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Proprietorship Registration in India

Online Proprietorship Registration

A sole proprietorship( also referred to as individual entrepreneurship or a single trader, or simply proprietorship ) is an unincorporated business that is owned solely by one person. It is the most basic legal form of a company.

It is very simple to get started because the proprietorship and the proprietor are the same and it has very few compliance requirements.

A proprietorship cannot have other stakeholders or partners because here the business and the proprietor are one and the same. Furthermore, the proprietor has no limited liability protection from the sole proprietorship's business actions.

As a result, this kind of business structure is ideal for small firms with fewer than 5 employees.

While easy to set up, the sole proprietorship is not a legal entity. This type of business can be chosen by anyone who wants to start a business with a lower investment.

In a sole proprietorship business, the owner invests all the money. He bears all the losses and enjoys all the profits of the business. He controls and manages the entire business.

Sole proprietors are personally liable for all the debts incurred by the business.

There is no separate Act to govern sole proprietorship in India, however, the proprietor is required to obtain a registration certificate under the Shops and Establishment Act of that particular state in which the business is located.

ADVANTAGES OF SOLE PROPRIETORSHIP:

  • Lower Compliances: As proprietorships are not registered with the Ministry Of Corporate Affairs so their regulatory requirements are less as compared to other types of business entities. However, the firm is required to file income tax returns if the annual turnover of the firm crosses 2.5 lakhs per year.
  • Economical:Starting a proprietorship firm is generally a very inexpensive process. As the sole proprietor arranges funds from their own resources, they always try to efficiently utilize the funds. Furthermore, by law, an individual proprietor pays fewer taxes and at a lower rate than a corporation.
  • Quick Decision Making: In a proprietorship, all the business decisions are taken by the owner of the firm. As they do not need to consult or take approval from any partner, this reduces the decision-making time thus making faster decisions.
  • Complete Control:As the sole proprietorship is owned by a single owner, he/she has entire authority over the company’s assets, revenue, expenses, and operations.
  • Tax benefits:The sole proprietor pays just the personal income tax on the profits made by the entity. Here, the entity itself is exempt from paying the income tax.

Requirement to form a Proprietorshiop

Definition A sole proprietorship is an unincorporated business owned solely by one person
Ownership Here the business and the owner are one and the same.
Governance There is no separate Act to govern sole proprietorship in India, however, the proprietor is required to obtain a registration certificate under the Shops and Establishment Act of that particular state in which the business is located.
Compliance Low
Meetings There is no requirement of conducting general meetings and board meetings.
Legal entity status It is not a separate legal entity, here the proprietor and the entity are one and the same
Liability Liability of the proprietor extends to his personal assets.
Audit The audit would be carried out as per the Income Tax Act if turnover exceeds a specific threshold value
Perpetual succession No perpetual succession. The death of the proprietor can lead to the dissolution of the proprietorship.
Audit The audit would be carried out as per the Income Tax Act if turnover exceeds a specific threshold value
Finance Depends upon the credit record of the proprietor

Documents required for Proprietorship Registration

  • Aadhar card: The number mentioned on the Aadhar card is required for official registration. Also, an income tax return can be filed only if the PAN card is linked with the Aadhar card.
  • PAN(Permanent Account Number) card: To file Income tax returns, it is mandatory to have a PAN card. Also to obtain a GST registration number PAN card would be required.
  • Bank account number: A bank account number for all official transactions would be required.
  • Registered office proof: Rent agreement and NOC from the landlord, if rented property/copy of property papers and utility bill of the proposed office, if own property.

Steps in Proprietorship Registration:

  • Obtain a PAN card
  • Reserve name of the sole proprietorship business
  • Open a current bank account in the proprietorship’s name for day-to-day transactions
No particular registration is needed for starting a sole proprietorship. However, certain basic registrations and licenses are required by the sole proprietorship
  • The proprietor has to obtain a Registration Certificate under the Shops and Establishments Act of the particular state in which the business is located.
  • Sole proprietor need to register for GST if the turnover crosses INR 20 lakhs.
  • A sole proprietor can also get itself registered under MSME Act as a Small and medium enterprise(SME). Although this registration is not mandatory but it would be beneficial, if registered.

