Proprietorship Firm Registration in India

Have you ever wondered what is the most simple way of starting and running a business? Is there any form of business available that can outperform other businesses and remain less complex when it comes to management? The answer to these queries is a big YES. A Sole Proprietorship Firm is the most simple form of business that anyone can start with. These firms are easy to form, and maintain, and that too within a small period.

So, if you are thinking of being an entrepreneur within no time and with the least technical and legal complexities, Sole Proprietorship firms offer the required solution.

What is a Sole Proprietorship Firm?

A sole proprietorship firm, as the name depicts, is a simple kind of business run by an individual, a trader, or a proprietor. Such type of business entity is entirely dependent on the decisions of the owner and all the pros and cons of these decisions are to be borne by the owner only.

Advantages of Sole Proprietorship Firm

The major function of a Sole proprietorship firm is not limited to its simple structure. In fact, it offers several benefits. Here are some of them:

Minimalistic legalities and procedures of formation

This is the biggest and most advantageous feature of these firms that they are easy to form. This can be the sole reason for starting a business. Many people wish to start a home-based business or a business with minimum legal restrictions. Sole Proprietorships offer the solution. The ease of formation with minimal costs incurred and with limited legalities to be performed makes the business more appealing.

Complete freedom and authority to the owner

Sole proprietorship firms offer complete freedom and ease to the owner. The owner is free to make any decisions regarding the company matters and there is no requirement to hold board meetings or ask the other members for their opinions.

Lower tax liabilities

About tax compliances, sole proprietorships have an easy way out. All the sole proprietorship firms that have an income of less than Rs. 3 lakhs, don't need to pay any tax to the government. Such firms are taxed considering the firm as an individual and this seems a great relaxation to the small business owners. Also, the expenses related to the cost of running the business, travel expenditures, automobile expenditures, etc. can be deducted from the income tax if you have a home-based setup.

Single owner and a single nominee

Sole proprietorship firms seem advantageous as they need a single owner and a person to be appointed as the nominee Director only as compared to other business structures where a minimum of 2 people are required to operate the business.

Disadvantages of Sole Proprietorship Firms

No limit on the liability

As the Sole Proprietorship firms are managed by one person only, therefore all the debts and liabilities are liable to the owner itself. Thus, in cases of loss accidents, or failures, the company could be seized for the losses and the owner might have to pay from his or her accounts.

Difficult to raise funds

When it comes to fundraising, sole proprietorships might not receive the same trust as other business structures do. Unlike other business entities, sole proprietorship firms cannot raise capital by listing the stocks and the fundraising is entirely dependent on the owner’s market and credit rating.

A wrong decision may impact the business

Sole proprietorship firms are solely based on the decision of the owner and since there is no second person involved, therefore, any wrong decision taken might have a huge impact on the financial status of the company.

Little scope for the employees

Sole Proprietorship Firms are small firms and they have limited capital and market value. Also, the income generated is not huge, so they can employ experienced and skilled professionals. This, in turn, can affect the growth prospects of the company.

How To Register A Sole Proprietorship Firm?

Sole Proprietorship firms come with the unique advantage of no registration required. Hence, there isn't any legal procedure to incorporate such firms. However, there are some licenses or registrations that are required to be completed to establish the firm:

Udyog Aadhar Registration

Registration as a micro, small, or medium business enterprise is done by filing for Udyog Aadhar registration. This can be done online by visiting our website UdyamRegsitration and filling up the given form. Udyog Aadhar registration is quite beneficial when the owner is trying to take loans for the expansion of the business and in turn, there are several concession schemes run by the government to help the MSMEs.

Shop and Establishment Act License

This registration is state-based and is a prerequisite for setting up a hotel, shop, or any commercial place. Such a license can be acquired within 30 days of applying and is valid for one year. This license needs renewal every year.

GST Registration

GST registration is a boon to the business industry as it has replaced the need for different kinds of taxes and brought all of them under one roof. GST registration is mandatory for all Businesses where the annual turnover is more than 40 lakhs. Getting a GST registration increases the credibility of the suppliers and in case the business lacks a GST registration license, the owner may have to pay a good lump sum of money as a fine.

FSSAI Registration

If the business to be established is a food production-related business or handling of food products, the owner must get a license from the FOOD SAFETY AND STANDARD AUTHORITY OF INDIA( FSSAI). This ensures a check on the quality of the food products and ensures safety.

The following document is required for FSSAI registration:

• Identity proof of the owner
• Aadhar card
• Senior Citizen card
• NOC by Municipality or Panchayat, Health NOC

How to register a Proprietorship Firm through Filing Lounge

• Visit the website FilingLounge and on the homepage, under the Business Formation tab, select Proprietorship Firm firm from the drop-down menu.
• A form is displayed that needs to be filled out by the applicant furnishing all the details regarding his name and other business details
• Click on the Submit button
• Our executives will give you a call shortly to carry forward the application process.

Comparison between Proprietorship, Partnership, Limited Liability Partnership, and Private Limited Companies.

Particulars	Proprietorship firm	Partnership firm	Limited Liability Partnership	Private Limited Company
Type of business	One man entity	Minimum 2 and maximum 50 partners	Minimum 2 and no maximum limit on partners	2 members, 2 Directors, and 2 shareholders
Identification	Can choose any name	Can choose any name like associates, corporation	The name should end with LLP	The name should end with Private Limited Company
Governing Acts	Not bound by any law	Indian Partnership Act, 1932	Limited Liability Act, 2008	Companies Act, 2013
Registration	No registration is required. Only some licenses are required	A partnership Deed is a must and registration is not mandatory	Registration is done with the Ministry of Corporate Affairs (MCA) or FilingLounge	Registration is done with the Ministry of Corporate Affairs (MCA)
Tax liability	Individual tax slab is applicable	The tax rate is 30 % benefit of the tax slab	A 30 % tax rate is applicable	25 % tax rate. For the new company 15 % and for the old company 22 % as per the deductions under VIA and 10 AA
Yearly compliance cost	No yearly compliance cost	Non Mandatory yearly climate cost	Cost of maintenance of books accounts, statutory audit, annual return filing approx 25000	Cost of maintenance of book of accounts, BOD meeting, return fling, audit, approx 50000
Promoter	No approval is needed for the promoter’s name	No approval is needed for the promoter’s name	The name of promoter must be approved by the Registrar of Companies	Promoter’s name must be approved by the Registrar of Companies

Conclusion

Proprietorship firms are a great start for an entrepreneur who does not want too many legalities in his startup. Beginners who don't have a great idea about the pros and cons of business ventures, can start from proprietorship firms and rise from there. We, at FilingLounge, help you register your firm with utmost ease and comfort. No need to roam around for certifications and registrations. We are just a click away. Please visit our Facebook page for more updates. Also, please do write to us for an inquiry at care@filinglounge.com .