Sole proprietorships are businesses managed by a single person. In general, it doesn't require registration. This type of business form is perfect for people who want to start a business with less money.
A sole Proprietorship is a business or an establishment run by a single person. In whose name the business is run, they are responsible for the enterprises. Most people unfamiliar with the concept of ‘Sole Proprietorship’ believe they are required registration for it.
However, no registration is required to open a business under the ‘Sole Proprietorship model. In a Sole Proprietorship, the owner must report all business income and expenses on their personal tax return.
What you need, instead, is all the government registrations applicable to your business. It could be GST Registration or an Importer, Exporter Code (IEC). Any one of these would be sufficient to start and run your business as a sole proprietor and open a current account, which is mandatory for any enterprise.
Opening a Bank Account for a Sole Proprietorship
Opening a current account is a mandatory aspect of any business. For this purpose, you will generally need all the registrations applicable to your business below. Still, any two of the below-mentioned registrations would be sufficient to get you a current account as per the KYC norms set by the RBI:
GST Registration:
GST is a tax levied by the central government. This registration is mandatory for all businesses in India that cross the threshold limit set by the CBIC. You must be registered if you sell goods worth more than a certain amount per year (₹ 40 lakh for goods & ₹20 Lakhs for services). After that, you must make a monthly/quarterly payment and file your returns. You will be assigned a GST number called GSTIN once you have registered.
Shops and Establishment Act License:
The municipal authorities of all states require businesses to have a shop establishment license. This license must be obtained for all places in which you are conducting your business, even if you are operating from home.
The Shops and Establishments Act licenses are given by the Department of Labor in each state, which puts forward certain conditions and clauses for employers pertaining to conditions of work and a list of rights for the employees.
Each shop or business establishment must register for the Shops and Establishments Act, irrespective of the number of employees. Most banks will only open an account for your business with this license since it is proof of your establishment.
Profession Tax Registration:
A business with employees needs to obtain professional tax registration within 30 days of the commencement of the business in some states. This mandate varies from state to state. Professional tax returns must also be filed annually and capped at ₹ 2500 per annum.
IEC:
An IEC is issued to all eligible importers and exporters. You can apply for an IEC code even as an individual or through a partnership firm dealing with importing or exporting goods. IEC is only applicable when your business involves importing or exporting products and not for service or technology-based industries. So if you are running such a business, you will need to get an IEC before starting your operations.
MSME Registration:
MSME is the abbreviation for micro, small and medium enterprises. Hence, any enterprise that falls under this category must file for this registration. Both service and manufacturing businesses can apply for MSME Registration. Some of the benefits of this registration include the following –
- Lower interest rates for business from the banks
- Tax subsidies
- Electricity consumption subsidies, and many more.
Businesses can obtain MSME registration according to their investment in plant and machinery and turnover. For instance, medium industries with an investment of less than ₹50 crore rupees in plant and machinery are eligible to obtain MSME registration.
Other:
An IT return or utility bill in the name of the proprietorship or a license issued by the Institute of Chartered Accountants of India, Indian Medical Council or Institute of Company Secretaries of India is also necessary to open a bank account in some cases.
Why Is There No Requirement for Sole Proprietorship Registration?
A proprietorship is an extension of its owner, the proprietor. In the absence of the owner, it ceases to exist. This is why a sole proprietorship, unlike a one-person company (OPC), has no perpetual existence.
Such a business has a few advantages – it’s easy and inexpensive to start, and only a few compliances are to be met annually.
It, however, has one major flaw. A Sole Proprietorship can be a good option for small businesses with low risk and low start-up costs, but may not be suitable for larger or more complex enterprises.
Proprietors must bear unlimited liability since no legal difference exists between the person and the company or business. This means that if your business cannot repay all its debts, your creditors can recover their money from your personal possessions. However, this is different in other business models, like a partnership firm, since all the stakeholders share the liability. For this reason, only smaller businesses should continue under sole proprietorship.
To know more about the licensing and tax registration requirements applicable to your sole proprietorship, get in touch with our experts for a free consultation. Our team of dedicated lawyers will walk you through the entire process and ensure hassle-free certification procurement!
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