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Right Plan for Your Business
- Expert assisted process
- GST registration
- MSME registration (Udyam)
- GST filing for one financial year (upto 300 transactions)
- Expert assisted process
- GST registration
- MSME registration (Udyam)
- GST filing for one financial year (upto 500 transactions)
- ITR filing
Overview
A sole proprietorship firm is a simple and popular business structure in India, ideal for individual entrepreneurs and small businesses looking for a low-cost setup. In this model, there is no legal distinction between the owner and the business, meaning all profits, losses, and liabilities directly affect the proprietor. The sole proprietor has full control over operations, decision-making, and can hire employees if needed. However, the owner also bears unlimited liability—putting personal assets at risk in case of business debts—making this structure more suitable for low-risk ventures.
To legally establish a sole proprietorship in India, key tax registrations like GST (Goods and Services Tax) are often required, especially if annual turnover exceeds the prescribed threshold. Depending on the business location and type, licenses such as the Shop and Establishment Act license may also be necessary. Vakilsearch offers end-to-end assistance in registering sole proprietorships, ensuring a smooth, compliant, and hassle-free setup tailored to your business needs.
What is Sole Proprietorship Registration?
Sole Proprietorship Registration is the process of legally establishing a business owned and operated by a single individual. It is the simplest form of business structure in India, ideal for small businesses, freelancers, or local traders.
The owner and the business are considered the same legal entity, which means all profits, losses, and liabilities belong solely to the proprietor. While it doesn’t require a formal registration under the Companies Act, businesses may need licenses like GST registration or a shop act license depending on their nature.
Advantages of Sole Proprietorship Registration
A sole proprietorship is one of the simplest and most common forms of business in India. Below are the key benefits of registering a sole proprietorship:
Easy to Start and Low Compliance Requirements
A sole proprietorship is generally inexpensive to start compared to other business structures like corporations or LLPs.
Complete Control and Quick Decision-Making
The sole proprietor has full ownership and control over business operations. This allows for faster decision-making without the need for approvals from partners or a board. It’s ideal for small business owners, local traders, and service providers who value autonomy.
Tax Benefits and Savings
Sole proprietorships are taxed as individual income, which can result in lower tax liability. In some cases, proprietors may also be eligible for deductions up to 20%, helping reduce their overall tax burden.
Direct Customer Relationships
A sole proprietorship enables close interaction with customers. The proprietor can address feedback directly, build trust, and develop strong, personalized client relationships—especially important for service businesses and local shops.
Flexibility in Hiring Employees
Sole proprietors can hire employees or work with independent consultants. These consultants provide input as recommendations, allowing the owner to retain control while still gaining expert support when needed.
Considerations and Limitations
While there are many advantages, it’s important to be aware of the potentialProcure required license including FSSAI license or shop and establishment Act license. Drawbacks of a sole proprietorship:
Limited access to funding
Sole proprietorships may struggle to raise capital due to lack of formal structure and investor confidence.
No continuity
The business does not have a separate legal existence. It may cease to exist upon the death or incapacity of the owner.
Limited credibility
Without formal registration, it can be harder to build trust or enter into large-scale contracts.
Checklist for Sole Proprietorship Firm Registration
The checklist for registering a sole proprietorship in India are:
- Choose a perfect company name for your sole proprietorship business
- Open a Business Bank account in the company name
- Get Registered as an MSME
- Procure required license including FSSAI license or shop and establishment Act license
- GST registration
- Based on the business requirement you can register for ESIC or EPFO
- Obtain all the required certification under Shop and Establishment Act of 1947 ( if applicable).
Eligibility Criteria for Sole Proprietorship Registration
The eligibility criteria for sole proprietorship registration are:
- The applicant should be above 18 years
- The applicant should be an Indian Citizen
- They should have the legal capacity to enter into a contract
- The proprietor should not have any legal disabilities
- Applicant should not be declared bankrupt or convicted for a felony previously
- The purpose of the business should be clearly outlined while starting a sole proprietorship
- The business should be a lawful activity and should prevent selling illegal goods and services
- The business should have a unique name that was not registered previously.
