A sole proprietorship is one of the simplest and most common forms of business in India, especially for individuals who are just starting out. Here are some key features that make it attractive:
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Ownership and Control: The business is entirely owned and controlled by a single individual, which gives the proprietor full autonomy over decision-making.
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Ease of Setup: Unlike other business structures, a sole proprietorship has minimal formalities to be completed, making it quicker and easier to start. No mandatory registration is required unless you're required to register under GST or other specific licenses based on your business type.
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Minimal Compliance: Compliance requirements are generally low, with tax obligations typically falling under the Income Tax Act. This means that the proprietor is personally responsible for filing tax returns and maintaining books of accounts.
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Unlimited Liability: One major downside is that the liability of the proprietor is unlimited. This means if the business incurs debt or legal issues, the owner's personal assets can also be at risk.
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Profit and Loss: The proprietor gets to keep all the profits but is also responsible for all the losses. This creates a more personal connection with the business.
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Taxation: The proprietor is taxed individually, and the business does not pay taxes separately. However, if the turnover crosses a specific limit, GST registration becomes mandatory.
What is Proprietor ship
Essential Licenses and Registrations for Proprietorships
To run a proprietorship in India, you need important licenses and registrations, including:
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Get a Permanent Account Number (PAN) and an Aadhaar card for your business identification.
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Register under UDHYAM, which recognizes your business as a Micro, Small, or Medium Enterprise (MSME) and offers government benefits.
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If your business exceeds specific thresholds, you must register for Goods and Services Tax (GST) to collect and pay GST.
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Open a separate bank account for your business to manage finances smoothly.
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Depending on your business location, register under your state's Shops and Establishment Act to follow local labor regulations.
Advantage of Sole Propreior ship Registration
Registering a sole proprietorship online offers several advantages. Firstly, it's a convenient process that allows to complete the necessary paperwork from the comfort of home. Additionally, online registration often speeds up the approval process, helping you start your business more quickly. Moreover, many online platforms provide guidance and resources to ensure you meet all legal requirements, making it easier for new entrepreneurs to navigate the registration process Lastly, it can be more cost-effective, as you can avoid potential fees associated with in-person registrations.
Disadvantage of Sole Propreior ship Registration
A sole proprietorship has several disadvantages to consider. One significant drawback is the unlimited personal liability, meaning your personal assets could be at risk if the business incurs debt or faces legal issues. Additionally, securing funding can be more challenging, as lenders may prefer to work with corporations or partnerships. Lastly, the business may lack credibility compared to registered entities, which could impact customer trust and growth opportunities.
GST Requirement Documents
GST registration for a proprietorship will be obtained by IndiaFilings as a part of the service of register proprietorship firm online. The following documents are required for GST registration:
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Permanent Account Number (PAN) of Proprietor
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Digital Signature Certificate of the Authorized Signatory
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Consent by Proprietor for obtaining GST Registration
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Photograph of Proprietor and Authorized Signatory
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Bank Account Details: A scanned copy of a cancelled cheque with the business entity's name, bank account number, MICR, IFSC, and branch information.
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Declaration / Authorization to Authorized Signatory
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For commercial purposes, the rent / lease agreement should be in the name of the proprietor.
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Additional documents such as Aadhaar Card, Driving Licence, Passport, or Voter ID in the name of the Owner with the complete address of the premises should also be provided if the address on the ownership document (Property Tax Receipt or Municipal Khata copy or copy of Electricity Bill) is incomplete.
Udhyam Registration (MSME) Requirement Documents
Udyam Registration can be obtained online to avail various benefits available for small and medium sized businesses. Once the GST registration is obtained, the IndiaFilings team would help obtain UDYAM registration by submitting Aadhaar card, PAN card and GST certificate to Government.
Compliance Of Proprietorship
Income Tax Filing: The business owner of a proprietorship will have to file a personal income tax return using the form ITR-3 or ITR-4.
Business Income: Only income tax forms ITR-3 and ITR-4 allow for declaring business income. Hence, all proprietorships will have to file form ITR-3 or ITR-4 to be compliant with the income tax regulations.
GST Return Filing: If a proprietorship has GST registration, GST return must be filed every month and quarter as per the scheme under which the business is registered.
TDS Returns: In case the proprietorship is having employees or purchasing goods/services beyond a certain threshold - tax must be deducted at source and TDS returns must be filed every quarter.
In addition to the above, various other compliance requirements maybe applicable to the proprietorship based on industry and location.
GST REGISTRATION
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UDHAYAM
REGISTRATION
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