Setting up a business in India can seem like a daunting task, but the sole proprietorship model simplifies the process. A sole proprietorship is the simplest and most straightforward business structure in India. It is not governed by any specific laws and involves minimal procedures to establish. Essentially, a sole proprietorship is a business owned and operated by a single individual. While it offers complete control to the owner, it also means that the owner has unlimited liability and must bear all business losses personally.
In this blog, we will delve into the detailed steps and documentation required for sole proprietorship registration in India. Additionally, we’ll touch upon the nuances of company registration and Pvt Ltd company registration to give a comprehensive understanding of business setups.
Contents
To start a sole proprietorship in India, you need to gather a few essential documents. These documents serve as the foundation for all subsequent legal and financial processes involved in running your business.
1. Aadhaar Card
An Aadhaar card is a necessity for any company registration in India. It is crucial for linking your PAN card and filing income tax returns. After applying for an Aadhaar card, a hard copy is typically received at the registered address within 15-20 days.
2. PAN Card
The PAN card is required in order to file income tax returns. The application process is straightforward and can be completed online for a fee of around Rs. 110. You’ll need a scanned photograph, identity proof, and address proof. Verification is done through Aadhaar e-KYC, and the PAN number is usually allotted within 7-8 days, with the hard copy arriving in 15-20 days.
3. Bank Account
With your Aadhaar and PAN cards in hand, you can open a bank account. This requires additional identity and address proofs. For a current account, you must also provide a GST registration document.
4. Registered Office Proof
Depending on whether your office is rented or self-owned, you’ll need specific documents:
Besides the primary documents, certain registrations affirm the existence and legitimacy of your sole proprietorship.
1. Registering as an SME
Though not mandatory, registering as a Micro, Small, and Medium Enterprise (MSME) under the MSME Act can be beneficial. It facilitates access to various government schemes and loans at concessional interest rates.
2. Shop and Establishment Act License
This license is generally required for all sole proprietors who own a shop or a commercial establishment. The license is issued based on the nature of the business and the number of employees.
3. GST Registration
If your annual turnover exceeds Rs. 40 lakh (or Rs. 20 lakh for special category states), GST registration is mandatory. It is also compulsory for online businesses operating through platforms like Amazon or Flipkart. The GST registration process is user-friendly and can be completed via the GST portal within 3-4 days.
PAN Card for Sole Proprietorship
The PAN card for a sole proprietorship registration is issued in the name of the proprietor, as the business does not have a separate legal existence. Thus, the proprietor can use their personal PAN for the business.
Money Account in the Name of firm
Yes, a current account must be opened in the name of the sole proprietorship firm. This account should be used for any commercial transactions.
Documents Required to Open a Bank Account
To open a current account, you need proof of your business’s existence (like GST registration, MSME registration, or a Shops and Establishment Act License) and proof of the registered office address.
Registered Office Proof for E-commerce or Online Business
If you operate from a rented property, you need a rental agreement and NOC from the landlord. If you run your business from your home, you can use your house address or a commercial utility bill as proof.
Mandatory Licenses for Sole Proprietorship
While no specific registrations are mandated for a sole proprietorship, the basic registrations include:
GST License for Sole Proprietorship
A GST registration is compulsory if your business turnover exceeds Rs. 40 lakh annually (Rs. 20 lakh for special category states). Additionally, any e-commerce seller must obtain a GST registration regardless of turnover.
While sole proprietorship registration is straightforward, other business structures like private limited companies offer additional benefits and protections but come with more complex registration processes.
Documents Required for Pvt Ltd Company Registration
1. Obtain DSC and DIN: The first step in company registration involves obtaining a Digital Signature Certificate (DSC) and a Director Identification Number (DIN). The DSC is required for electronically signing documents, ensuring secure and authentic submissions. Anyone wishing to join a firm as a director must have a DIN, which is a unique identification number for directors.
2. Name Approval: The next step is to submit proposed names for the company to the Ministry of Corporate Affairs (MCA) through the RUN (Reserve Unique Name) form. This process involves selecting unique and compliant names for your company. The chosen name should not be similar to existing company names or trademarks to avoid rejection.
3. MOA and AOA: Once the name is approved, the next step in company registration is drafting the Memorandum of Association (MOA) and Articles of Association (AOA). The MOA outlines the primary objectives and scope of activities of the company, while the AOA details the internal management and operational rules. These documents are crucial as they define the company’s structure and governance.
4. Incorporation: After preparing the MOA and AOA, you need to file the incorporation documents with the Registrar of Companies (RoC). This includes submitting the e-Form SPICe (Simplified Proforma for Incorporating Company Electronically) along with the required documents, such as identity and address proofs of directors and shareholders. This step finalizes the application for company registration.
5. CIN: Upon successful verification of the submitted documents, the Registrar of Companies will issue the Certificate of Incorporation. This certificate contains the Corporate Identity Number (CIN), a unique number that signifies the legal existence of the company. With the CIN, the company is officially registered and can commence its business operations.
While these steps are specific to Pvt Ltd company registration, the sole proprietorship registration is generally simpler and involves fewer formalities compared to company registration.
Conclusion
Starting a business in India through sole proprietorship registration is a hassle-free and economical option for many entrepreneurs. However, as the business grows, transitioning to a private limited company might offer more advantages, including limited liability and better access to funding.
For those juggling multiple incomes or seeking expert advice on company registration and Pvt Ltd company registration, platforms like LegalRaasta can simplify the process. By leveraging their expertise, you can ensure compliance with all legal requirements and focus on growing your business.
Whether you opt for sole proprietorship registration or explore other business structures, understanding the prerequisites and benefits is crucial for making informed decisions and setting a strong foundation for your entrepreneurial journey.