A2Z Registration LLP Registration Process
At A2Z Registration, we make the LLP registration process simple and easy so that our clients can focus on their business. Here’s how our LLP registration process generally goes:
Step 1: Consultation and Planning
Our professionals talk with you about your business needs and goals to find the most appropriate LLP structure.
Step 2: Name Reservation
We conduct a thorough name availability search and reserve a unique name of the LLP that complies with regulatory guidelines. Our team will file the RUN-LLP for the same.
Step 3: Document Preparation
Our team assists in drafting the LLP agreement, outlining partner roles, profit-sharing, and operational procedures according to your specifications.
Step 4: Digital Signature Certificates (DSC)
We arrange for the issuance of Digital Signature Certificates (DSC) for all the partners of the LLP.
Step 5: Filing with Registrar of Companies (ROC)
We draft and file Form 2 (application for incorporation of LLP) and other documents with the ROC on your behalf.
Step 6: Verification and Approval
Our professionals coordinate with the ROC to check the documents submitted and confirm LLP Act compliance.
Step 7: Certificate of Incorporation
On approval of registration of the company, we receive the Incorporation documents from the ROC to confirm the legal existence of your LLP.
Step 8: Post-Incorporation Compliance
We help you get PAN and TAN for your LLP, register the LLP agreement, and maintain ongoing compliance with regulatory filings.
Step 9: Additional Services
Vakilsearch offers continuous support for annual compliances, trademark registration, professional tax, proposed LLP structure changes, and other legal compliances to facilitate you in running and expanding your business smoothly.
OPC Compliance Due Date
| Particular | Compliance Requirement | Form | Due Date |
|---|---|---|---|
| Annual Return (Form MGT-7): Within 60 days from the date of the AGM. | Annual Return | Form MGT-7 | Within 60 days from the date of the AGM |
| Financial Statements (Form AOC-4): Within 180 days from the end of the financial year. | Financial Statements | Form AOC-4 | Within 180 days from the end of the financial year |
| Income Tax Return: By 30th September of the assessment year. | Income Tax Return | - | By 30th September of the assessment year |
Taxability of OPCs in India
OPCs in India are liable for several tax requirements like other corporations. But they have some privileges
- Corporate Tax: OPCs need to pay corporate tax on their earnings. The rate of tax for OPCs is consistent with the rates for other private limited companies.
- Tax Deductions: OPCs can claim a number of deductions under the Income Tax Act, including depreciation of assets, business expenses, and certain allowances.
- Dividend Distribution Tax (DDT): OPCs need to pay DDT on any dividend paid to shareholders.
- Goods and Services Tax (GST): In case of annual turnover above ₹20 lakhs, OPCs shall get registered under GST and file GST returns
Specific Tax Provisions Applicable to OPCs
- Income Tax Rates: OPCs are charged a flat rate of 22% plus applicable surcharge and cess for domestic companies claiming no exemption or incentive. For companies claiming exemption, the rate shall be 30%.
- MAT (Minimum Alternate Tax): OPCs fall under MAT, which is charged at 15% of book profits (under the Income Tax Act), along with surcharge and cess.
- Tax Audit: OPCs are required to undergo tax audit if their turnover is more than ₹1 crore (in case of businesses) or ₹50 lakhs (in case of professionals).
How A2Z Registration Helps in Simplifying the One-Person Company Registration Process?
Vakilsearch provides end-to-end services to make OPC registration easier, providing a smooth experience for entrepreneurs:
- Expert Consultation: We deliver professional advice to guide you in realizing the specific needs and advantages of an OPC registration.
- Documentation Support: We help prepare and gather all documents necessary, making sure that they are as per legal requirements.
- DIN and DSC Application: We assist in procuring the Director Identification Number (DIN) and Digital Signature Certificate (DSC) needed to complete the registration process.
- Name Approval: They handle the whole procedure of name approval with the Ministry of Corporate Affairs (MCA), so that the intended name is compliant with all statutory requirements.
