3 Easy Ways to Incorporate a Sole Proprietorship in India | Jordensky

3 Easy Ways to Incorporate a Sole Proprietorship in India | Step by Step Guide to Incorporate a Sole Proprietorship in India

3 Easy Ways to Incorporate a Sole Proprietorship in India | Jordensky

3 Easy ways to Establish a Sole Proprietorship in India

The most typical type of business entity is a sole proprietorship, in which only one individual owns the company and is responsible for all of its obligations and responsibilities. It is the most straight forward form of an entity with the fewest compliance requirements.

 Sole Proprietorship Registration can be done in 3 ways:

  1. Register under the Shop and Establishment Act.
  2. Get a Udyog Aadhaar under the Ministry of MSME.
  3. Get a GST registration.

1. Sole Proprietorship Registration under Shop and Establishment Act

If a solo proprietor owns a shop as his place of business, he may register his company under the Shop and Establishment Act.

Shop here refers to any location:

  • A location where products are sold, either through retail or wholesale
  • A location from which clients get services.
  • It also includes any workspaces utilized in connection with such a trade or business, whether they are located on the same property or elsewhere.
  • It excludes factories, commercial buildings, lodging facilities, dining establishments, theatres, and other public entertainment venues;

By submitting an application to the local Municipal Corporation of your city, you can register your sole proprietorship business under the Shop and Establishment Act if your shop meets the criteria outlined above.

2. Sole Proprietorship Registration through Udyog Aadhaar under Ministry of MSME

The Ministry of MSME issues Udyog Aadhaar's, which are special identity numbers, to business owners. Even a solo proprietor can apply for udyog aadhaar, along with all other entities like companies and partnerships.

A sole owner has the additional benefit of receiving a distinctive identification for his business, which is also referred to as Sole Proprietorship Registration, in addition to becoming qualified to utilize the incentives provided by the Ministry of MSME.

Anew way of registration under the Ministry of MSME is Udyog Aadhaar. It has taken the place of the previous registration process, which involved filling out forms EM-I and EM-II. Now, any business can register itself to benefit from the numerous initiatives launched by the Ministry of MSME by submitting an application for Udyog Aadhar.

3.Sole Proprietorship Registration through GST Registration

Another approach to register your sole proprietorship is through GST registration. If you engage in any form of trade of goods and services, you can submit an application for GST registration. The previous registration for VAT and service tax has been replaced.

Being registered for GST is a terrific way to give your sole proprietorship business a name. Before choosing this approach, there are a few crucial factors that must be assessed.

The main negative of GST registration is that, once registration, all compliances must be met. Every registered firm is required to compel customers to pay tax and to file GST returns.

A solo proprietor is not required to register and collect GST if his annual revenue is less than Rs.20 lakhs. However, if he decides to register nonetheless in order to register his single proprietorship, he will have to comply with extraneous requirements that he might have avoided.

Which of the above 3 ways of Sole Proprietorship Registration is the best?

After weighing the pros and cons of each option, we have concluded that, if you are a sole proprietor with a business that generates more than Rs.20 lakhs in annual revenue, you should register for GST in order to obtain a business identity because it is the most widely accepted type of identity for sole proprietorship concerns.

However, since there are many returns that must be completed after acquiring a GST Number, GST registration may not be very advantageous for you if your business is less than 20 lakhs.

If incorporating a business identity is your top priority then you have the option of applying for Udyog Aadhaar or registering under the Shop and Establishment Act.

Opening a Bank Account in the name of your Sole Proprietorship

The majority of banks have their own requirements for opening bank accounts.

Some banks still do not accept Udyog Aadhaar or Registration under the Shop and Establishment Act, despite the fact that all three of the aforementioned methods of sole proprietorship registration are legally valid.

A GST Registration is required by banks. Some banks are ready to accept the Income Tax Return as proof of registration if the GST Registration is absent, so long as your Trade Name is listed in your prior year's ITR.

If your only motivation for registering is to open a bank account in your name, it is advised that you first verify with your banker on whether they accept Udyog Aadhaar or the Registration under the Shop and Establishment Act.

