Proprietorship Formation

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What is a sole proprietorship?

A sole proprietorship (also known as individual entrepreneurship, sole trader, or simply proprietorship) is the easiest form of business done in India since it isn’t governed by any specific laws. Under proprietorship form of business, the compliance’s are minimal and easy to fulfill.

Unlike the partnerships or corporations, a sole proprietorship does not create a separate legal entity from the owner. In other words, the identity of the owner or the sole proprietor is the same as business entity. The simplicity of a sole proprietorship makes this form of business structure extremely popular among small businesses, freelancers, and other self-employed individuals. What begins as a sole proprietorship may be transformed into another form of ownership like a private limited company or a partnership among others.

Although sole proprietor doesn’t require any specific registrations to operate a business, he/she is advised to obtain the following registrations to make the business function smoothly.

Registering under MSME Act (Udyam)
A sole proprietorship can get registered under the MSME Act by applying for Udyam Registration number. Udyam registration provides various benefits which are provided by Government authorities for promoting specific industries.
GST Registration
GST Registration is required if annual turnover is more than Rs. 20/40 lakhs. Also, if you are doing online business (selling through amazon, Swiggy etc.), you are required to get a GST number.

Process for registering your Proprietorship?

While registering a sole proprietorship, an individual PAN card is used as an identity proof. Thereafter, the following applications are made:

Apply for PAN, if not already available
Apply for GST Registration*
Apply for Registering under MSME Act (Udyam)

*GST Registration is required if annual turnover is more than Rs. 20/40 lakhs. Also, if you are doing online business (selling through amazon, Swiggy etc.), you are required to get a GST number.

Documents required

PAN Card of Proprietor
Aadhaar Card of Proprietor
Photograph of Proprietor
Address proof of business

Own office- Copy of Latest Electricity Bill/ Municipal Khata Copy/ Latest Property Tax Receipt / Property Documents (Any 1)
Rented office- Rent agreement and Copy of Latest Electricity Bill/ Municipal Khata Copy/ Latest Property Tax Receipt / Property Documents (Any 1)
Consented office- No objection certificate (NOC) from the owner (Format will be provided by us) and Copy of Latest Electricity Bill/ Municipal Khata Copy/ Latest Property Tax Receipt / Property Documents (Any 1)

Bank details

Advantages of a Sole Proprietorship

A sole proprietorship offers several advantages over other forms of business.

Easy and inexpensive process
The establishment of a sole proprietorship is generally an easy and inexpensive process. A person can start a sole proprietorship in his own name and using his PAN as identification for the business. In addition, sole proprietor can take registrations under GST or MSME Act which would then act as identification for the sole proprietorship in addition to the owner’s PAN. All these registrations are comparatively cheaper than any other form of business.
Few government regulations
Sole proprietorships adhere to a few regulatory requirements. Most of the regulations like Companies Act or LLP Act only apply to corporate form of business and not a sole proprietor. The only mandatory requirement is case of smaller business is filing of annual income tax return and GST returns.

Disadvantages

The potential disadvantages of sole proprietorship include the following:

Unlimited liability of the owner
Since a sole proprietorship does not create a separate legal entity like a company, the business owner faces unlimited personal liability for all debts incurred by the entity. In other words, if a business cannot meet its financial obligations, creditors can seek repayment from the entity’s owner, who must use his or her personal assets to repay outstanding debts or other financial obligations.
Limitations on capital raising
Unlike partnerships and corporations, sole proprietorships generally enjoy fewer options to raise capital. For example, the owner cannot sell an equity stake to obtain new funds. In addition, the ability to obtain loans depends on the owner’s personal credit history. The start up funding also requires a corporate form for investment purposes.