So you are decided to start a business, however, in order to carry out any business activity, we need to register a legal entity as a business. Every business founders face this challenge of which type of entity they need to form. This is not easy to answer when to form and which type of entity to form. ProStartX provides quality online materials from starting a business to managing it.
In this post, we will talk about Proprietorship firm registration, the oldest form of a legal entity, and most preferred by an initial startup in India. Further, we will discuss who shall go for Proprietorship registration and associated risk and compliance in this form of a legal entity.
Registration of any business entity carries with a certain set of fix and monthly recurring expenses with it. These expenses depend on the type of entity you formed for doing business. Therefore this is very important to understand when and which form of business entity to form. If you are a sole founder working on the development of an idea, and no employees or minimum employee, then in such case, you may be able to defer incorporation of a separate business.
However, it is important to take note that it becomes very imperative and essential to register your business in case of any of the following factors:
By now we understand when we need to register a separate business entity. In the next section, we will discuss a different form of legal entities and other license & registration we required:
In this series, we talk about Proprietorship Firm and understand when it is most suitable to register Proprietorship firm, associated compliance requirement, and cost involved in the same.
A sole proprietorship is a business entity that is owned, managed, and controlled by one person i.e. Sole Proprietor and collectively firm known as Sole proprietorship. This is one of the most common forms of business in India and mainly used by micro and small businesses operating in the unorganized sectors.
To understand, when an individual who owns any products or services and starts selling it to customers, they are nothing but automatically establishing themselves as the sole proprietorship. However they need to obtain sole proprietorship firm registration to open a current bank account, thus registration for sole proprietorship required.
Proprietorship firms require very minimal regulatory compliance for started and operating. Any income from a sole proprietorship is basically reported as the business income or losses by the owner in his/her individual income tax return and such income is taxed at Individual tax slab rates.
Proprietorship firm does not provide any immunity and benefits to its proprietor such as limited liability, corporate status, separate legal entity, independent existence, transfer-ability, perpetual existence - which are desirable features for any business.
Yes, Absolutely. Business registration is essential. It is like getting one's name registered.
Less Legal Formalities: Very easy to establish no such legal requirements for formation, operation, and closure. Thus the minimal cost of compliance.
Single Ownership, Single Control: Sole proprietorship is a business owned by one Individual only. All the assets and property belong to the proprietor only, with no separation between two. Also, All the risk associated with the enterprise is that of the owner. Best suited for Solo entrepreneurs.
Unlimited Liability, No legal distinction from proprietor: The biggest disadvantage is unlimited liability. In the event of loss, even the personal assets of the proprietor can be used for making repayment of financial payment to employees, vendors, or Govt dues such as taxes.
So by now, you have understood about the Proprietorship firm, it's a feature and associated risk. In the next section, we will talk about registering the Proprietorship Firm.
Sole Proprietorship registration is completely a digital process, therefore you can register your business without leaving home or office.
In order to register your business under Sole Proprietorship, you need to obtain any of one registration from the below for registration of sole proprietorship:
Post registration of Sole proprietorship firm as above, you can approach any Banks where you wish to open your Business current Account.
In India, a sole proprietor firm registration should be done under GST Act or MSME act or Shops and Establishment registration under the state Act, rule, and regulations, therefore Sole proprietorship firm is governed by above laws of registration. So therefore, monthly compliance for your business depends on act of registration.
An important point to note, you need not obtain separate PAN for a proprietorship firm. The proprietor's Individual PAN is used as PAN of Sole Proprietor. Further, in a certain situation, it becomes mandatory to obtain GST registration which we talk about in a separate article.
For Sole Proprietorship registration, the following documents are required: