up such a business is low as compared to other companies or One Person Company.

Furthermore, there are several other advantages of Sole Proprietorship which one can’t avail with any other form of business. They are as follows:

Flexible decision-making

In a sole proprietorship business, the owner has full control over the business. Hence, making and taking decisions are entirely on his/her part. There’s no interference of anybody else. As a result, the process of decision-making becomes quick and efficient. Further, the decision is taken within less time-frame.

Complete control over finance

Finance plays quite a critical role in every kind of business. Therefore, decision-making regarding finance and implanting it become simple. In turn, this helps the owner to grab various opportunities. The person managing the business has the sole and complete control over the finance.

Better business relations

Such kind of business helps to build and maintain good relationshipwith the customer and employees. Since there’s a direct interaction of the owner with the client; therefore, understanding the actual need and pain of the customer is easy. Besides, it becomes easy to solve customers’ problem by communicating with them directly. Thus, in a sole proprietorship business, the owners have better business relations.

Confidentiality

Businesses having more than one member are prone to data theft and information leakage. However, in Proprietorship, there’s only one person who has complete control over the business. Therefore, there’s no chance of any data leakage or theft. The things are wholly confidential and limited to the only person who manages the business.

Less time consuming

Since there aren’t any such legal documentation as in other business registration; therefore, Sole Proprietorship registration is a less time-consuming process. The registration of such a business is quite simple.

Relatively inexpensive

As compared to OPC, the Sole Proprietorship business is relatively inexpensive. There’s no need for hiring an auditor or anybody else which saves a lot of costs. Apart from this, it saves the business from other investments as well which are mandatory for other business entities.

Minimal statutory compliance

The statutory compliances like several annual filings, other professional taxes, sales taxes, etc. aren’t an obligation for such business entities. Hence, it’s easy to operate and manage a proprietorship business.

However, filing of ITR (Income Tax Returns) and compliances of the licenses they hold are mandatory.

Easy to close

For sole proprietorship firms, the winding procedure is quite an easy task. Not much formality is required; only the tax registration acquired in the name of the proprietor is supposed to be cancelled.

Is it necessary to register sole proprietorship firm?

No, registering a sole proprietorship business isn’t mandatory at all. However, for the purpose of clarity and providing surety to creditors, it is essential to register your proprietorship firm and obtain GST registration.

Documents required for Sole Proprietorship registration

  • PAN card of the proprietor as an identity proof
  • Aadhaar card
  • Proof of the registered office
  • Details of the personal bank account

Sole Proprietorship Registration Procedure

  • First of all, you need to apply for PAN. However, if you already have the PAN, then ignore this process.
  • Secondly, you are required to choose a unique name for your business.
  • Since there’s no such formal registration for sole proprietorship business, you need to open a current bank account in the name of your business.
  • Although it is not mandatory, you can register your business as SSI or MSME under the MSME Act. By registering your business under MSME, you can avail several benefits and subsidies.
  • Further, if your turnover exceeds Rs. 40 lakh, you need to obtain GST registration. However, the turnover limit changes to Rs 20 lakh if you are operating your business in the North-Eastern region such as Himachal Pradesh, etc.
  • You can also register your business under Shops & Establishment Act.

Difference amongthe Sole Proprietorship Business and One Person Company

Terms

Sole Proprietorship Business

One Person Company

Liability

The proprietorship business has unlimited liability which means if the business suffers any kind of loss, the owner would have to pay the debt.

The OPCs have limited liability. It means even if the company suffers any kind of loss, the assets of owner won’t be at risk.

Registration

There’s no requirement for registration.

OPCs are required to register themselves with the MCA (Ministry of Corporate Affairs).

Financing

The financing of Sole Proprietorship business totally depends on the credit record of the proprietor.

The financing is independent of the business owner; rather it depends on the credit record of the company.

Perpetual succession

If the owner dies, the business and its operation will completely stop.

Even after the death of the owner, the company’s operation continues.

Compliance

Such businesses need to follow a very few or no compliances.

One person company needs to follow the compliances of Companies Act, 2013.

Taxation

The tax rates depend upon the income tax of the proprietor.

Since OPCs are registered as Private Limited Company, the tax rate is 30% of the total income.

Conversion

In sole proprietorship, the conversion of the business is not mandatory.

If the total turnover of OPC exceeds Rs. 2 crores, then it is mandatorily required to convert itself into private limited company.

Compliance requirements for Sole Proprietorship Business

Although, being a sole proprietorship business, you don’t need to follow up with much compliance. However, there are a few compliance requirements that you should definitely follow with. They are as follow:

  • If you have registered your business under GST, then you need to file GST return.
  • Filing Income Tax Return annually is mandatory.
  • If you are liable for Tax Audit, then you must deduct TDS ad file TDS return.

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