MEANING OF SOLE PROPRIETORSHIP
A sole proprietorship is a type of unregistered business entity that is owned, managed and controlled by one person. Sole proprietorship's are one of the most common forms of business in India, used by most micro and small businesses operating in the unorganised sectors.
Since the proprietorship is itself not distinguishable from its owner hence there is no registration or approval is required to start a proprietorship business.
Reasons For Registering A Proprietorship Firm
Easy to Start
Proprietorship needs minimal registration. Therefore, it is one of the easiest form of business entity to start with minimal formalities. However, after starting up a Proprietorship, it is relatively harder to open a bank account or obtain a payment gateway in the name of the business - since more registrations like VAT or Service Tax or GST Registration may be required.
Since the name of a proprietorship is not registered, a proprietorship can choose to have any name - as long as it does not infringe on a registered trademark. However, since the name is not registered, any other person can also use the same business name unless trademark registration is obtained.
Proprietorship is the only type of business entity that can be registered and operated by one person. To register a one person company, a nominee Director is required and for all other types of entities like company or LLP or partnership firm, two or more promoters are required.
Proprietorship with less than Rs. 3 lakhs of income is not required to pay any income tax, as proprietorship's are taxed as the individual owing the business. However, unlike a company or LLP, a proprietorship cannot enjoy some of the tax deductions, which could potentially increase the tax liability.
Easy To Close
The Proprietor and the proprietorship are one and the same for all legal purposes. Hence, there is no formality for winding up or closing a proprietorship. In most cases, to close a proprietorship, only the tax registrations obtained in the name of the proprietor must be cancelled.
Registrations required as per other statute:-
- Registration under Shops and Establishment Act: This is state specific requirement, in some states it is mandatory and in some it is optional, for example in the Delhi NCT it is optional.
- Local Municipality Registration: This kinds of registration is mandated by some of the municipalities and applies to the firms operating in the territorial jurisdiction of the municipality.
- Sales Tax (VAT) Registration: This is a tax on sale of goods within the state which is governed by the respective vat act of the state.
- Central Sales Tax Registration : This is a tax on Sale of goods between the states, which is governed by the central sales tax act
- Service Tax Registration: This is a tax on the services provided by the proprietor apart from the negative list of service.
- Import Export Code: This is also known as IEC, and is pre-requisite before the proprietorship ventures in to any import or export
- Trade Mark Registration : Brand Name, Logo, Slogan, Label etc.; are intellectual properties which acquires value over a period of time and it is advisable to protect them under as trade mark
- Provident Fund Registration: The moment number of employees exceeds 20 the proprietor is required to get itself registered with the regional office of the Provident Funds Organization. The contribution rate is 12% each from employee as well as employer
- Employee State Insurance Corporation (ESIC) Registration: Every organization including the proprietorship concerns employing more than 10 employees having salary more than 15000/- is required to get themselves registered with the concerned Regional office of the ESIC, the contribution to the ESIC is 6.5% wherein 4.75% is contributed by the employer and 1.75% is to be contributed by the employee
- Other Need Based Registration: The firm may be required to get themselves registered into various other departments like excise, customs, SSI etc.