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Sole Proprietorship Firm Registration Procedure in India

How to register Sole-Proprietorship Firm in India? In the previous article, we have given How to Register a Private Limited Company in India. Today we are providing what are the basic requirements to start a sole proprietorship firm in India. A sole proprietorship is a type of unregistered business entity that is owned, managed and controlled by one person. Sole proprietorships are one of the most common forms of business in India, used by most micro and small businesses operating in the unorganized sectors. Proprietorships are very easy to start and have very minimal regulatory compliance requirement for started and operating. However, after the startup phase, proprietorship’s do not offer the promoter a host of benefits such as limited liability proprietorship, corporate status, separate legal entity, independent existence, transfer-ability, perpetual existence – which are desirable features for any business.

Sole Proprietorship Firm Registration Procedure in India

Features of Sole-Proprietorship

Some unique features of sole-proprietorship are:

  • Full control over the business.
  • Unlimited liability of the owner.
  • No perpetual succession.
  • Complete freedom to make decisions.
  • No separate legal entity.

Benefits of Sole-Proprietorship

  • A sole-proprietorship business has the following benefits.
  • Ease of formation.
  • Tax benefits such as paying taxes at individual tax rates, and not corporate rates.
  • Lesser compliance requirements.
  • Fast and easy decision making.

Key Features of Proprietorship Firm

  • 1 Person Required as Single Entrepreneur.
  • Single Owner of the Business.
  • Easy to Start and Easy to Close.
  • Complete Control.
  • Lower Cost of Formation and Compliance.

Disadvantages of Sole-Proprietorship Firm

  • Lack of Resources.
  • Unlimited Liability.
  • Lack of Credibility.
  • Can not raise funds easily.
  • Can not add Partners.

As a sole proprietor, main objective of the firm is opening a current bank account in the name of business. so basically most of the banks ask for any legal certification for the business.

If you want to open a current bank account under your trade name “XYZ Consultants” you will need couple of things

1) Service tax registration or Sales Tax or VAT registration or Shop Establishment license.

Note: For consultancy, you need just service tax regd but for selling goods you will have to go for sales/vat/ regd and shop license

2) Letter from your CA regarding the nature of your business.

3) Letterhead with the firm’s name and address.

4) Stamp in the name of the Proprietorship.

5) Address and ID Proof of the proprietor. If proprietorship address is different then you will also need office premise address proof.

So we can divide business into the 2 Categories.

a) Service Based Business –

These type Businesses are providing services Online and Offline to users. Example are – Website Development/Digital Marketing/Consulting/ECommerce Marketplace/Marketplace Business Models/Tickets and Hotel Bookings/Classifieds Websites or any other type of business which providing the major activities as services Only.

so as a Service Based Business mainly need thing open a current bank account.

  • Service Tax Certification ( It’s important certification and treated as Firm Legal Entity Proof as per the RBI Compliance)
  • Chartered Accountant Certification regarding nature of business. (Required by some private banks Only like HDFC Banks etc.)

Documents Required: It’s required the basic documents of the sole proprietor or owner of the firm:

a) Pan Card Copy of the proprietor ( it’s is mandatory)

b) Aadhar Card | Voter Id | Passport | Driving License (anyone for personal address proof)

c) Firm Address Proof ( Residential or Commercial):

  • if the premise is on rent – it’s required the electricity bill copy on the landlord name and rent agreement copy. (anyone). if
  • if the premise is own – it’s required electricity bill copy or any sale deed copy (anyone).
  • NOC ( No Objection Certification from owner of the premise)

b) Product/Manufacturing/Sales/Trading Business –

These type Businesses are selling any product to customers through own website or offline. They are selling VAT applicable products to the consumer so these type startups or small business fall in this category.

Example are- ECommerce Website/Importer/Exporter/Selling on ECommerce Marketplace i.e Flipkart/Snapdeal or offline trading business like wholesaler or retailers or suppliers etc.

so as a Product or Sales category business needs anyone minimum two things –

  • VAT/Sales TAX/TIN Registration.
  • Shop Act License (In the Maharashtra or Gujarat it’s called Gumasta and in WB State its called Trade License)
  • MSME Certification
  • CA Certification

VAT Registration is State wise so it’s Procedure very state to state.

Documents Required for Product based Firm Registration:

a) ID and Address Proof as Pan Card/Passport/Voter ID/Aadhar Card/Driving License Copy of the Proprietor.

b) One Business Place Address proof:

  • if Property on Rented: Need Rent Agreement and NOC from Landlord.
  • if Property is own: Need Electricity Bills or any other Address Proof.
  • For VAT:  Needed Security Amount as Fixed Deposit or needed minimum two surety of dealer which already registered in that state VAT Registration.

Minimum requirements to open a Sole-proprietorship Firm in India:

Moreover, you will also need to open a current account in a bank for your business.

For a seamless registration process, please keep the following documents ready. These documents will serve for all the above registrations and also for opening a current account.

  • A copy of your PAN card.
  • Address proof in your name, such as passport, voter ID, or utility bills.
  • Your passport sized photographs.
  • Proof of address for your business such as telephone or electricity bills.
  • Shops and Establishments registration certificate (for opening current bank account)
  • Bank account statement (for at least six months) from the current banker.
  • Current account details (for VAT/CST/Service Tax registration).

Note:

The government fee starts from Rs. 500 and the professional fee starts from Rs. 2500 depending on your registration needs.

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