What is Proprietorship?
A sole proprietorship also called individual entrepreneurship, sole trader or simply a proprietorship is a form of business that is owned, operated and managed by a single person and in which there is no legal difference between the owner and the business unit. A sole trader does not necessarily work “alone” – it is possible for them to employ other people.
The sole proprietor earns all profits (subject to company-specific taxation) and is fully accountable for any losses and debts. Every asset of the business is the property of the owner in contrast to partnerships (which have at least two owners).
A sole trader can use a trade/Business or company name other than his or her legal name. One may have to label their company name as a legal trademark if it differs from their legal name.
Registration of Proprietorship
The Indian government does not provide a mechanism for registering proprietorship. There is also no state or central government agency that regulates the registration or operation of proprietorship rights in India. The existence of a company can be proven by one or more tax registrations and a company license. For example, MSME and GST registration can be obtained on behalf of the owner to determine that the owner is a sole proprietorship.
Since there is no procedure to register the name of a sole proprietorship, anyone else can use the same name for their business. However, if an owner wants to protect the company name and the name is unique, a trademark registration for the company name can be applied.
Advantages of a Proprietorship Firm
Easy to start
The biggest advantage in starting a Proprietorship is the ease of setup since it does not require registration. Therefore, it is one of the easiest to start without formalities. However, after launching the Proprietor, it is relatively difficult to open a bank account or get a payment portal on behalf of the company as additional registrations may be required.
Since the name of a proprietor is not registered, a proprietor can choose any name – as long as it does not violate a registered trademark. However, since the name is not registered, any other person can use the same company name, as long as no trademark registration is requested.
A sole proprietorship with less than Rs. 2 lakhs of income is not required to pay income tax as it is taxed as an owed individual person. However, once the income from the business exceeds Rs. 10 lakhs per year, there are no significant tax advantages for propriety.
Common Proprietorship Registrations
Since the identity of a sole proprietorship is established through various other registrations and licenses, some of the general registrations acquired for a company are listed below.
MSME registration: MSME or Udyog Aadhaar registration can be requested on behalf of the company to determine that the sole proprietorship is registered with the Ministry of Medium, Small or Micro-sized Enterprises.
TAN registration: The TAN registration for the holder must be requested from the income tax department if the holder pays wages that require a TDS deduction
Import Export Code: The Import Export Code or IE Code can be obtained from the DGFT on behalf of the company – in the case of a proprietorship company that exports and / or imports goods to India.
FSSAI registration: If the company is involved in the sale or handling of food, FSSAI registration must be requested from the Indian Food Safety and Standards Agency on behalf of the owner.
Documents Required for Proprietorship Registration
Sole proprietorships are the simplest form of business in India because they are not subject to specific laws. The compliance requirements among sole proprietorships are nominal and easy to meet.
Following documents are needed to register a sole proprietorship:
Although the sole proprietor does not need specific registrations, it is wise to get a few registrations to keep the business running smoothly.
Registration as SME
You can register as a small and medium-sized enterprise (SME) according to the MSME law. The registration can be submitted electronically. Although registration as an SME is not required, this is a great advantage, especially when the company is taking out a loan. The government maintains various programs for SMEs that offer loans at discounted rates.
Shop and Establishment Act license
This license is not obligatory everywhere, but it should be obtained according to the local laws. It is issued by the municipal office based on the number of employees in the company.
GST registration must be obtained if the owner sells goods or services that exceed the GST sales threshold. In most states, GST registration is needed for service providers with sales above 20 LPA and merchants – sales above 40 LPA.
You need the following documents to register with GST:
a. PAN card, photo and, Aadhar card of the holder
b. Proof of business location (electricity bill / rental contract)
c. Copy of bank statement (first page for verification of bank account number, address, and IFSC code)
GST registration is easy and can be done through the GST portal. You will normally receive the GST number within 3-4 days of submitting your application.
Famous Businesses that started as Proprietorship
It should be noted that you don’t have to keep the same form of business property for the life of a company. Many small businesses start as sole proprietorship and later become businesses, as shown in the examples below.
1. J. Willard Marriott founded several companies as a sole trader and started with a root beer stand that eventually became the A&W restaurant chain. His hotel business started in 1959 and was only founded in 1969.
Richard Warren Sears founded a mail-order company for watches and jewelry as a sole trader. He later commissioned Alvah Curtis Roebuck to repair and fix watches. The two opted for a partnership and Sears, Roebuck and Company became the biggest retailer in the US.
2. James Cash Penney started his employment in 1898 as a staff in a small retail chain. Finally, he bought up the existing partners and started the company as a sole trader for several years. The number of stores continued to increase and in 1913 the chain was launched under the name “J.C. Penney Company”. By 1929, over 1,000 stores were in the market.
Business Rights is the leading service provider for proprietorship registration in India. In addition to the registration of property rights, we offer several other services, such as registration of limited liability companies, registration of one-person companies, registration of Nidhi companies, Section 8 of company registration, registration of producer companies and registration of Indian subsidiaries.
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