Proprietorship Registration in India
Registering a proprietorship in India follows a unique approach, as there isn’t a dedicated government-established registration process for this business structure. Instead, a proprietorship gains recognition through tax registrations mandated by relevant laws and regulations.One pivotal tax registration is the GST (Goods and Services Tax) Registration, which must be secured under the proprietor’s name to formalize the business’s proprietorship status. This registration signifies that the proprietor is conducting business within the framework of a proprietorship.
Essential Licenses and Registrations for Proprietorships
To run a proprietorship in India, you need important licenses and registrations, including:
Advantages of Proprietorship
Easy registration: Sole proprietorship does not have any formal incorporation or dissolution process – as its the same as the Proprietor. However, to operate a business, the proprietor may have to obtain certain registrations and licenses to be compliant with the laws and regulations of India.
Lower compliance: As most proprietorship are only registered with government departments like Income Tax & GST, the compliance burden will be lower. On the other hand, entities like LLP or Company are registered with the Ministry of Corporate Affairs and have to file various statutory returns and be audited by a Chartered Accountant each year.
Simplicity: As there are no partners, shareholders, or directors, the proprietor can easily operate this business with minimal documents and consent requirements. Hence, this type of business structure is best suited for very small businesses.
Business decision: In a proprietorship, the business owner takes all business decisions. There is no consent or approval required from any other person. Hence, a proprietor can normally take quick decisions regarding his business affairs.
Complete control: As sole proprietorship is owned only by the proprietor. He/she has complete control over the assets, revenue, expenses and all business operations.
Disadvantages of Sole Proprietorship
Funding: This type of business structure relies solely on one persons savings, borrowings and credit history. As there are no other persons are involved in this type of business structure, raising funds from banks will be very hard. Raising equity funds will not be possible – as this type of business entity does not allow for profit sharing or shareholding.
Personal liability: If a proprietor is unable to pay business loans or taxes, in a proprietorship – the personal assets of the business owner can be attached or encumbered. Hence, in this type of business structure – the proprietor will be held personally liable until all the liabilities are extinguished.
Business continuity: In case of death or disability of the business owner, the sole proprietorship will be automatically dissolved. Hence, there is will be no business continuity.
Growth: A proprietorship has various restrictions in terms of fundraising, liability and business continuity. Hence, only very small businesses that are in the unorganized sector operate as proprietorship.
Unincorporated business: Sole proprietorship are unincorporated businesses. Hence, there is no centralized database available to see if a sole proprietorship is active or inactive. Thus, sole proprietorship entities are mostly classified as unorganized business.
Compliances for Proprietorship
The following are some of the compliances that are applicable for a sole proprietorship:
Income Tax Filing: The business owner of a proprietorship will have to file personal income tax return using form ITR-3 or ITR-4.
Business Income: Only income tax forms ITR-3 and ITR-4 allow for declaring business income. Hence, all proprietorships will have to file form ITR-3 or ITR-4 to be compliant with the income tax regulations.
GST Return Filing: If a proprietorship has GST registration, GST return must be filed every month and quarter as per the scheme under which the business is registered.
TDS Returns: In case the proprietorship is having employees or purchasing goods/services beyond a certain threshold – tax must be deducted at source and TDS returns must be filed every quarter.
In addition to the above, various other compliance requirements maybe applicable to the proprietorship based on industry and location.
Documents Required For Proprietorship
- PAN card of the Proprietor.
- Aadhaar card of the Proprietor.