- MOA and AOA Drafting: Vakilsearch prepares the Memorandum of Association (MOA) and Articles of Association (AOA), customizing them for the business’s unique requirements.
- Filing with ROC: We process the filing of requisite forms (INC-32, INC-33, and INC-34) with the Registrar of Companies (ROC), making sure that all legal procedures are followed.
- Certificate of Incorporation: Vakilsearch helps you get the Certificate of Incorporation, which marks the official incorporation of the OPC.
- PAN and TAN Application: We provide the process of application for the Permanent Account Number (PAN) of the company and Tax Deduction and Collection Account Number (TAN).
- Post-Incorporation Support: Vakilsearch provides continuous support for post-incorporation compliances to assist business firms in maintaining their legal status and operational efficiency.
Documents Required for Sole Proprietorship Firm Registration
To register a sole proprietorship in India, the following documents are generally required:
Personal Identification Documents
- Aadhaar Card of the sole proprietor
- PAN Card or any other valid government-issued identity proof of the proprietor
Business Bank Details
- Bank account details in the name of the proprietorship
Business Address Proof
- Address proof of the business location
- Rental agreement (if operating from a rented property)
- No Objection Certificate (NOC) from the landlord (if applicable)
- Utility bill or sale deed (if the property is self-owned)
Business Registrations (if applicable)
- MSME/Udyam Registration Certificate
- Shop and Establishment Act License or Trade License
- GST Registration Certificate (if applicable based on turnover)
Please note:
- Document requirements might differ depending on the state.
- To register a sole proprietorship firm online, the PAN and Aadhaar card of the business owner are required.
- Shop and Establishment Act registration is often required to operate legally.
- GST registration is mandatory if the annual turnover exceeds ₹20 lakh (₹10 lakh for certain northeastern and special category states).
- The Shop and Establishment Act registration is required for most businesses in India and can be obtained online or offline.
Sole Proprietorship Firm Registration Fees
To start a sole proprietorship in India, the costs may vary based on the business location, type of registration, and licenses required. Here’s a general fee breakdown:
| Component | Approximate Fees (INR) | Remarks |
|---|---|---|
| GST Registration | Free (Government portal) | Mandatory if turnover exceeds ₹40 lakhs |
| MSME (Udyam) Registration | Free | Optional but beneficial for small businesses |
| Shop & Establishment License | ₹1,000 – ₹5,000 | Varies by state and business size |
| CA or Consultant Charges (if any) | ₹1,000 – ₹3,000 | For handling paperwork and legal formalities |
| PAN Application (if not available) | ₹110 | One-time fee for applying through NSDL or UTIITSL |
| Current Account Opening | Varies by Bank | Usually requires minimal balance maintenance |
Steps to Register a Sole Proprietorship in India
There are four steps to register your sole proprietorship in India:
1. Register your Business Name
- Consult our legal experts and choose a proper name for your sole proprietorship. Our team will assist you in registering your business name.
2. Get your PAN, GST, and MSME Registration Done
- Our team will help you get your Udyam registration certificate and GST registrationdone in one go!
3. Obtain Shop and Establishment Act License
- Submit all the required documentation, and we will file the registration form for your sole proprietorship.
4. Open a Current Account
- After business registration we will assist you in opening an instant zero-balance current account. Our team also provides GST, ITR annual filing, and trademark registration support.
Legal Status of Sole Proprietorship
According to the law, an individual owns a sole proprietorship, which is an unincorporated business structure. The legal status of a registered sole proprietorship form in India is outlined below:
It Is Not a Separate Legal Entity From the Business Owner
- Consult our legal experts and choose a proper name for your sole proprietorship. Our team will assist you in registering your business name.
It Can Sue, or Get Sued Only by the Owners Name
- 1Our team will help you get your Udyam registration certificate and GST registrationdone in one go!
No Legal Formalities to Create Sole Proprietorship
- Apart from the required licensing to conduct the business, there are no complex legal formalities to register a sole proprietorship.