DOCUMENTS REQUIRED FOR OPENING A BANK ACCOUNT OF A PROPRIETORSHIP:

Based on RBI guidelines, variou banks have enumerated the list of acceptable documents for opening a current bank account: Sole proprietor identity proof(any one of the following)

  • Permanent Account Number (PAN) Card bearing the name of the proprietor
  • Passport
  • Driving license
  • Aadhar card
  • Voter’s Identity Card as issued by the ECI (Election Commission of India)
  • Job card issued by NREGA that is duly signed by an officer of the State Government
Sole proprietor address proof(any one of the following):
  • Passport
  • Aadhar card
  • Voter’s Identity Card as issued by the ECI (Election Commission of India)
  • Driving License
  • Senior Citizen Card issued by State/Central Government
  • Arms License
  • Utility bills (Electricity bill, Telephone bill) should not be older than 3 months
  • Water bill along with receipt not older than 6 months
  • Property Tax bill
  • Latest Three months Bank Statement
  • Consumer Passbook/gas connection card along with the gas supply receipt, not older than 3 months
  • Registered Lease & License Agreement attached with the utility bill not older than 3 months in the name of the landlord
  • Driving
  • Driving
Along with above-mentioned documents, the owner of the business will have to submit proof of doing business. Any two of the following documents can be submitted for opening a current bank account in the name of the proprietorship:
  • Shops And Establishment Act license
  • GST registration certificate
  • License issued by a competent authority such as ICAI/Indian Medical Council/Food and Drug control authorities.
  • Banks may also accept the Importer-Exporter Code(IEC) issued by the office of DGFT as a document for opening a current bank account in the name of the proprietorship.

ELIGIBILITY FOR MSME REGISTRATION:

MSME(Micro, small and medium enterprises) registration or Udyog Aadhar registration can be obtained by any kind of business entity;

  • Proprietorship
  • Partnership firms
  • Private Limited Company
  • Public Limited Company
  • Limited Liability Partnerships
  • Self Help Groups,
  • Hindu Undivided Family
  • Society
  • Trust
  • Others
Investment and annual turnover is used for deciding the classification of MSME’s.
Classification Investment and annual turnover
Micro < Rs.1 Crore & < Rs. 5 Crore
Small < Rs. 10 Crore & < Rs. 50 Crore
Medium < Rs. 50 Crore & < Rs. 250 Crore

Manufacturing, wholesale, service industries, and retail trade are covered and are eligible to apply for MSME registration except for the motorcycles and motor vehicles wholesale and retail trade.

Registration of MSMEs is completely online and the Udyam Registration portal ( udyamregistration.gov.in ) is the official portal for registering MSME’s.

DOCUMENTS REQUIRED FOR GST REGISTRATION OF PROPRIETORSHIP FIRM:

  • Copy of personal PAN card of proprietor
  • Copy of Aadhar card of the proprietor
  • Utility bills like Telephone Bill/ Gas/ Water/Electricity Bill of premise location or rent agreement, if rented property.
  • Personal bank statement or cancelled blank cheque or a copy of the front page of the passbook
  • Passport-sized photographs of the proprietor

BENEFITS OF REGISTERING A BUSINESS?

While a formal business registration with the local or state government is not essential, it is always recommended to get the firm registered as it has many legal and commercial benefits.

Earlier registering a business used to be a very costly, lengthy, and tedious process, so most businesses preferred running as unregistered proprietorship firms or partnership firms.

