Setting up of a Proprietorship Firm

(Business Registration)

.

Apply Now
thumb

Setting up of a Proprietorship Firm

 

A sole proprietorship (also known as individual entrepreneurship, sole trader, or simply proprietorship) is a type of unincorporated entity that is owned and operated by a single Individual. It is considered the simplest as well as the most common form of business entity.

 

Features of Sole Proprietorship:

  • Ownership: A sole proprietorship is owned and operated by a single individual.
  • Legal Status: It is an unincorporated business entity - the owner and the business are considered the same in the eyes of the law.
  • Liability: The owner is personally liable for all debts, liabilities, and obligations.
  • Profit Retention: The owner retains all the profits generated by the business.
  • Ease of Formation: Easy to set up, and requires fewer legal formalities.

A. Documents Required for a Sole Proprietorship

  1. Aadhar Card
  2. PAN Card
  3. Bank Account Details
  4. Registered Office Proof

                               – (Of the Proprietor)

B. Registrations Required for a Sole Proprietorship

The specific registrations vary according to the nature of business as well as the relevant laws & regulations applicable.

  1. MSME/Udyog Aadhar Registration
  2. Shop and Establishment Registration
  3. Goods & Services Tax (GST) Registration

Advantages

  • Easy Formation: Compared to other business types, establishing a sole proprietorship is comparatively easy and necessitates fewer legal requirements. It often has low initial costs and minimal paperwork requirements.
  • Full Control: As the business's sole proprietor, you have complete control over each component of it, which means quicker decision making.
  • Retention of Profits: You are entitled to all business profits. There exists no need to distribute profits to shareholders or partners. This makes it possible for increased cash gains and personal financial development.
  • Flexibility: In terms of business operations - with freedom as to setting your own work schedule, and have proper objectives.
  • Privacy: Compared to other company structures, sole proprietorships typically offer a greater level of privacy.
  • Tax Advantages: Sole proprietorships can offer several tax advantages. Business income is treated as personal income - so, we only need to file a personal income tax return.

FAQs

A: No, a proprietorship firm cannot be incorporated as it is not a separate legal entity. The proprietor and the business are considered as one and the same.

A: The advantages of a proprietorship firm include ease of formation, minimal compliance requirements, complete control over business operations, and flexible decision-making.

A: The disadvantages of a proprietorship firm include unlimited liability of the proprietor, limited capital raising potential, and lack of continuity in case of the proprietor's death or incapacitation.

A: Registration of a proprietorship firm is not mandatory. However, for opening a bank account in the name of the firm, obtaining a GST registration, or other business licenses, registration may be required.

A: There is no legal requirement to file annual returns for a proprietorship firm. However, if the firm is registered for GST, then it has to file GST returns as per the GST laws.

A: The income of a proprietorship firm is taxed as per the individual income tax slab rates applicable to the proprietor. The proprietor is required to file a personal income tax return for the income earned by the firm.

A: To close a proprietorship firm, the proprietor has to settle all the dues and liabilities of the firm, cancel all the licenses and registrations, and file the necessary documents with the concerned authorities.