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A sole proprietorship is a business type owned and operated by just one person. It is also referred to as proprietorship, solo entrepreneurship, or lone tradership.This is best suited for small business. In this business type, there is no legal distinction between the owner and the business entity. The sole trader can also employ other people to work in the sole proprietorship. All the profits generated through the sole proprietorship are subject to taxation with respect to the business. All the debt and assets of the business are the proprietor's liability. A sole proprietor can use trade names or business names other than their legal name.
A sole proprietorship offers an individual greater control over the business. It also has fewer laws ,compliances and regulations. It provides a greater display of organisational commitment among the employees. A sole proprietorship offers tax returns and is much simpler to establish compared to other forms of organisation.
Anyone who wants to launch a firm in less time with significantly less capital may choose to register as a sole proprietorship. It can be launched in a few days and gives the owner complete control over the enterprise.
Below are the main advantages of sole proprietorship registration in India:
When compared to other business entities, establishing a sole proprietorship is much easier. It requires very little paperwork from the government end and can be set up easily. Post-registration compliance is also much simpler when compared to other business entities.
The income generated by the firm directly passes through a single layer of income tax. In some cases, it is also eligible for up to a 20% tax deduction. These deductions can help the owners save a lot of money.
Since all business handling is conducted by a sole owner, there will be no delays in taking quick Business decisions. The sole proprietor has 100% ownership of the business and will be responsible for the day's activities. There is a better rate of maintaining secrecy and decisions without needing to consult anyone. This is best suitable for small to medium enterprises, grocery stores and small traders.
In a sole proprietorship, the individual has better opportunities to directly interact with their clients. In case of any dissatisfaction, the clients can directly communicate with the proprietor, which improves personal relationships between the owners and the customers.
Sole proprietorships can easily hire individuals and employees to work as independent consultants,the contribution to the project or decision of a consultant is considered a recommendation as per the law.
When compared to other business entities, establishing a sole proprietorship is much easier. It requires very little paperwork from the government end and can be set up easily. Post-registration compliance is also much simpler when compared to other business entities.
The income generated by the firm directly passes through a single layer of income tax. In some cases, it is also eligible for up to a 20% tax deduction. These deductions can help the owners save a lot of money.
Since all business handling is conducted by a sole owner, there will be no delays in taking quick Business decisions. The sole proprietor has 100% ownership of the business and will be responsible for the day's activities. There is a better rate of maintaining secrecy and decisions without needing to consult anyone. This is best suitable for small to medium enterprises, grocery stores and small traders.
In a sole proprietorship, the individual has better opportunities to directly interact with their clients. In case of any dissatisfaction, the clients can directly communicate with the proprietor, which improves personal relationships between the owners and the customers.
Sole proprietorships can easily hire individuals and employees to work as independent consultants,the contribution to the project or decision of a consultant is considered a recommendation as per the law.
The checklist for registering a sole proprietorship in India are:
The eligibility criteria for sole proprietorship registration are :
The following documents required for Sole Proprietorship Registration:
There are four steps to register your Sole proprietorship in India
Day 1-2
Document submission & verification
Day 3-5
Application filing
Day 5 - 7
Successful company registration
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 registration done in one go!
3. Filing for Sole Proprietorship Registration
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.
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:
Unlike other business structures, a sole proprietorship doesn't have the power to function as a separate legal entity. As a result, you cannot register any assets under the name of the sole proprietorship.
The owner or sole proprietor has the power to run a sole proprietorship. The company cannot be sued; only the owner can be sued in case of any litigation
Apart from the required licensing to conduct the business, there are no complex legal formalities to register a sole proprietorship.
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.
After the registration of a sole proprietorship, the proprietor should make sure to follow the compliance requirements from time-to-time. Here is a set of post-registration compliances for sole proprietorships in India:
If the sole proprietor has a turnover or conducts business exceeding ₹1 crore in a financial year it is mandatory to have a tax audit before tax filing. Vakilsearch has a team of experienced chartered accountants who can guide you when it comes to regulatory compliances , tax advantages, and return filing. Book a slot to consult today.
