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Sole Proprietorship Formation

Sole Proprietorship Formation

A sole proprietorship is owned, managed and controlled by one individual, the sole proprietor. There is no distinction between the business entity and the individual (owner or proprietor or founder or entrepreneur). A sole proprietorship is a simple type of business structure with minimum regulatory compliances. It does not involve many of the complex filing requirements associated with other types of business structures such as partnership firms or corporations. As owner, a sole proprietor can even pass a business down to his or her heirs with a valid Will.

This business structure permits the sole proprietor to report business income and expenses in his individual tax return. Hence there is no separate Income Tax filings required. However all other compliances relating to indirect tax, labour/employees, business licenses, accounting etc. is to be complied. Sole Proprietorship is beneficial for entrepreneurs or small business type (Easy-Self-Start set up) with lesser investment and compliances. Initially, such form of business can also be got converted to Partnership Firm or Private Limited Company in future depending upon the business requirements. Also, the owner is entitled to all the profits of the firm.  A sole proprietorship can best be summed up by the phrase “Self-Business with an option to use self-name or any business trade name”. In India, many businesses like retail shops, catering, transport, printing, supply, manufacturing, agency, trading, professional services, commission agents, marketing and other services are being conducted under this business structure for many decades.

Legaljini can help you with the establishment of the sole proprietorship by obtaining relevant registration.

 

Advantages of Sole Proprietorship Formation

Easy formation:

The main advantage to form a sole proprietorship is that the formation is very easy. It is less complicated and it does not involve costly legal expenses as compared to formal corporations. In other words, it is the easiest way to start a business with minimum formalities.

Name registration:

The sole proprietorship can be named after the owner, or any good trade name which can help business and can be used to grow business, subject to availability under Trademark and/or Domain Registry. The sole proprietor can choose any name of his choice and it should not infringe a registered trademark.

Tax benefits:

The owner of a sole proprietorship is not required to file a separate tax return. Instead, they will list business information and figures within their individual tax return. This saves additional costs on accounting and tax filing. The business will be taxed at the rates applied to personal income and not as per corporate tax rates.

Sole Proprietorship Formation Process

01

PAN card

A Sole Proprietor must have a PAN card.

02

Decide NAME

Decide NAME of business – whether self-name or any trade name different from name.

03

Address

Decide Address for business and arrange for address proof:

  • a. Rent agreement, No objection certificate in case the proposed business premises is not in the name of the sole proprietor.
  • b. Electricity bill / telephone bill in case the proposed business premises is in the name of the sole proprietor.
04

Current bank account

1. Contact to your Banker and open a Current bank account with the PAN card of the sole proprietor.

05

Shop & Establishment License

You may have to apply for local body Shop & Establishment License as well as other business related licenses / registrations, if any

06

Business Type

Depending upon your business type and expected volume - you may have to obtain registration for VAT/GST or Service Tax and Profession Tax.