Sole Proprietorship Firm

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 type of business in India and it is used by most micro and small businesses operating in the unorganised sectors.

Proprietorships are simple to start and have minimal regulatory compliance requirements for operating. This entity is ideal for entrepreneurs who are getting into business for the first time and for small businesses with few clients.

Advantages and Disadvantages of Sole Proprietorship Firm

Advantages

Disadvantages

Ease of Setup

The entrepreneur can start operations and receive payments from clients as no registrations are required to start a proprietorship.

Ease of compliance

Proprietorship requires no additional compliance in most cases. The PAN of the proprietor and proprietorship are one and the same. Hence in most cases, only income tax return in Form ITR-3 must be filed every year.

Ease of dissolution

If the proprietor wants to cease operations, the winding up  process of the company is simple which saves a lot of time and effort.

Transferability

Any license or registration obtained in the name of the proprietorship cannot be transferred to any other person or entity.

Liability protection

A sole proprietorship does not provide the proprietor with limited liability protection. So the proprietor would be held personally liable in case of any loss or liability.

Lifespan

The existence of the sole proprietorship is tied to the proprietor hence it would cease to exist with the proprietor.

Fundraising

A proprietorship cannot raise equity funds from angel investors, venture capital firms or PE funds. Banks also tend to restrictions on the amount of credit they can lend.

Pricing

All Inclusive Pricing - No Hidden Fee

Starter

₹3999
2,999*
  • All expenses and Government fee
  • Registration of Proprietorship firm
  • TAN Number
  • Firm Seal

Business

₹4499
3,499*
  • Everything in Starter Package, +
  • 100 Visiting Cards
  • 100 Letterheads and Envelopes
Bestseller

Premium

₹5499
4,499*
  • Everything in Business Package, +
  • 1 year TDS returns
  • GST Return Filing for 3 Months

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Documents required to register a Sole Proprietorship Firm

PAN Card

Self Attested copy of PAN Card of the Sole proprietor.

Aadhar

Self Attested copy of Aadhar of the Sole proprietor.

Photograph

Latest Passport size photograph of Sole proprietor.

Key registrations for a Sole 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 with 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.

Current account

A current account can be opened for a sole proprietorship as it offers many advantages to the proprietor over using their own account. It is recommended that GST registration be obtained for the same.

How to Create a Company Name

Unique Name

Check for unique sole proprietorship name that helps recognizing the proprietorship firm distinctly and build brand value.

Business Objective​

A part of business name should suggest the business activity so that consumers can easily relate business with its offerings.

Constitution Type​

The name should not be unnecessarily long and should be simple enough to spell and remember.

Frequently Asked Questions about Sole Proprietorship

The proprietor must be an Indian citizen and resident. Non-resident Indians and persons of Indian origin can invest in a proprietorship firm only with prior approval from the Government of India.

No, the proprietorship firm and the proprietor are one and the same legally. The PAN of the proprietor will be the PAN of the firm. Therefore, there will be no separate legal identity for the business. The assets and liabilities of the business and the proprietor will also be one and the same.

A business operated under a proprietor cannot be transferred to another person unlike a limited liability partnership or a private limited company. Only the assets in the proprietorship can be transferred to another person through sale. Intangible assets like government approvals, registrations, etc., cannot be transferred to another person.

Proprietorship firms are business entities that are owned, managed and controlled by one person. So they cannot issue shares or have investors.

Yes, there are procedures for converting your proprietorship business into a company or an LLP at a later date. However, the procedures for the same are cumbersome, expensive and time-consuming. Therefore, it is wise for entrepreneurs to consider and start an LLP or a company in case they are expecting it to be operational at a bigger scale or they want to raise investment.

There is no limit on the minimum capital required to start a proprietorship.

PAN of the proprietor along with the identity and address proof is sufficient to start a proprietorship and obtain other registrations, as applicable or required.

