Proprietorship Firm Registration

LET'S TALK

Request a Free Quote

Proprietorship Firm Registration Consultant

An unincorporated firm held entirely by one person is known as a sole proprietorship, individual entrepreneurship, single trader, or just proprietorship. It is a company’s most fundamental legal structure.

Because it has very few compliance requirements and is identical to a proprietorship, it is quite easy to get started.

Since the business and the proprietor are one and the same, a proprietorship is unable to have additional partners or stakeholders. Additionally, the owner is not protected by limited liability from the commercial activities of the sole proprietorship.

Therefore, small businesses with fewer than five employees are best suited for this type of corporate structure.

The sole proprietorship is not a legal entity, despite being simple to set up. Anyone looking to launch a business with less capital can choose this kind of venture.

The owner of a solo proprietorship makes all of the financial investments. He takes all of the company’s losses and keeps all of its gains. He is in charge of and oversees the entire company.Sole proprietors are personally liable for all the debts made by the business.In India, sole proprietorship is not specifically governed by any laws; nonetheless, the proprietor must obtain a registration certificate under the state’s Shops and Establishment Act.

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

Here the business and the owner are one and the same.GovernanceThere 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.ComplianceLowMeetingsThere is no requirement of conducting general meetings and board meetings.Legal entity statusIt is not a separate legal entity, here the proprietor and the entity are one and the sameLiabilityLiability of the proprietor extends to his personal assets.AuditThe audit would be carried out as per the Income Tax Act if turnover exceeds a specific threshold valuePerpetual successionNo perpetual succession. The death of the proprietor can lead to the dissolution of the proprietorship.AuditThe audit would be carried out as per the Income Tax Act if turnover exceeds a specific threshold valueFinanceDepends 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:

Step 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.

Step 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.

Step 3:Reserve the name of the firm by requesting it in Form-1

Take 1 working Day

Step 4:File FiLLiP(Form For Incorporation Of LLP).

Take 1 working Day

Step 5:Apply on the MCA portal for the company’s incorporation

Take 1 working Day

This form for conversion shall be filed 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).

Step 6:Certificate of Incorporation will be issued

Take 1 working Day

Step 7:Apply for a new PAN and TAN

Take 1 working Day

Step 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.

FAQ's

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

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?

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

Can sole proprietors hire employees?

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?

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

What documents are required for a proprietorship to register for GST?

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?

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?

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?

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?

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?

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.

Some Registration are Mandatory, where some license are based on applicability.

GST Registration – Required If Turnover of Firm crosses the Rs. 20 Lacs Limit in Financial Year.

TDS Registration – If Firm Required Audit as per Income Tax.

PF Registration – If Proprietor ship firm have more than 20 Employees.

ESIC Registration – If Organization have more than 10 Employees.

Import Export Code/License – If Proprietor Wants to do Import Export Business.

Professional Tax Registration – Mandatory for Each Business (Depend on State and Municipal Corporation Policy)

Shop Establishment (Gumasta) – Mandatory for Each Business (Depend on State and Municipal Corporation Policy)

Food License (FSSAI) – If Proprietor Firm Engaged in food business.

SEBI License – For Brokerage Firm, Advisor Etc.

MSME – Optional Can be Obtained.

Proprietorship Firm Registration

LET'S TALK

Request a Free Quote

Proprietorship Firm Registration Consultant

ADVANTAGES OF SOLE PROPRIETORSHIP

Requirement to form a Proprietorshiop

Documents required for Proprietorship Registration

Steps in Proprietorship Registration

DOCUMENTS REQUIRED FOR OPENING A BANK ACCOUNT OF A PROPRIETORSHIP:

ELIGIBILITY FOR MSME REGISTRATION:

DOCUMENTS REQUIRED FOR GST REGISTRATION OF PROPRIETORSHIP FIRM:

BENEFITS OF REGISTERING A BUSINESS?

CONVERSION OF SOLE PROPRIETORSHIP TO A PRIVATE LIMITED COMPANY:

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

Step 1:Obtain DSC of designated directors:

Step 2:Obtain DIN/ DPIN of directors

Step 3:Reserve the name of the firm by requesting it in Form-1

Step 4:File FiLLiP(Form For Incorporation Of LLP).

Step 5:Apply on the MCA portal for the company’s incorporation

Step 6:Certificate of Incorporation will be issued

Step 7:Apply for a new PAN and TAN

Step 8:Modify the bank account details as per the conversion of the company

Prerequisites for forming a private limited company:

FAQ's

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

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

Can sole proprietors hire employees?

Can a sole proprietorship business be operated from multiple branches?

What documents are required for a proprietorship to register for GST?

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

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

For tax purposes, how are the sole proprietors treated?

What documents are needed to register a proprietorship?

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

Quick Links

Get in touch

Hello!