Registration of Sole Proprietorship business – All you want to know
In this essay, we shall discuss registration of sole proprietorship business.
A sole proprietorship is business owned solely by one person (proprietor) in his individual capacity. It is the oldest and the most common form of business.
Some of the advantages of registration of sole proprietorship over other forms of business are as follows:
- Easiest to start and easiest to close – This is an important factor since entities like a private limited/ Limited company/ LLP require significant time, efforts and time to be incorporated and even more time and money to be closed.
- Usually more tax-efficient than other forms. In most countries, upto a considerable income, income tax is lower than other forms like Companies/ LLPS which have a flat rate of taxation.
- Lower compliance than Companies/ LLPs- Considerably lower annual and periodical compliance like annual forms, shareholder submission etc.
- Ease in informal funding – like taking loans/ deposits from third parties – unlike companies, no restrictions apply
- Considerable relaxations in related party transactions: No need of taking approvals or passing resolutions or disclosures etc.
- No Internal disputes– Differences of opinions between partners / Directors/ shareholders do cause issues and frictions in functioning of Companies and partnership firms/ LLPs. It can even lead to paralysis in functions and break up. However, in case of sole proprietorship, the proprietor has the final word and hence there are no other internal disputes.
Certain prominent disadvantages are as follows:
- Unlimited Liability – Unlike a Company or LLP, sole proprietorship always carries the risk of unlimited liability. It means that in case of losses, liability is not limited to the business assets but liability also extends to personal assets of the owner. It means the bankers, creditors etc. can also use the personal assets of the owner like personal bank deposits, jewellery, investments etc. to satisfy the business liabilities.
- No perpetual succession: This is a fine legal point because sole proprietorship, as such, has no legal identity. The business ends with the death of the sole owner. The registration numbers like PAN, GST, IEC etc. are all tied to the individual identity of the owner and the legal heir cannot legally continue the same registration numbers.
However, in many cases, the cost-benefit ratio and the convenience related to it can make registration of sole proprietorship firm a better option, mainly for small and medium business and new businesses.
Entrecap offers the following services regarding registration of sole proprietorship:
- Assistance in opening a current bank account– Various banks require certain business proofs like registrations like MSME, IEC, verification certificates etc.
- MSME registration (UDYAM) – This is very useful for small manufacturers and service providers- mainly for getting benefits under MSME Act.
- Import Export Code – mainly for importers of goods and services. You can read about Import Export Code in detail here:
- GST registration – Most prevalent indirect tax registration in India. Its required if the sole proprietorship wishes to enter the formal chain of in direct taxes. You can read in detail about GST registration here.
If you desire to start your business journey as a sole proprietor or require any services pertaining to the same, just contact our Business Start up Team. We shall be guide you further for all aspects of registration of sole proprietorship.