Proprietorship firms do not have a certificate of incorporation or a certificate of registration. The identity and legitimacy of a proprietorship firm is established by registering with the relevant or applicable Government authorities.

There is no registry or regulation for registering the name of a Proprietorship. Therefore, proprietorship firms can adopt any name that does not infringe on registered trademarks. Since there are no regulations for registering the name of a proprietorship, the only way to ensure exclusive use of the business name is to obtain a trademark registration of the business name.

Proprietorships will have to file their annual tax return with the Income Tax department. However, annual reports or accounts need not be filed with the Ministry of Corporate Affairs which is required for an LLP or a company.

It is not necessary for proprietorships to prepare audited financial statements each year. However, a tax audit may be necessary based on turnover and other criteria.

We help you start your proprietorship after understanding your business requirements and help you obtain the relevant registrations. 

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Comparison Between Various Business Structures

Act

Companies Act, 2013

Companies Act, 2013

Limited Liability Partnership Act, 2008

Indian Partnership Act, 1932

No specified Act

Registration Requirement

Registration under Companies Act is mandatory

Registration under Companies Act is mandatory

Registration under LLP Act is mandatory

Unregistered partnerships are legal, but registered entity enjoys certain advantages

There is no registration criteria prescribed. But, registration is recommended

Number of members

Minimum 2 and not more than 200 shareholders

Only an individual,and an Indian resident can be the shareholder

No bar on maximum number of partners, but minimum 2 Designated Partners are required

It is formed with minimum 2 partners, but not exceeding 50

Proprietor is the only owner of the firm

Separate Legal Entity

Yes. It is a separate entity and can own assets in its name.

Yes. It is a separate entity and can own assets in its name.

Yes. It is a separate entity and can own assets in its name.

No. It does not have any separate identity from its partners 

No.  Proprietor and business are considered the same

Liability Protection

Limited up to the total value of shares subscribed

Limited up to the total value of shares subscribed

Limited up to the capital amount agreed to introduce

Partners are jointly and severally liable to pay the debts of the Partnership Firm

Proprietor’s liability is to pay-off all the debts and obligation of the firm

Statutory Audit

Auditor must be appointed within the 30 days of incorporation

Auditor must be appointed within the 30 days of incorporation

Applicable when turnover exceeds INR 40 Lakh or contribution exceeds INR 25 Lakh

Statutory audit not applicable. Tax audit may be applicable based on turnover

Statutory audit not applicable. Tax audit may be applicable based on turnover

Ownership Transferability

Shares can be transferred with the consent of other Shareholders

Shares are not easily  transferable 

Ownership can be changed with consent of other partners

Ownership is not transferable easily, clause of partnership deed should be referred

Firm is no different from proprietor and so ownership is not transferable

Uninterrupted Existence

Yes. Perpetual existence as the management and owners are different. Ownership is easily transferable

Yes. The nominee will take place of member.

Change in Partners or Designated Partners does not affect the existence of LLP

Change in partner leads to dissolution or formation of another partnership firm

Death or insolvency of proprietor directly affects the firm

Foreign Participation

Foreign national are allowed to invest under the Automatic Route

Member, nominee and director must be an Indian resident

Foreign nationals are allowed, subject to FDI Guidelines

Foreign nationals are not allowed to be a partner

Foreign Nationals cannot commence proprietorship business

Tax Rates

Moderate. Tax rate applicable for small companies is reduced to 22%, dividend distribution tax applicable

Moderate. Tax rate applicable for small companies is reduced to 22%, dividend distribution tax applicable

High. With tax rate of 30% on business profit, no tax on income distribution to partners

High. With tax rate of 30% on business profit, no tax on income distribution to partners

Low. Tax rates of individual applied to Proprietorship Firm

Statutory Compliances

High. Companies have to meet high compliance requirements 

High. Companies have to meet high compliance requirements 

Moderate. Lesser compliance requirements compared to companies

Low. Separate ITR of partnership is filed, else there is no filing requirement

Low. No compliances and no requirement to file a separate ITR