Most individuals who want to start a small business consider going for a sole proprietorship firm, popularly known as a sole proprietorship. A sole proprietorship firm is extremely popular due to the fact that it’s very easy to set up, as well as, really easy to manage. It also has great taxation benefits.
A sole proprietorship firm is seen to have the same legal identity as its owner, because of this the taxation aspect of a proprietorship firm is just the proprietor’s income tax. Additionally, sole proprietorships do not have any requirement of registration as well and can always be converted to other business structures such as hey partnership firm or a company later.
If you are thinking of going for sole proprietorship registration, these are a few of the things that you have to keep in mind.
When should you go for a sole proprietorship firm?
- If you do not want to pay a lot of registration costs, and individuals want to start a business. A sole proprietorship firm is perfect for you. Sole proprietorship firms have zero registration costs.
- If you are going to be making all the decisions in the firm and handling all of the activities of the firm. This is because the sole proprietorship gives you sole ownership of the firm. This is perfect for entrepreneurs who were freelancing and now want to start their own venture.
- If you want to start a business with very low management and compliance costs. Sole proprietorship is the cheapest of all business structures in the abovementioned regards.
- If you do not want to spend a lot of time maintaining financial documents. In case of sole proprietorships there is no legal necessity of maintaining financial statements. So a sole proprietor can, on their own wish, decide if they want to maintain a statement of finances. However, we would suggest always maintaining financial statements. Especially if the business is more of a medium sized business next time.
- If you do not want to pay any additional taxes for your business. Sole proprietorships, as mentioned earlier, are taxed at the same income tax slab as the sole proprietor. The sole proprietorship firm does not have to pay income tax of its own. However, business partnerships are prone to difficulties like differences in opinion or vision, and can often fail spectacularly. Anyone who has ever seen Shark Tank on Spectrum TV packages has watched contestants struggle between acquiring capital in return for offering a partnership or a share in profits for their product.
How to start a sole proprietorship firm?
Starting a sole proprietorship firm it’s quite easy because the sole proprietorship firm and the proprietor of the firm are seen to be one and the same. Generally, you only need the information of the sole proprietor for the sole proprietorship firm. That being said there are certain schemes under which one can register their sole proprietorship firm. While registration is not generally necessary, for certain kinds of establishments, some registration is legally mandated. Additionally, registration does grant a proprietorship firm a certain level of legitimacy and legal protection. Registration is also required when it comes to opening a current account in a bank.
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Shops & Establishment Act:
For all sole proprietors who own shops or commercial establishments, a registration under the shops and establishment act is mandatory. Basically this registration requires the proprietor to notify its local government about the kind of business activities it is carrying out. This is a registration that applies to all business structures that own shops or establishments, and sole proprietorships are no exception. This registration has to be done within 30 days from starting the business.
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MSME Registration:
One can also get the proprietorship firm registered under the MSME department. The MSME department or micro, small and medium establishment department comes under the central government. This is a completely optional registration. However, going for this registration makes you eligible for various schemes and benefits provided by the central government. For example, it lets you get loans from financial institutions at a lower rate of interest. Sole proprietorship firms that register under MSME are also eligible to claim a rebate of 50% on all government fees for trademark registration in India.
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GST Registration:
The next important registration is GST registration. GST registration is not mandatory for all sole proprietorship firms. However if the business’s annual turnover is over 20 Lakhs, GST registration is mandatory.
- Some other registrations that certain types of proprietorship firms need to go for are:
- FSSAI registration for sole proprietorships that are involved in the food industry. This registration grants a license to establishments in the food industry that states that their goods are safe for consumption. It’s essentially a hygiene requirement that all organizations involved in the food industry have to abide by.
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- Secondly for a proprietorship firm involved in import or export of goods and services, the IEC registration is mandatory.
- If a sole proprietorship firm is going to establish a factory that has 20 or more workers. It has to get registered under The Factory Act 1948.
Generally, a proprietorship can begin operations as soon as it gets the required registration certificates. While most proprietorship firms do not need any registration. It is best to speak to an expert based on the kind of business activity your proprietorship firm will be involved in to ensure that you know exactly which registrations, if any, apply to you. So that you can start your business operations as quickly as possible.
Conclusion
A sole proprietorship firm is perfect for entrepreneurs who want to start a small business. What makes a proprietorship perfect is that it has a very few starting costs, as well as very few risks involved. Hence you can start your business and figure out the nitty-gritties of it based on how everything is working, and accordingly take the decision to expand it or close it down and start something else.