However, with the introduction of the internet, the process of registering a business has become very affordable and easy. Here we will list down the benefits of registering the business

  • Getting loan from the bank: Registering the company aids in getting loan from the bank. For unregistered companies, it becomes complicated to avail loan from the bank.
  • Government scheme benefits: Obtaining benefits from the government schemes becomes easy if the business is registered. For instance, for getting benefits from the Udyog Aadhar scheme one needs to have a registered business.
  • To open a current bank account: Opening a current bank account in the name of your business becomes easy if you have your business registered.
  • Helps in creating a brand name: The brand name of any firm is nowadays a very valuable asset. Registering a business helps in creating a brand name that enhances customer reliability.
  • Helps prove business identity: In a sole proprietorship, having a registered business gives the business an identity that aids in creating customer loyalty.
  • Create valid invoices: If your business is registered under the laws, you can create valid invoices which will help you increase your sale thereby increasing customer satisfaction.
  • Tax benefits: If the company is registered, obtaining tax benefits under various laws and schemes becomes quite simple.
  • Obtaining GST number: Under GST laws it is important to get your business registered under GST if annual turnover crosses 20 lakh rupees, failing which may lead to certain legal consequences.
As mentioned above, there are many benefits of registering the business. Also, the process of registration has become very affordable and easy as it is completely online.

CONVERSION OF SOLE PROPRIETORSHIP TO A PRIVATE LIMITED COMPANY:

Conditions to be fulfilled for converting sole proprietorship into a private limited company:

  • For conversion, an agreement needs to be entered upon by the sole proprietor and the private limited company,
  • All the liabilities and assets of the sole proprietorship ought to be transferred to the company,
  • Memorandum of Association(MOA)of the private limited company must include the statement-’Takeover of a sole proprietorship’,
  • The sole owner has to be a voting member of the director’s board.
  • The proprietor’s shareholding should not be lower than 50%of the voting power, and it must be continued for at least 5 years.
  • Except to the extent of shares held, the proprietor should not obtain any further benefits, either directly or indirectly.
  • The private limited company should have at least two directors.

Steps for the conversion of a sole proprietorship into a private limited company:

The conversion of a sole proprietorship to a private limited company is governed by the Companies Act, 2013 and Income Tax Act,1961.

The procedure to be followed for conversion is described below:

  • 1

    Obtain DSC of designated directors:

    Take 1 working Day

    For registration of a partnership firm, a DSC is not required so the partners do not have one. But, for conversion of a partnership firm to LLP as a necessary step, it is mandatory for all the partners to obtain a Digital Signature certificate.

  • 2

    Obtain DIN/ DPIN of directors

    Take 1 working Day

    For conversion of partnership firm to LLP, all the directors are required to obtain a DPIN/ DIN(Director Identification Number) which is a unique number and will be valid for life.

  • 3

    Reserve the name of the firm by requesting it in Form-1

    Take 1 working Day

  • 4

    Prepare MOA and AOA which specifies the goals and policies of the business,

    Take 1 working Day

  • 5

    Apply on the MCA portal for the company’s incorporation

    Take 1 working Day

    This form for conversion shall be filled by all the partners of the firm with information like

    • The MOA and AOA must be filed in Form-1
    • Form-18 contains the details of the registered office
    • Form 32 contains information regarding all the directors
    Documents required for conversion:
    • ID Proof: PAN card of all directors
    • Address Proof: Ration card/ Aadhar Card/ Driving License/Voter ID
    • Residence Proof: Bank statement/ telephone/ mobile bill/electricity/ gas bill of the premise
    • Passport-sized photograph along with the specimen signature (blank document with signature [directors only])
    • Notarized rental agreement
    • NOC from the property owner
    • A copy of the sale deed/property deed (for an owned property).

  • 6

    Certificate of Incorporation will be issued

    Take 1 working Day

  • 7

    Apply for a new PAN and TAN

    Take 1 working Day

  • 8

    Modify the bank account details as per the conversion of the company

    Take 1 working Day

Prerequisites for forming a private limited company:

In order to convert the sole proprietorship into a private limited company, after incorporating the company, via Memorandum Of Association (MOA) take over the sole proprietorship and transfer all the assets and liabilities to the private limited company. Consequently, before applying for the certificate of incorporation, the following prerequisites need to be followed;

  • A minimum of two directors are required
  • Minimum two shareholders, they can be the same as the directors. The owner of the sole proprietorship should be among the directors of the private limited company.
  • DIN(Director Identification Number) for all the directors
  • A minimum share capital of Rs. 1 lakhs

Moreover, the proprietorship would be required to officially close down. Any tax registrations or licenses used by the proprietorship can then be cancelled or handed over to the concerned authorities. Further, the concerned authorities should be notified about the closure of the proprietorship.

proprietorship Registration FAQs

proprietorship Registration online Common Questions

As a sole proprietor, what do I need to know?
3 days ago

A sole proprietor is owned and operated by the same person, with no legal difference between the business and the owner. All aspects of the business operation are directly under the owner’s control and is totally responsible for all the financial matters, including loans, debts, and losses.

