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Home > Income Tax > Help Center > Proprietorship Firm - ExplainedLast Updated: Dec 29th 2023

Proprietorship Registration - Explained will register your proprietorship business in a quick and cost effective manner. Read on to know more about Proprietorship registration process and its advantages, disadvantages.

Proprietorship Registration - Explained

This document covers

  1. Key Features of Proprietorship Registration
  2. Advantages of forming a Sole Proprietorship
  3. Disadvantages of forming a Sole Proprietorship
  4. FAQ's

1. Key Features of Proprietorship Registration

  1. A Sole Proprietorship is the simplest and most common structure chosen to start a business
  2. The Sole Proprietorship is not a legal entity. It is owned and run by one individual with no distinction between the business and the owner. The Sole Proprietor is personally entitled to all profits and responsible for the debts.
  3. A sole proprietorship can operate under the name of its owner or it can do business under a fictitious name (Trade Name)
  4. There is no mechanism provided by the Government of India for the registration of a Proprietorship. Therefore, the existence of a proprietorship must be established through tax registrations and other business registrations that a business is required to have as per the rules and regulations.

For instance, TAN Registration, Trade Licence, MSME Registration, GST Registration can be obtained in the name of the Proprietor to establish that the Proprietor is operating a business as a sole proprietorship.

2. Advantages of forming a Sole Proprietorship

  • Sole Proprietorship is the simplest and most flexible business structure. It is one of the easiest form of business entity to start with minimal formalities.
  • The Sole Proprietor has total control and decision-making power over profits, capital, policies etc.
  • It is easy to close the business.
  • Profits from the business will be taxed at the sole proprietor's (Individual) tax rate which is lowerthan the corporate tax rate.
  • Business losses can be set off against the other income of proprietor.

3. Disadvantages of forming a Sole Proprietorship

  • The proprietor has unlimited liability for debts as there is no legal distinction between personal and business assets.
  • The death or prolonged illness will lead to the end of business.
  • The Sole Proprietor may not be able to raise funds from outside sources to expand the business.

4. FAQs

1.Who can start a Sole Proprietorship?

Any Indian citizen and resident Indian can start a Sole Proprietorship.

2.What are the requirements to start a sole proprietorship?

Pan Card, Aadhar of the sole proprietor and Bank account in the name of Sole Proprietorship business

3.What are the registrations required by a sole proprietorship?

The registrations may be required depending upon the business and turnover. Some of them are TAN, GST, Shop and Establishment Licence, Importer Exporter Code (IEC Code)

4.Will the sole proprietorship get certificate of incorporation?

Proprietorship’s do not have a certificate of incorporation or registration. The identity and legitimacy of a proprietorship is established by registering with the relevant or applicable government authorities.

5.What are the annual compliance requirements of a proprietorship business?

Proprietorship will have to file their annual tax return with the income tax department. Other tax fillings like GST, TDS may be necessary from time to time.

6.Can I convert my proprietorship into LLP/company?

A proprietorship can be converted into LLP / Company. However, the procedures to convert into LLP / Company are expensive and time consuming.

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Disclaimer: This article provides an overview and general guidance, not exhaustive for brevity. Please refer Income Tax Act, GST Act, Companies Act and other tax compliance acts, Rules, and Notifications for details.