Sole Proprietorship – An Overview
The sole proprietorship model is the most common business structure used by individuals in India. The terms “sole proprietor” and “sole trader” are interchangeable. The business is mostly run by a single person. Sole proprietorship is the phrase used to describe this type of business. Rural areas make up a sizable percentage of the Indian subcontinent. Numerous people run small businesses and enterprises in these places. As a result, the government developed the single proprietorship company model. The sole proprietor is only required to file a few compliances.
This would make conducting business simpler and give business operations more flexibility. In India, registering is typically not required when starting a firm as a sole proprietor. This type of business structure is among the best to take into consideration for a business entity due to some of its benefits.
Barbershops, candy stores, snack businesses, and individuals launching MSME are examples of common solo merchants.
The meaning of a solo proprietorship is not easily summed up. In contrast, a one-man operation or a business where one person takes on sole management of all operations is what is meant by a solo trader in layman’s words.
There is no legal definition of the registration of a sole proprietorship. Additionally, there are no rules limiting how a sole proprietorship business should be registered.
A sole proprietorship firm would not fall within the definition of a separate legal entity, hence such a business cannot be transferred. Being an Indian resident is necessary to register as a sole owner.
What does the term “single trader” mean?
A full definition of a lone trader is provided by the very definition of a sole proprietorship. A single person running a firm is known as a solo trader or sole proprietor. Consequently, a lone proprietor would be responsible for overseeing the company’s operations.
Since there is only one person managing the company, there is more accountability. There is no profit-sharing ratio, though.As a result, the lone proprietor keeps all of the profits. Any loss suffered by the sole proprietor would subject them to liability.
The registration of a sole proprietorship has various benefits. It’s crucial to think about the benefits before incorporating a single proprietorship business. The benefits of a sole proprietorship company are as follows:
Not Required to Register
The solo proprietor business does not need to be registered voluntarily.
However, the business must register if it engages in activities that do so in accordance with the MSME Act of 2006. However, a lone proprietor’s business must complete a small number of registrations in order to operate:
Act on Stores and Establishments
For operating any kind of business, each state in India has its own registration criteria. Therefore, the applicant must register with the local administration in accordance with the shops and establishments legislation.
Act on MSMED
The MSMED (Micro, Small and Medium Industries Development) Act requires that the registration process be completed.
2017 Goods and Services Act
The GST Act requires that the registration process be completed. This would only be applicable if the company’s revenue exceeded Rs. 20 lakhs for service-oriented businesses and Rs. 40 lakhs for supplier businesses.
Very Low Capital Needs
For registration as a sole proprietorship, there are minimal or restricted capital requirements. For instance, the capitalization requirements for other business entity types would rely on the promoter’s capital contribution. The amount of the capital contribution will vary depending on the business owner.
Compared to other types of business entities, a sole proprietorship registration has a lower level of compliance. For instance, both private limited corporations and public limited firms are subject to regulation under the 2013 Companies Act. However, there are many compliances that must be filed in accordance with this act. For sole proprietorship registration, there is no need for such a stipulation.
The need that the firm be run and managed by a single person is one of the key advantages of a sole proprietorship. This would make it unnecessary to have more than one person. For a lone trader, there is no set minimum of people needed.
No Profit Sharing
There is no profit sharing in this type of firm, which is an additional benefit.
Being an entrepreneur, the person gets to keep all the money made by the company. Profits must be distributed evenly among the participants, just like they are in other commercial entities like partnerships. The registration of a solo proprietorship is exempt from this requirement.
Simple to Fill Out and Register
As was already indicated, registering a sole proprietorship requires a minimum level of compliance. Even once the registration process is over, this type of organization must maintain a minimal level of compliance.
Due of the aforementioned advantages, choosing the aforementioned corporate form would be appropriate for an individual.
Process of Registration
Pick a name for your sole proprietorship.
Selecting a distinctive name for the sole proprietorship is the first stage in sole proprietorship registration. Any Indian intellectual property regulations must not be broken by the name of the sole proprietorship. As a result, the single proprietorship’s organization’s name cannot be insensitive.
Choose a location for conducting business activities.
The lone proprietor must choose the location of the business’s establishment in the following phase. The sole proprietor would need to register with the appropriate authority, hence this condition is essential. The Shops and Establishments Act and Relevant Government Authorities are two examples of this authority.
Become a member of the MSME
A lone trader or sole proprietor must register with the MSMED in order to conduct business, according to the MSMED Act of 2006. The sole proprietor can get the Udyog Aadhaar registration or the MSME (Micro, Small and Medium Enterprises) registration. To comply with the MSMED Act’s laws, this would be necessary.
Protect the TAN.
The required Income Tax Authority or department should be contacted right away to receive the Tax Deduction Account number. Only if the lone entrepreneur is paying employees in some capacity through the TDS system would this be essential (Tax Deducted At Source). As a result, only wage payments would necessitate the aforementioned under sole proprietorship registration.
Sign up for GST
The Goods and Services Tax Act of 2017 mandates that merchants register if their company’s annual revenue surpasses a certain threshold. The term “turnover” refers to the company’s yearly revenue. If a service entity’s yearly revenue reaches Rs. 20 lakh, GST registration is necessary. If a trade company’s yearly revenue reaches Rs. 40 lakhs, GST registration is necessary.
IEC Certification (Import- Export Code Registration)
In the event that a sole proprietor exports goods outside of India, the company must register with the IEC.The Director General of Foreign Trade must receive this registration (DGFT). If the sole proprietor does not undertake any business involving the import and export of goods, this license would not be necessary.
Become a member of the FSSAI
Only businesses engaged in operations involving the production or packaging of food products will be required to register with the FSSAI. The lone proprietor would also need this license if they dealt with food-related products. If necessary, the owner must submit an application for a license to the appropriate agency, such as the FSSAI (Food Safety and Standard Authority of India).
The trade operation can begin once the sole proprietorship registration process is complete.
Documents required for registration with local authorities
- Licenses to operate a business issued by medical authorities, pharmaceutical authorities, and other authorities. Registration Certificate IEC Certificate.
- Utility Bills, such as Water and Electricity Bills, and FSSAI Registration and License Certificate
- Rental documents—a NOC (no objection certificate) is necessary if the property is rented out.
- Permanent Account Number (PAN) Address Proof of Bank Account
- ID Card, Aadhaar
Post Registration Requirements
A Sole Trader must take the following post compliance obligations into account:
- GST Registration, when necessary
- Twenty million in the services case
- For trading activity, 40 lakh.
- Quarterly GST returns are required.
- Registration of intellectual property, if necessary
- Filing Income Taxes
- Filing of income tax returns, tax auditing standards, and compliance
- Financial Statements: Invoice documentation for GST tax filing