Sole Proprietorship Incorporation

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A sole proprietorship or sole trader is the simplest form of enterprise/ business that is owned, managed and controlled by a single person. Thus a sole proprietorship is not a separate legal entity. A sole proprietorship is basically a person who owns a business and is personally responsible for all his debts that is the owner is in direct control of all elements and is legally accountable for the finances of such business and including debts, loans, loss, etc.

Sole Proprietorship, because of its simplicity and minimal regulatory compliance requirement, its a popular form of business in the unorganized sector, specifically small traders and merchants. There is no such mechanism provided by the Government of India for the registration of a Proprietorship firm. Therefore, they are recognized by other registrations such as service tax registration or sales tax registration and other business registrations. Thus, all the registrations for a proprietorship would be in the name of the Proprietor, making the Proprietor solely liable for all the liabilities of the Proprietorship. 

Why opt for Sole Proprietorship?

1. Ease of formation
Starting a sole proprietorship is much less complicated and cheaper. Very little paperwork is required if you choose to file your business name. The proprietorship can be named after the owner, or a fictitious name can be also used to enhance the business’ marketing.

2. Minimal Compliance
Sole Proprietorships are only recognized through their government and tax registrations, so the extent of their compliance is limited to the annual filing of their service, professional or sales taxes

3. Relatively Inexpensive
Due to the minimum compliance requirements, a Sole Proprietorship is inexpensive as compared to a One Person Company (OPC) even over the long run. 

4. Lower Taxation
Sole proprietors are not required to file separate tax returns for their business. Income made from the business is counted as personal income and owners pay taxes according to their individual tax rates. Proprietorship with less than Rs. 3 lakhs of income is not required to pay any income tax, as proprietorships are taxed as the individual owing the business. 

5. Ownership
The sole owner of a proprietorship possesses all of the authority to make decisions on behalf of the company. Full ownership and management control is the major advantage of owning a sole proprietorship. Owners are not required to attend formal meetings required of owners and members of other business structures. With a sole proprietorship, the owner can decide to sell or transfer the company to another individual and make important business decisions at his discretion. 

6. Business Name
Since the name of a proprietorship is not registered, a proprietorship can choose to have any name - as long as it does not infringe on a registered trademark. However, since the name is not registered, any other person can also use the same business name unless trademark registration is obtained. 

7. Single Promoter
A proprietorship is the only type of business entity that can be registered and operated by one person. To register a one person company, a nominee Director is required and for all other types of entities like company or LLP or partnership firm, two or more promoters are required.

8. Easy to Close
There is no formality for winding up or closing a proprietorship. In most cases, to close a proprietorship, only the tax registrations obtained in the name of the proprietor must be cancelled.

How does LawRato help?

We will help you decide what registration you need, whether it is service tax, sales tax, import/export code, professional tax or Shops and Establishments Act registration. We also intimidate you about what all documents are required for the same.
We then connect you to a verified professional who will file your application and keep you up-to-date on its status. Our professionals are well-experienced in handling local registrations.

We will offer our complete support until you receive the registration that you want.. This would take up to this depends on the workload of authorities and other externalities.

Documents Required for Proprietorship registration

1. Identity proof  of the proprietor i.e; PAN Card copy 
2. Electricity/water bill of the workplace 
3. Copy of Aadhaar card/ voter identity card of the proprietor

What is included in our package

1. MSME or Micro small and medium enterprises Registration, its to promote scale businesses in India
2. TAN (Tax Account Number)/TDS( Tax Deduction at Source) Registration
3. We also provide you with useful guidance on Service Tax, Trademark, sales tax registration

You may also want to know

1. Who can be a proprietor?
The proprietor must be an Indian citizen and resident of India. Registration may or may not be required, depending on what business you are planning to establish.

2. Do Proprietorship firms have a certificate of Incorporation?
Proprietorship firms do not have a certificate of Incorporation.

3. How to open a bank account for a proprietorship firm?
To open a bank account for a proprietorship, the Reserve Bank of India mandates that the proprietor must provide two forms of registrations for the Proprietorship firm along with the PAN card, identity proof and address proof of the proprietor. The two forms of registration can be any two of the following MSME Registration, VAT/TIN/CST Registration, Professional License, Chartered Accountant Certificate or others as provided in the RBI Know your Customer norms.

4. How much monetary investment required for starting a proprietorship business?
There is no minimum capital requirement for starting a proprietorship firm.

5. What documents are required for starting a sole proprietorship?
To start a sole proprietorship, you would need address and identity proofs, PAN card, all KYC documents and rental agreement or sale deed (in case of Shops & Establishment Act Registration).

6. What businesses are usually run as sole proprietorships?
Most local businesses are run as sole proprietorships, from your grocery store to a fast food vendor, and even small traders and manufacturers. This is not to say that larger businesses do not operate as sole proprietors. Even some jewellery shops are sole proprietors, but this is not recommended.

7. Why is there a need for any registration?
This totally depends on the business you're in. If you're running a departmental store, then you would also need a VAT Registration once your turnover is over Rs. 5 lakh per annum. If you're running an air-conditioned restaurant, you would need a VAT Registration and Service Tax Registration

8. Can I convert my sole proprietorship into a private limited company or a partnership?
Yes, you can always choose to do so. The procedure is a little tedious, but it is possible. It is very common for sole proprietors to convert into partnerships and private limited companies at a later stage.

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