Sole Proprietorship firms are one of the most commonly seen business types in our country. With a registration process that defines the very meaning of the word simple, it is no big wonder that entrepreneurs are choosing to pick proprietorship as their choice of business type when they are starting solo.
In legal terms, a sole proprietorship or also called as a sole trader, is a type of business entity in which a single person runs and owns the business. The losses and profits will belong to the sole proprietor and there will exist no legal distinction between the business and the owner.
This type of business entity has a lot of advantages over the other types, making it a popular choice among budding businessmen. Following are the common advantages of sole proprietorship-
Easy to start and easy to end
Owner gets complete control over the business
Very low cost of formation
Easy to manage
Please note that proprietorship may not be the ideal choice for everyone. If you are looking to raise funds in exchange for equity, or if you do not want to be personally liable for the damages caused by the firm’s employees, you better look for other business structures such as LLP or Private Limited Company.
How to create sole proprietorship firm?
Step 1 – Registering a Sole Proprietorship firm through licence
There are some easy ways to get a firm set up. Take a look at these options
PAN Card: As the proprietor and the firm are considered as one and the same, the proprietor’s PAN card can be used to get licences, open bank accounts and do other necessary procedures. Hence, anybody with a PAN card can start such a firm in a day. If however, you don’t have a PAN card, applying for it would be Step 1 for you.
VAT Registration: If you’re setting up a firm that deals with trading or manufacturing or production of any kind, you need to know that Value Added Tax (VAT) is applicable on every goods and product. You will therefore, need a VAT registration to be a manufacturer or a trader.
Service Tax Registration: If your firm deals with providing services, you will be liable to remit and collect service tax. For this, you will require Service Tax Registration which can be obtained from the Service Tax Department. This registration can also be a proof for the existence of your firm.
Step 2 – Open a bank account in the name of the sole proprietorship firm
As there is no registration involved, the sole proprietorship will de facto be considered as an extension of the sole trader. Hence, its existence can be validated only through opening a bank account in the name of the firm. It can also be done by obtaining licenses in the name of the proposed proprietorship firm.
As per RBI’s Know Your Customer (KYC) rules, any two from the list of documents below must be submitted to the bank in which you choose to open an account for your firm.
Licence issued under Shop & Establishment Act by the Municipality.
Documents of sales and income tax returns.
Utility bills in the name of the proposed proprietorship firm eg electricity bills, water bills, telephone bills etc.
Documents on the complete income tax return in the name of the proprietor which is authenticated by authorities at the income tax office. The document must have details about the proposed firm’s income and expenses.
DGFT (Directorate General of Foreign Trade) issued Imported Exported Code (IEC) may also be accepted by some banks.
Any licence/ certificate issued by the State or Central Govt. in the name of the firm
As only any of the above two are required by banks to open an account in a firm’s name, most proprietors try to obtain a licence or a registration from a Govt. body first. That is a solid proof for the existence of any firm.
Although, the process is relatively simple as compared to the registration process for other entities, some of you may not have time for even finishing this entire article. So if you fall into that category, we are more than happy to tell you that we will help you breeze through the process.
All you have to do is contact us and we’ll minimize your headaches. So come on! Drop us an email or call us, we’ll help you out!