For sole proprietorship, can I use my personal bank account?
3 days ago

Yes, there is no legal requirement for a sole proprietor to have a different business account.

Can sole proprietors hire employees?
3 days ago

Yes, Just like any other small business, sole proprietors can also hire employees for their business. Sole proprietors must obtain an Employer Identification Number (EIN) as mandated by IRS while hiring an employee other than an independent contractor.

Can a sole proprietorship business be operated from multiple branches?
3 days ago

Yes, sole proprietors can operate a business from multiple locations.

What documents are required for a proprietorship to register for GST?
3 days ago

For GST registration of a proprietorship following documents are required

  • Copy of personal PAN card of proprietor
  • Copy of Aadhar card of the proprietor
  • Utility bills like Telephone Bill/ Gas/ Water/Electricity Bill of premise location or rent agreement, if rented property.
  • Personal bank statement or cancelled blank cheque or a copy of the front page of the passbook
  • Passport-sized photographs of the proprietor

For filing an Income tax return, which ITR form should be filed by the proprietorship?
3 days ago

Two ITR forms need to be filed by the proprietorship:

ITR Form 3: This form should be filed by the sole proprietor who is engaged in a proprietorship

ITR Form 4: This form is for the taxpayers filing under a presumptive tax scheme. This is used to reduce the burden of tax compliance of small businesses that have an annual income of less than 50 lakhs. .

Is it possible for sole proprietors to sell in other states?
3 days ago

Sole proprietorship is not a separate legal entity and is an extension of the business owner. Sole proprietors are allowed to operate in all the states and they can operate across the state boundaries.

For tax purposes, how are the sole proprietors treated?
3 days ago

Sole proprietorship and the business owner is considered one and the same by the IRS. This entails that any profit derived from the business is treated as the personal income of the owner and is accounted for on the individual tax returns. Such income is taxed on the individual in the year concerned.

What documents are needed to register a proprietorship?
3 days ago

Following documents are required for registering a proprietorship:

  • Aadhar card: The number mentioned on the Aadhar card is required for official registration. Also, an income tax return can be filed only if the PAN card is linked with the Aadhar card.
  • PAN(Permanent Account Number) card: To file Income tax returns, it is mandatory to have a PAN card. Also to obtain a GST registration number PAN card would be required.
  • Bank account number: A bank account number for all official transactions would be required.
  • Registered office proof: Rent agreement and NOC from the landlord, if rented property/copy of property papers and utility bill of the proposed office, if own property.

What are the steps to be followed for forming a proprietorship?
3 days ago

Following steps are to be followed for forming a proprietorship:

  • Obtain a PAN card
  • Reserve the name of the sole proprietorship business
  • Open a current bank account in the proprietorship’s name for day-to-day transactions
  • As such no particular registration is required for starting a sole proprietorship. However, certain basic registrations and licenses are required by the sole proprietorship i.e.,
  • The proprietor has to obtain a Registration Certificate under the Shops and Establishments Act of the particular state in which the business is located.
  • Sole proprietor needs to register for GST if the turnover crosses INR 20 lakhs.
  • abc
  • A sole proprietor can also get itself registered under MSME Act as a Small and medium enterprise(SME). Although this registration is not mandatory but it would be beneficial, if registered.

*disclaimer:we try our best to keep the above provided information updated, the data provided keeps changing by amendments and changes in related statute/acts and other Govt published advisory and we don't claim that all information is always correct, the content is for informational purpose only, Intine.CO (QuickU Technology solutions pvt ltd) and its associates bear not responsibility of any loss because of actions taken based on the information on this page or any other page of this website.

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