Sole Proprietorship Registration

Compliance & Taxation
Checklist Items
Opening Current Account
Sole Proprietorship Registration

When a business is owned and governed by one person, it is called a sole proprietorship company. This type of business can be incorporated in fifteen days and hence makes it one of the most popular types of business to begin in the unsystematic sector, specifically among merchants and small traders. For a Sole Proprietorship business, registration is not required as it is identified through alternate registrations, such as GST registrations. However, its liability is unlimited and it also doesn’t have perpetual existence.

Advantages of Proprietorship

The following are some of the major advantages of proprietorship firm.

Easy to Establish

A sole proprietorship business does not have any specific registration requirements and the proprietor’s legal identity is used by the business. Hence, a proprietorship can be started without any registration. Using the PAN and Aadhaar of the promoter,  Udyog Aadhaar registration and Trademark Registration can be obtained optionally to create and protect the identity of the business.

Easier to Operate

As a single person is at the helm of affairs, it is easier to operate as the particular person will be the sole decision maker and he need not consider a plethora of opinions. There is no concept of a board meeting or approval from other persons in a proprietorship firm.

Sole Beneficiary of Profits

No other business, other than that of a sole proprietorship and one person company, entitles the owner as the sole beneficiary of profits. In all other types of an entity like a partnership, LLP or company, a minimum of atleast two persons are involved.

Compliance & Taxation

Since a proprietorship firm is not registered with any Government authority like the Ministry of Corporate Affairs, the compliance requirements are minimal. Further, the proprietor would only have to file income tax returns if the firm has taxable income of more than Rs.2.5 lakhs per annum. In case of proprietors who have attained the age of 60 years or more during the previous year, income tax filing would be required only if the taxable income is more than Rs 3,00,000. In case of proprietors who have attained the age of 80 years or more during the previous year, income tax filing would be required only if the taxable income is more than Rs 5,00,000.

Finally, the sole proprietor can also reduce the income tax liability by availing the following deductions:

  • Contributions to provident fund, life insurance premium, subscription to certain equity shares or debentures etc.
  • Contribution to certain pension funds.
  • Contribution to notified pension scheme of the Central Government.
  • Medical insurance premium.
  • Caring for a dependent who is ailing with disability.
  • Medical expenses.
  • Repayment of loan availed for higher education.
  • Payment of rent.
  • Income from royalty.
  • Royalty on patents.
  • Handicapped persons.

Since sole proprietorships are an unregistered form of entity, there is no database maintained by the Government with a list of all proprietorships. Hence, proprietorship firms are more private when compared to a company or LLP whose details are published on the MCA website.

Disadvantages of Proprietorship

The following disadvantages must be taken into perspective while deciding to start a sole proprietorship firm:

Unlimited Liability

This is one of the most disturbing aspects of a sole proprietorship firm. On the occurrence of a loss, the proprietor must meet the liabilities at any cost, which implies that if the need occurs, his/her personal assets may have to be used for discharging the liabilities.

Difficulty in Obtaining Funds

A sole proprietor cannot indulge in sale of business interest or shares, which deprives the entity from the receipt of any type of equity funding.

Further, banks are also wary of lending large sums of money to a proprietorship firm as the existence of the proprietorship firm is tied to the proprietor. On the other hand, in a company or LLP, more than one person would be responsible for the liability and business continuity would be assured in the event of death or insolvency of one of the promoters. Hence, it would be easier for a company or LLP to raise bank loan when compared to a proprietorship firm.

Higher Tax Incidence

Proprietorship firms are taxed similarly to an individual. Hence, income tax rate for a proprietorship firm is based on slabs. Though the income tax rate for income of upto Rs.10 lakhs is lower when compared to a company, proprietorship firms cannot enjoy various benefits enjoyed by an LLP or Company. Further, for taxable income of more than Rs.10 lakhs, the income tax rate for a proprietorship firm is higher than the income tax rate of a company. Hence, in the long-run, it would be more prudent to register a company to reduce income tax liability.

Checklist Items For A Sole Proprietorship Registration
  • A certificate/license issued by Municipal authorities under the Shop & Establishment Act.
  • The license issued by registering authorities like the Certificate of Practice is issued by the Institute of Chartered Accountants of India.
  • The registration/licensing document is issued in the name of the proprietary concern by the Central Government or the State Government Authority/ Department, etc,
  • The banks may also accept the IEC (Importer Exporter Code) issued to the proprietary concern by the office of the DGFT as an identity document for opening of the bank account etc,
  • Complete Income Tax return (not just the acknowledgement) in the name of the sole proprietor where the firm’s income is reflected, duly authenticated and acknowledged by the Income Tax Authorities,
  • The utility bills such as electricity, water, and the landline telephone bills in the name of the proprietary concern,
  • Issue of GST Registration/Certificate.
What Are The Documents Required For Registering A Sole Proprietorship?

To start a Sole Proprietorship, the following documents are required

  • Address and identity proof
  • PAN card, KYC documents and
  • Rental agreement or sale deed (in case of Shops & Establishment Act Registration).
What Are The Documents Required For Opening A Current Account?

To open a current account, the following documents are required;

  • Proof of the existence of your business
  • Shops & Establishments Act Registration
  • PAN card
  • Address and Identity proof
Relitrade Consultancy Executes A Sole Proprietorship Registration Procedure

Our experts give you professional guidance on many of the processes involved in registering your business as a sole proprietorship, along with registration of service tax, sales tax, import/export code, and professional tax.


Q.1 What is a sole proprietorship?
A sole proprietorship is a company with only one owner and is not registered with the state, unlike a limited liability company (LLC) or corporation. Starting a sole proprietorship requires no paperwork — all you do to create a sole proprietorship is simply go into business. Although you do not have to file paperwork to set up a sole proprietorship, you do still have to acquire business licenses and permits, just like with any other form of business. Most people use the term “DBA” which stands for “doing business as” to indicate a sole proprietorship.

Q.2 How does a sole proprietorship differ from other company forms?
A sole proprietorship differs from other forms of business in several ways. The chief ways a sole proprietorship is different include:

  • Sole proprietorships are the least complex and cheapest form of doing business
  • Sole proprietorships require no formal paperwork to set up and don’t need to be registered with the state
  • Sole proprietorships do not shield individuals from liability for their business debts (see below)
  • Sole proprietorships are treated as simple income for tax purposes, and do not need to have separate taxes prepared (see below)

Q.3 How are sole proprietorships treated for tax purposes?
Unlike corporations, sole proprietorships are not treated separately by the IRS. This means that any profit derived from your sole proprietorship is treated as your personal income and is accounted for on your individual tax return. Any such income is taxed to you in the year it was received.

Q.4 Am I personally liable for my business under a sole proprietorship?
Yes. Unlike other forms of incorporation, you are personally liable for any of your sole proprietorship’s debts or legal judgments against your business. This means that in order to satisfy debts owed by your business, debt collectors can come after your personal assets — homes, cars, etc. For this reason alone, you should be extremely cautious about setting up a sole proprietorship.

Q.5 Do I need an attorney to help me start a sole proprietorship?
Not necessarily. But every business is unique and there may be circumstances where a partnership, LLC, or some other kind of business structure is a better fit. You also may want to get more insight into the specific liabilities your sole proprietorship may face. Learn more by contacting a business organizations lawyer licensed to practice in your state.

Sr. No Service Name Rate
1 Proprietorship Firm Registration ₹ 2499
Get Started