It is a different legal entity from its owners; it may sue and be sued in its own name, and its directors and stockholders are not accountable for the company’s obligations. Company directors and stockholders are only liable to the company to a limited extent. As long as the shares are paid up, the members/shareholders have no additional responsibilities to the company’s creditors, and their personal assets are safe from these creditors. It is capable of acquiring property.
In addition to the required legal documents, there are a few registrations required to establish the existence of the business:
You can register as a small and medium enterprise (SME) under the MSME Act. The application can be filed electronically. Although it is not mandatory to register as an SME, it is very beneficial, especially when taking out a loan for the business. The government runs various programs for SMEs where loans are provided at a preferential interest rate.
The Shops and Establishment Act License must be obtained in accordance with local laws. It is issued based on the activity and number of employees. Generally, all sole proprietors who own a store or establish a business establishment must obtain this license.
You can register under Goods and Service Tax if your annual turnover is more than Rs. 40,000,000. Also, if you are doing business online, you need to get a Goods and Service Tax number. To register for Goods and Service Tax, you need the following documents:
|➤ PAN card, photo, and Aadhar card of the owner|
|➤ Proof of place of business (electricity bill/lease agreement)|
|➤ Copy of bank statement (first page to verify bank account number, address, and IFSC code)|
Registration for Goods and Services Tax is simple and can be done through the Goods and Services Tax portal. Normally, the Goods and Service Tax number is received within 3-4 days of applying.
Firstly, a Sole Proprietorship is the most common form of business entity in which one person is the owner and is personally liable for the business’s all debts and liabilities. It is the simplest form of an entity with minimal compliance procedures:
A sole proprietor may register his business under the Shops and Establishments Act if he has a store as his place of business.
1. Here, store means any premises:
2. A place where goods are sold, either at retail;
3. A place from which services are provided to customers;
It includes an office, store, shed, warehouse, or place of business, whether on the same premises or elsewhere, which is used in connection with that trade/business.
However, it does not include a factory, business establishment, hotel residence, restaurant, theater, or another place of public amusement or entertainment.
If you have a store as defined above, you may register your Sole Proprietorship under the Store and Establishment Law by applying to your local municipality.
A Udyog Aadhaar is a unique identification number provided by the Ministry of MSME to business owners. Along with all other entities such as companies and partnerships, even a sole proprietor can apply for a udyog aadhaar.
In addition to being able to avail of the benefits offered by the Ministry of MSME, a sole proprietor has the added advantage of getting a unique identity for his business, which is also considered a sole proprietorship registration.
Udyog Aadhaar is a new method of registration with the Ministry of MSME. It has replaced the old method of registration, where EM-I and EM-II forms were used to register. Now, by applying for Udyog Aadhar, any business can register to avail of the benefits of various schemes introduced by the MSME Ministry.
Goods and Service Tax registration is another way to register your Sole Proprietorship. You can apply for Goods and Service Tax registration if you are engaged in any type of exchange of goods and services. It has replaced the old VAT and service tax registration.
Goods and Service Tax registration is an excellent method of obtaining an identity for your Sole Proprietorship. However, some important considerations need to be evaluated before opting for this method.
Under Goods and Service Tax registration, the only drawback is that after registration, it is mandatory to comply with all the compliances. Each registered business is required to collect taxes from customers and file Goods and Service Tax returns.
If a sole proprietor has a turnover of less than Rs. 20 Lakhs, it is not mandatory for him to register and collect Goods and Service taxes. But if he still chooses to register in order to register his Sole Proprietorship, he will have to go through unnecessary additional compliance that he could have avoided.
Here is a list of documents required to set up a Sole Proprietorship in India:
1. Adhar Card : Aadhar number is now a necessity for any application for registration in India. Also, the tax return can be filed only if the person has linked his PAN card with the Aadhar number. After applying for an Aadhar card, a hard copy of the same is received at the registered address in about 15-20 days.
2. PAN Card : You cannot file your tax return until you have obtained a PAN. So, if you don’t have a PAN number, apply for it as soon as possible. The PAN card can be applied online. To apply, you need a scanned photograph, an ID, and proof of address. The form can be submitted online by checking it through Aadhar e-KYC. Once the PAN card application is submitted, it is checked at NSDL for verification, and if NSDL finds the correct information, it issues the PAN number within 7-8 days. In addition, a hard copy of the PAN card is received at the registered address within 15-20 days.
3. Bank Account : After getting your Aadhar number and PAN, you can go to any bank to open an account with them. In addition to the Aadhar number and PAN, you need to carry proof of identity and proof of address. To open a current account, you also need to submit a Goods and Service Tax registration document to the bank officials.
4. Proof of Head Office :
➤If leased: lease agreement and NOC from a landlord.
➤If it is an Independent Property: Electricity bill or any utility bill or bill of sale.
A business organization run by a single person is the best form of business because of the qualities mentioned above. However, it also has some limitations like other organizations:
➤ Limited capital: In a Sole Proprietorship, only the owner invests the capital. It is often difficult for a person to invest more capital. The owner’s capital and borrowed capital may not be enough to grow the business.
➤ Lack of continuity: The sole proprietorship organization’s existence is dependent on the life of the owner. Whenever the sole proprietor decides to sever ties or dies, the business ceases to exist.
➤ Limited size: It is difficult to expand the business beyond a limit in a Sole Proprietorship. If the business is going to grow beyond a certain limit, it is not always possible for one person to take care of and manage it.
➤ Lack of management expertise: A sole proprietor may not be competent in all aspects of management. He or she may be competent in administration and planning but may be weak in marketing.
Finally, registration is not mandatory. It is optional whether a person intends to register his sole proprietorship or not.
Although banks insist that the sole proprietorship be registered if you intend to open a bank account in the name of your business, according to the law, it is not mandatory.
Even if you register your Sole Proprietorship, the government will not issue a new PAN card for the same. The same PAN card of the owner would also continue to apply to the Sole Proprietorship.