Proprietorships can be started in India by an Indian Citizen. Since, there is no legal entity, the Proprietors PAN is used as the basis of all registrations and compliance
e-DiNero. Group offers a comprehensive business accounting & income tax return filing service for proprietorships starting from INR 5899/- per year.
A Sole Proprietorship is a type of unregistered business entity that is owned, managed and controlled by one person. Sole Proprietorship is the most common form of business in India, used by most micro and small businesses operating in the unorganised sectors. Proprietorships are very easy to start and have very minimal regulatory compliance requirement for starting and operating. So, its ideal for small businesses and first-time Entrepreneurs who would like to get a taste for business.
Who is a Proprietor?
A Proprietor is a living person who is the owner of a Sole Proprietorship business. A Proprietor must be a living person and cannot be a corporate or legal entity. The Proprietor and Sole Proprietorship are one and the same under the eyes of the law. Hence, in a Proprietorship, the PAN and documents of the Proprietor are the basis for obtaining all other business registrations and licenses. In case of any issues or liability in the Sole Proprietorship business, the Sole Proprietor is held personally liable for the liability.
Registration of Proprietorship
There is no mechanism provided by the Government of India for the registration of a Proprietorship. There is also no State or Central Government Authority governing the registration or operations of Proprietorships in India. Therefore, the existence of a proprietorship can be established through one or more tax registrations and business license. For instance, MSME and GST Registration can be obtained in the name of the Proprietor to establish that the Proprietor is operating a business as a Sole Proprietorship.
As there is no procedure for registering the name of a Sole Proprietorship business, any other person can also use the same name for their business. However, in case a Proprietor wishes to protect the business name and the name is unique, a trademark registration can be obtained for the business name.
Advantages of Proprietorship
The biggest advantage in starting a Proprietorship is the ease of setup. Since there are no registrations required to start a Proprietorship, the business owner can start taking payments from customers and issue invoices without having to worry about any registration.
The other advantage of a Proprietorship is that it requires no additional compliance in most cases. The PAN of the Proprietor and Proprietorship are one and the same. Hence, for a Sole Proprietorship with minimal business revenue - only income tax return in Form ITR-3 must be filed every year.
Disadvantages of Proprietorship
Starting a Proprietorship is extremely easy. However, after the startup phase, a Proprietorship does not offer the Proprietor a host of benefits such as separate legal entity, limited liability proprietorship, corporate status, transferability, perpetual existence - which are desirable features for any business.
Separate Legal Entity: A Sole Proprietorship does not have a separate legal entity. Hence, opening a bank current account in the name of a business can be a more lengthy process for a proprietorship when compared to a Company or LLP.
Limited Liability Protection: A Sole Proprietorship does not provide the Proprietor with limited liability protection. Hence, in case any loss or liability is created by the Proprietorship business, the Proprietor would be held personally liable for payment.
Transferability: A Proprietorship business is linked to the PAN of the Proprietor. Hence, any license or registration obtained in the name of the Proprietorship cannot be transferred to any other person.
Perpetual Existence: A Sole Proprietorship business and the Proprietor are one and the same. Hence, the existence of the Sole Proprietorship is tied to the Proprietor. In case the Sole Proprietor is no more - the existence of the Sole Proprietorship business would also end.
Fundraising: A Proprietorship business cannot raise equity funds from Angel Investors, Venture Capital firms and Private Equity funds. Banks also have restrictions on the amount of money they can lend to a Sole Proprietorship business.
As indicated above, there are various disadvantages for operating a medium-sized or large business as a Sole Proprietorship. Therefore, proprietorship registration is suited only for unorganised, small businesses that will remain small and/or have a limited period of existence.
Common Registrations for Proprietorship
As the identity of a Sole Proprietorship is established through various other registrations and licenses, the following are some of the common registrations that are obtained for a Proprietorship.
MSME Registration: MSME or Udyog Aadhaar registration can be obtained in the name of the business to establish that the Sole Proprietorship is registered under the Ministry of Micro, Small and Medium Enterprises.
TAN Registration: TAN Registration must be obtained for the Proprietor from the Income Tax department if the Proprietor is making salary payments wherein TDS deduction is required.
GST Registration: GST registration must be obtained if the Proprietor is selling goods or services that cross the GST turnover threshold limit for registration. In most states, GST registration is required for service providers having annual revenue of more than Rs.20 lakhs and in case of traders - annual revenue of more than Rs.40 lakhs.
Import Export Code: Import Export Code or IE Code can be obtained from the DGFT in the name of the business - in case of a Proprietorship business undertaking export and/or import of goods into India.
FSSAI Registration: In case the Proprietorship is involved in the selling of food products or handling of food products, FSSAI registration must be obtained from the Food Safety and Standard Authority of India in the name of the Proprietor.
Bank Account Opening for Proprietorship
A Current Account can be opened for a Sole Proprietorship through e-DiNero. Group from various banks in India. e-DiNero. Group offers exclusive partnerships through which zero-balance current accounts can be opened in India. For a Sole Proprietorship to open a bank account - it is recommended that GST registration be obtained.
Process for Proprietorship Registration
Before beginning the engagement, all the required information and documents are collected. The engagement manager would also advise you on the types of registrations to be obtained. The average time taken to complete a proprietorship registration is 3 - 5 working days, subject to government processing time and client document submission. Once the necessary registrations are obtained, an application is also submitted to the Banks for Current Account opening.
e-DiNero. Group is the market leader in Proprietorship registration services in India. In addition to Proprietorship registration, we offer a variety of other services like private limited company registration, one person company registration, Nidhi Company Registration, Section 8 Company Registration, Producer Company Registration and Indian Subsidiary registration.