Solo-preneur – Register a Sole Proprietorship in India

Guide to Register a Sole Proprietorship in India If you’re ready to do business, 3E Accounting offers a pocket guide to register a sole proprietorship in India.

According to the World Bank statistics, more than 60% of businesses in India consist of sole proprietorships. India is very much on track to be a significant economic powerhouse within the next two decades. This is an exciting time to be going into business for yourself. Read on for a quick guide to register a sole proprietorship in India.


Basics of a Sole Proprietorship

A sole proprietorship is a business that is owned and managed by a single person. A sole proprietorship does not require a formal registration process – it is optional, not mandatory. However, foreigners are not allowed to open a sole proprietorship in India.

There is only one owner in a sole proprietorship and starting this type of business only takes 10 – 16 days. A sole proprietorship does not have a separate legal entity. Hence, liability is unlimited, and the proprietorship cannot be transferred. Upon the demise of the owner, the sole proprietorship will end.

A sole proprietorship should not be confused with a One Person Company (OPC). The Indian OPC is a hybrid between a private limited company and a sole proprietorship. It can have a maximum of two people and needs to be registered with the Ministry of Corporate Affairs (MCA). It has a separate legal identity, and liability is limited to the extent of share capital.

OPCs also allow foreign ownership provided one person is local. As it has a separate legal entity, ownership can be transferred and is not affected by the demise of the owners.


Registrations and Approvals

While registration is not mandatory, it is advisable to do so as it provides legality to your business activities. For example, registering for MSME or Udyog Aadhar scheme can benefit sole proprietors. Registering as a micro, small and medium enterprise will allow sole proprietorships access to Government loans, subsidies, tax relief and grants.

Some business by sole proprietors may also fall under the Shop and Establishments Act, depending on location. This requires registration for a variety of permits from State and Central Governments. Licenses are issued by municipalities and are based on the number of employees.

As far as taxation is concerned, sole proprietors are taxed as individuals. As such, they must file annual income tax returns with the Registrar of Companies. It is also advisable to get GST registration as a GST number is essential for other approvals, such as online business. GST registration can be done where the annual business turnover is above Rs 20 lakhs.

To register a sole proprietorship, you will need an Aadhar Card, a permanent account number (PAN) and proof of a registered office address. These are also required for income tax filings and opening a bank account. Getting a bank account is advisable as it will facilitate financial matters, especially if your business is online.


Going at It Solo

In a nutshell, sole proprietorships:

  • Are easy to start with minimal costs.
  • Have a single owner, who makes all the decisions and enjoys all the profits.
  • No corporate tax.

However, sole proprietorships also:

  • Have unlimited liability.
  • Do not exist in perpetuity.
  • Have issues raising capital.

Once you’ve decided that a sole proprietorship in India is the right vehicle for you, it’s time to get down to business. 3E Accounting offers corporate solutions that include rental of serviced offices, website design and development, etc. Whatever your business needs, 3E Accounting is ready to assist with customized solutions.

Contact 3E Accounting today to speak with industry professionals about the future of your business.
Guide to Register a Sole Proprietorship in India