It Is Not a Taxable Entity
- Since a sole proprietorship doesn’t have any legal identity, it cannot be treated as a taxable entity. The funds generated by the sole proprietorship will be taxed under the proprietor’s name.
Compliance and Tax Requirements for Sole Proprietorships
Running a sole proprietorship in India comes with certain legal and tax responsibilities. Here are the key compliance obligations every sole proprietor should be aware of:
Income Tax Filing
- The business owner must file a personal income tax return using the form ITR-3 or ITR-4 for income tax compliance.
PAN Registration
- It is mandatory for the sole proprietor to have a Permanent Account Number (PAN). The same PAN is used for all tax filings, including income tax and TDS, as the business is not a separate legal entity.
TDS and Quarterly Returns (If Applicable)
- If a proprietorship has employees or transactions beyond a certain threshold, TDS returns must be filed quarterly.
GST Registration and Returns
If the annual turnover of the proprietorship exceeds:
- ₹20 lakh (₹10 lakh in special category states) for service providers or ₹40 lakh for goods suppliers,GST registration becomes mandatory. The business must file monthly or quarterly GST returns , based on the scheme opted.
Sole Proprietorship vs. Other Business Structures
Here is a detailed comparison between sole proprietorship and other business structures. Before registering your entity, it is crucial to consider the various business structures, their advantages, and how they suit your business activities in detail:
| Particulars | Sole proprietorship | LLP | Partnership |
|---|---|---|---|
| Establishment | It is easy to register doesn't require any complex paper works | A bit complicated process and requires the applicant to file articles of incorporation with the state government | The applicant should file all the details regarding the partnership partners and the business directly to the MCA |
| Name of the business | The business can function under the owner's name or formally registered business name | It requires an established and secured name ending with the word LLP | It requires filing directly for name registration. |
| Liability | There is no legal protection for the firm. The owner has 100% liability for debt. | Legal protection is provided for the owners. | The owners are liable |
| Taxation | The income generated is filed under the owner's personal taxes. | In case of two or more owners the taxation is filed appropriately as partnerships. | Filed under partnership both the income or the losses are declared on personal returns |
Sole Proprietorship Tax Implications
The tax rate for sole proprietorships is the same as that of the owner prior to the establishment of the business. Instead of filing a separate business tax return, as a corporation would, they disclose their income and costs on their personal income tax taxes. Here is a complete outline:
Filing Income Tax Returns
- A sole proprietorship is often taxed on its net income. This is the total revenue earned after deducting all the allowable deductions. This income is directly reported by the owner on their personal income tax return. If the owner is a single person working, then self-employment tax should be filed.
The Self Employment Tax
- It is the equivalent of social security and Medicare taxes for self-employed people
Goods and Service Tax
- If the business is involved in selling goods and services, then it is subject to filing GST returns or sales tax.
Employment tax or TDS returns
If the proprietor has multiple employees, then it is crucial to find TDS returns from time to time.
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Financing Options for Sole Proprietorships
Irrespective of the business, financing is crucial for conducting the day’s activities. Here are two major options for funding a sole proprietorship company:
Personal Savings and Investments
In most cases, sole proprietorship financing is done by self-funding. But this doesn’t apply in all cases. You can also generate funds through family and relatives
Business Loans for Sole Proprietors
Bank loans are the best options for procuring funds to grow your business. Sole proprietorship business loans are available across India in both traditional and digital banks. This will help you meet the funding requirements. In general, a sole proprietor can apply for both secured and unsecured loans. It is crucial to analyse the loan tenure, line of credit, invoice discounting, and other factors.
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How Does A2Z Registration Assist With Sole Proprietorship Registration?
We provide access to top incorporation experts who will guide you through the complexities of sole proprietorship registration. Our professionals will coordinate with you to fulfil all your legal requirements. You can also track the progress on our online platform at all times.
Our team will handle all the paperwork and ensure a seamless, interactive process with the government. We provide clarity on the incorporation process to set realistic expectations. With a team of over 300 experienced business advisors and legal professionals, you are just a phone call away from the best in legal services.