As per law the sole proprietor is required to maintain a book of accounts if they cross the threshold of₹25,00,000 or more than ₹2,50,000 in any of the three preceding years.
As per the GST Act the proprietor has to file GST returns if the aggregate business turnover is more than ₹20 lakhs.
If the proprietor decides to hire employees, then they will have to follow the other labour laws of India. The proprietor should agree to the minimum wage requirements, working regulations, and other employee benefits.
The TDS returns have to be filed on time by the proprietor to avoid fines. Based on the purpose of deduction the following TDS return forms should be filed:Form 24Q for TDS on salaries
Form 27Q for TDS deducted for a non resident or foreign company
Form 26QB for TDS on payment for transfer of immovable properties
Form 26Q for TDS in any other case
Owners of sole proprietorships, corporations, and partnership firms must pay tax on their trade and profession if their income exceeds the threshold. Employers are required to register for professional tax and obtain the professional tax registration certificate.
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 owners 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 owners 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 |
Establishment
It is easy to register doesn't require any complex paper works
Name of the business
The business can function under the owners name or formally registered business name
Liability
There is no legal protection for the firm. The owner has 100% liability for debt.
Taxation
The income generated is filed under the owners personal taxes.
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:
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.
It is the equivalent of social security and Medicare taxes for self-employed people.
If the business is involved in selling goods and services, then it is subject to filing GST returns or sales tax.
If the proprietor has multiple employees, then it is crucial to find TDS returns from time to time.
Irrespective of the business, financing is crucial for conducting the day's activities. Here are two major options for funding a sole proprietorship company:
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
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.
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.
FAQs on Sole Proprietorship Registration
What is the cost of registering a sole proprietorship?
The cost depends on various factors. You can get in touch with our experts for detailed input on the actual cost.
Can a sole proprietorship be converted into a private limited company?
Yes a sole proprietorship can be converted into a private limited company. You will have to follow the standard procedure for the same. Get in touch with our experts for more information.
How long does it take to register a sole proprietorship?
The registration process varies for each case. However at Vakilsearch we will make sure to file your sole proprietorship registration in 7 days.
What are 5 characteristics of a sole proprietorship?
Characteristics of a sole proprietorship include
Single ownership
Simple to set up
Direct control by the owner, personal liability, and taxation on owner's personal income.
What happens if a sole proprietorship fails?
If a sole proprietorship fails, the owner is personally liable for debts, risking personal assets. Debts may lead to bankruptcy proceedings or financial loss.
Why is a registered company better than a sole proprietorship?
Company registration offer limited liability protection, separate legal entity status, easier access to capital, potential for growth, and better credibility compared to sole proprietorships.
Can a sole proprietor own an LLP?
A sole proprietor can't own an LLP alone; an LLP requires at least two partners. However, a sole proprietorship can be a partner in an LLP.
What is a real life example of a sole proprietorship?
A real-life example of a sole proprietorship could be a local bakery owned and operated by a single individual.
Is GST required for sole proprietorship?
GST registration is required for sole proprietorships if their annual turnover exceeds the threshold.
Can sole proprietorship have a PAN card?
Yes, a sole proprietorship can have a PAN card, which is necessary for income tax purposes and financial transactions.
Can I use my personal bank account for sole proprietorship in India?
Though it is possible. But having a separate business account is recommended for better financial management and clarity.
What is the difference between LLP and sole proprietorship?
The key differences between an LLP and a sole proprietorship lie in liability, structure, and taxation. LLPs offer limited liability to partners, while sole proprietorships expose the owner to unlimited personal liability. LLPs are structured with partners, while sole proprietorships have a single owner.
Authors
Written by Nithya, Reviewed by Mithra Menon. Last updated on May 28 2024, 11:21 AM
Mithra Menon excels in Corporate Law Matters and Debt and Money Recovery. She offers assistance in company incorporation both domestically and internationally, along with partnership firm registration. Additionally, she provides advisory services on compliance and LLP registration in India.
Nithya Ramani Iyer, a criminologist and writer, serves as the SME and manages communications at Vakilsearch. Drawing from her experience at Seasearch Intelligence and Legal domains, she enriches our content with insightful perspectives.
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