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Proprietorship Registration

A proprietorship business is owned and managed by an individual. He is the owner of the business and he gets all the profit from his business. All the risk in business also has to be borne by that person alone. A proprietorship business is very easy to start and it can be setup in a very short time and at a low cost.

In a proprietorship, A tax audit may be required when the business have annual turnover more than Rs.1 crore. In case of profession if the annual turnover of Rs 50 lakh or more than it becomes mandatory to audit it.

About Sole Proprietor

A sole proprietor is the sole owner of the proprietorship business. Hence, a business will be carried forward by making new bank account for the business and GST registration will be done by using PAN and Aadhar of the proprietor. The proprietor is completely responsible for all the assets and liabilities of the business.

Know the basics

Annual Compliances for Proprietorship

  • Income tax return: It is filled annually, in which full details of income of business are given. Under the income tax, tax is charged on the net profit of the business. When the audit of business is not mandatory then the last date 31st July of the return filling. If the audit of accounts is mandatory then the last date 30th September of the return filing.
  • GST filing: The proprietorship registered under the GST (Goods and Services Tax) is mandatory to file its returns. All GST returns must be filled in time. Penalty has to be paid if returns are delayed. These returns are filed monthly, Quartly and yearly.
  • TDS filing: Proprietors who have TAN they can deduct TDS of their employees. Its returns are filed quarterly. Returns must be filed by proprietorship and required to deduct tax at source as per TDS rules.
  • ESI Return: If the proprietorship has more than 10 employees, then it is necessary to file a return of ESI. ESI return must be filed by proprietorship having ESI registration.

Documents required for Annual Compliances of Proprietorship

  • ale /purchase invoices
  • Copy of TDS Return (if any)
  • Copy of TDS challans
  • Credit card statement if expenses are incurred by proprietor on behalf of proprietorship
  • Invoices of expenses
  • Bank statement of the financial year
  • Copy of GST return filled (if any)

Advantages of Proprietorship

  • Easy registration:Sole proprietorship does not have any formal incorporation or dissolution process - as its the same as the Proprietor. However, to operate a business, the proprietor may have to obtain certain registrations and licenses to be compliant with the laws and regulations of India.
  • Lower compliance: As most proprietorship are only registered with government departments like Income Tax & GST, the compliance burden will be lower. On the other hand, entities like LLP or Company are registered with the Ministry of Corporate Affairs and have to file various statutory returns and be audited by a Chartered Accountant each year.
  • SimplicityAs there are no partners, shareholders, or directors, the proprietor can easily operate this business with minimal documents and consent requirements. Hence, this type of business structure is best suited for very small businesses.
  • Business decision: In a proprietorship, the business owner takes all business decisions. There is no consent or approval required from any other person. Hence, a proprietor can normally take quick decisions regarding his business affairs.
  • Complete control: As sole proprietorship is owned only by the proprietor. He/she has complete control over the assets, revenue, expenses and all business operations.

Disadvantages of Sole Proprietorship

  • Funding: This type of business structure relies solely on one persons savings, borrowings and credit history. As there are no other persons are involved in this type of business structure, raising funds from banks will be very hard. Raising equity funds will not be possible - as this type of business entity does not allow for profit sharing or shareholding.
  • Personal liability: If a proprietor is unable to pay business loans or taxes, in a proprietorship - the personal assets of the business owner can be attached or encumbered. Hence, in this type of business structure - the proprietor will be held personally liable until all the liabilities are extinguished.
  • Business continuity: In case of death or disability of the business owner, the sole proprietorship will be automatically dissolved. Hence, there is will be no business continuity.
  • Growth: A proprietorship has various restrictions in terms of fundraising, liability and business continuity. Hence, only very small businesses that are in the unorganized sector operate as proprietorship.
  • Unincorporated business: Sole proprietorship are unincorporated businesses. Hence, there is no centralized database available to see if a sole proprietorship is active or inactive. Thus, sole proprietorship entities are mostly classified as unorganized business.