Being the oldest and most common form of business structure, a sole proprietorship an ideal one for a small business. Since it is owned, operated and managed by a single individual, does not have a distinct status apart from the owner, and is neither a legal entity. Also known as a sole trader or simply a proprietorship, the owner receives all profits (after tax) and has unlimited responsibility for all losses and debts in this type of business. The decision making body is also that single individual and hence it has unlimited risk associated with it including the personal assets of the proprietor himself being at stake.
Sole Proprietorship is the easiest form of business done in India since it isn’t governed by any specific laws. Under sole proprietorship the compliance’s are minimal and easy to fulfill.
Although sole proprietor doesn’t require any specific registrations, he is advised to obtain a few registrations to make his business function smoothly.
Registering as SME
It is better to get registered your firm as Small and Medium Enterprise (SME) under the MSME Act. The application can be filed electronically. Although it isn’t compulsory to register as an SME, it is highly beneficial, especially at the time of taking loan for the business. The Government runs various schemes for SMEs where loans are provided at the concessional rate of interest.
Shop and Establishment Act License
This license isn’t mandatory at all places, but it is required to be obtained according to the local laws. License or certificate from Municipal Officials under Shop and Establishment act
GST Registration
GST registration is required in case the turnover of the business exceeds specified limit. The limit is ₹ 40 lakhs for supplier of goods and ₹ 20 lakhs for service providers (limit is ₹ 20 lakhs and ₹ 10 lakhs, respectively for specified States).
IEC code for Import-export business: Directorate General of Foreign Trade (DGFT) issues a unique 10-digit registration code, which is IEC or the Import Export . This code is mandatory for every import-export business. Additionally, it serves as an easy tracker of the consignment while aiding in the management of the same. Considering the benefits of advancement to e-IEC (electronic-IEC ), similar to the PAN card is initiated.
Trademark Registration: In India, there are no specific laws for registrating a sole proprietorship. A proprietor may use a trade name or business name other than his/her name. While selecting a name, it is advisable to select a unique name to avoid the potential infringement of an existing trademark. So it is better to trade your products or services with an exclusive name or brand. It is beneficial where there is a threat of some misuse of the name used in your business.
Licenses or Certificates required according to the nature of business: According to the nature of your firm, some certificates or licenses related to that area is required. If it is a drug manufacturing business, a Drug license is mandatory. Similarly, Food manufacturing company needs a license from Food Safety and Standards Authority of India (FSSAI License)
A Current Account is required to be opened in the name of the Sole Proprietorship (i.e., business name), to carry out financial transactions related to proprietorship concern. RBI has prescribed some KYC (Know Your Customer) norms for opening the bank account which provides a list of the following documents:
Registration certificates or licenses obtained from various departments as discussed above;
Identity proof of Sole Proprietor (Permanent Account Number [PAN] of proprietor is a mandatory requirement here). Other identity proof includes Passport, Aadhar, Driving license, etc.
Address Proof of Sole Proprietor which includes Aadhar, Electricity bill, Water bill, Bank statement, etc.
1. Aadhar Card of the Proprietor– It is mandatory everywhere in India. It can be used as an Identity proof as well as Address proof.
2. PAN Card of the Proprietor– It is a mandatory thing if you want to file Income Tax Returns. Also, linking of PAN with Aadhar is a must for filing Income tax returns.
3. Address proof of Place of Business– Electricity bill, Water bill, etc. can be used as address proof if you own the place of business. If not, then Rent Agreement along with a NOC (Non-Objection Certificate) will be required additionally.
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