Is Sole Proprietorship Registration mandatory?

No, registering as a sole proprietor is not required. Whether someone wants to register their sole proprietorship or not is entirely up to them.

Even if banks require sole proprietorship registration if you want to create a bank account in your company's name, it is not required by law.

Even if your sole proprietorship is registered, the government won't issue a new PAN Card for it. The sole proprietorship would also continue to be able to use the proprietor's PAN Card.

Benefits of Opting for a Sole Proprietorship

The most typical type of business entity is a sole proprietorship. The majority of small business entrepreneurs begin operations as sole proprietorships. The advantages of being a sole proprietor fall into two categories:

  1. Entity type benefits
  2. Registration benefits

Whether or not you register your sole proprietorship, you are still eligible for these benefits. In other words, sole owners who are doing their business under their own name but have not registered their company are like wise entitled for these perks.

Sole Proprietorship Entity Benefits

There are various benefits of starting your business as a proprietorship concern, some of which are listed below,

  • Less Compliances
  • Easy to start
  • Cost Efficient
  • Business Name
  • Absolute Control
  • Easy to close

Less Compliance

Even though a sole proprietorship is registered under an Act, no separate tax returns for the business need to be filed. The solo proprietor is only required to file his own personal tax return and include information about the profit or loss of his business. The entities must submit a separate return for the business in other circumstances, such as partnerships and corporations.

However, the sole proprietor must file the returns for GST compliances if they have registered for GST. Nevertheless, no separate return filing is necessary for income tax reasons..

Easy to start

To begin a sole proprietorship, no necessary registration is needed. A sole proprietorship business can be started by an individual under any name.

Cost Efficient

Starting a firm as a sole proprietorship is practically free. The only possible cost is the licensing fee for the company, if one is necessary. Even that money is avoided because the compliance requirements are minimal.

Business Name

If a sole proprietorship does not violate any trademarks, it may be founded under any name. The sole proprietor can initially launch the business under a distinctive name, and once he believes he has built up a strong reputation, he can apply to have his name registered as a trademark.

A company name, however, is not a trademark and is available to anyone. You must register your trademark if you wish to register a brand name. Brand name registration is not the same as sole proprietorship registration.

Absolute Control

Because there is only one owner in a sole proprietorship, that individual always has authority over the company. For all other commercial entities, such as partnerships and private companies, the minimum number of founders is two.

Easy winding-up

There is no unique winding up procedure as there is in the case of other entities because in a sole proprietorship business, the business and the owner are deemed to be one and not a separate entity. The only prerequisite for closing a business is to cancel any pending tax registrations, such as a GST registration.

Sole Proprietorship Registration Benefits

Registering a sole proprietorship has two major benefits:

Business Identity

A distinct business identity, which is possible in the case of other entities like partnerships and companies.

Ease in Opening the Bank Account in the Name of Business

Getting a bank account in the name of the business is the main concern in cases of sole proprietorships. It is challenging to demonstrate the existence of a business when the entity is a sole proprietorship since it lacks a government identification. A sole proprietorship can open a bank account more easily after registration since it receives a legitimate government identification.

Disadvantages of a Sole Proprietorship Entity

1. Unlimited Liability is a sole proprietorship's major drawback

There is no controlling law that safeguards the rights of a sole proprietor in a sole proprietorship. All of the company's obligations and debts are personally owed by the owner. The owner will be held personally responsible for any obligations and liabilities if the company does not have enough assets to cover them. To resolve the external claims, use his personal information.

2. Tax on Sole Proprietorship

A sole proprietorship is not regarded as having a distinct personality from its owner. As a result, the proprietorship business's tax is solely assessed in the owner's hands in accordance with the Income Tax Slabs. This indicates that the business's profits won't be taxed individually, as they would be for a partnership or corporation. But it will be subject to taxation as the owner's income.

About Jordensky

At Jordensky, we are committed to providing an experience of the highest caliber while specializing in accounting, taxes, MIS, and CFO services for startups and expanding businesses.

When you work with Jordensky, you get a team of finance experts who take the finance work off your plate– ”so you can focus on your business.