PLC
All About Proprietorship
A Proprietorship is a kind of unregistered business structure that is owned and managed by a single individual. This is the most widely used form of business structure, as it is easy to set up and has less compliance requirements than most businesses like a Limited Liability Partnership or Private Limited Company or One Person Company. However, after incorporation, a Proprietorship does not offer its Proprietor a lot of benefits in terms of a corporate status, being a separate legal entity, independent existence, ability to have a continued existence or to transfer the business, if need be. Thus, a Proprietorship is only suitable for small businesses, that will remain small and have a limited lifetime.
The Govt. of India does not have any provisions to officially register a Proprietorship which is why the existence of such a business must be established through tax registrations and other kinds of business registrations. For instance, GST Registration can be obtained by a Proprietorship to state that a Proprietor is running a business as a Sole Proprietorship. Any registrations made for the Proprietorship Firm is made in the name of the Proprietor because he will be personally be responsible for liabilities of the business.
A Proprietorship may not come with as many benefits as any other kind of business does, but it has its own fair share of advantages. Let’s discuss some of them: -
- Since a Proprietorship does not have any specific registration requirements and it just takes a single person to incorporate it, it is easier to establish this kind of business. The only requirement to set up such a business is the PAN and Aadhaar of the Proprietor.
- A Proprietorship also enjoys the benefits of choosing its own name without having to add any suffix to it. The only restriction in picking a name, is that it should not infringe on an existing name of any company that has a trademark registration.
- A single individual has complete control of the decisions made related to the business carried out by the proprietorship, which makes it easier to manage and operate it. There is no concept of calling a meeting, in order to take important decisions or take approval from a third person in a Sole Proprietorship.
- Just like a One Person Company, a Proprietorship also provides the benefit of enjoying the profits incurred by the business, since there is only one person at the decision-making level.
- A Sole Proprietorship is not registered with any Government institution like the Ministry of Corporate Affairs (MCA), therefore, it does not have any strict rules regarding the annual compliances. A Proprietorship is only required to file an annual Income Tax Return, if the income is taxable as specified by the Income Tax Department.
- It is simple to set up a Proprietorship, it is easy to close one as well. Only the various registrations that were acquired in the name of the business need to be cancelled to close a Sole Proprietorship.
Now that we have discussed the advantages of incorporating a Proprietorship, let’s discuss how we can get it established. When you buy our plan for Proprietorship Registration Our experts at All India ITR will take care of all the necessary documents and registrations on your behalf.
Annual compliances for your Proprietorship Get Details
The primary document that is required by a Proprietor is his/her PAN Card. Since, all registrations and Income Tax Return filing is carried out with the help of a PAN Card it is necessary for the proprietor to have one. The application for PAN Card is submitted by our experts online. All we require from you, is a photograph, an identity proof (Passport/ Driver’s License/ Voter ID Card) and an address proof (Latest Electricity/ Phone Bill/ bank account statement/ copy of post office pass book with the address of applicant).
- It is also important to get an Aadhaar Card for the Proprietor of the business. Aadhaar card is necessary for any registration process in India, except for those who are from the India State of Assam. In order to file Income Tax Return in India for individuals or businesses, it is important to link the Aadhaar Card to the PAN.
- Once the Proprietor gets the PAN and Aadhaar Card, then they are supposed to open a bank account for the proprietorship. Apart from the Aadhaar and PAN card, an Identity and Address proof of the Proprietor is supposed to be submitted. In case, you wish to open a current account for the business, then you will have to submit a copy of the GST Registration.
- A Proprietorship can register under the MSMED Act, 2006 (Micro, Small and Medium Enterprises Development Act). The MSMED Act, 2006 promotes the development and establishment of micro, small and medium size businesses. It is not compulsory to get a Proprietorship registered under the MSMED Act, 2006, but it is highly favorable especially when you are planning to take a loan for the business. The businesses that are registered under the MSMED Act, 2006 are provided loans on a lower rate of interest.
- It is also necessary to get a Shop and Establishment Act License, in case the Proprietorship is established in a local municipality. This license is issued by the municipal party as per the local laws on the basis of the number of employees in the Proprietorship Firm.
- If the annual turnover of a Sole Proprietorship is more than Rs. 20 Lakhs, then, it is also mandatory for the proprietorship to get registered under the Goods and Services Tax Act (GST Act). Moreover, if the Proprietorship is doing any business online i.e. selling on E-commerce websites, then it is necessary for them to get a GST number. To get your Proprietorship registered under the GST Act, you will need to provide us with a photograph, PAN Card, Aadhaar Card, address proof of the business (Electricity Bill/ Phone Bill/ Rent Agreement/ Property Ownership Proof) and a copy of the Bank Statement to verify the account number, address and IFSC Code.
After discussing the advantages, a Proprietorship brings for the Proprietor, it is also important to talk about the concerns that are associated with this kind of business set up.
- Unlike a Private Limited Company or One Person Company or a Limited Liability Partnership, where the owners have limited liability for their personal assets, a Proprietorship, has unlimited liability towards the personal assets of the owner. This means that if the business incurs any loss, if need occurs, the liability will have to be paid using their personal assets.
- A Proprietorship Firm does not allow any sale of business interest or shares which, in turn, does not give this kind of business the liberty to get any funds from equity. Furthermore, banks are also skeptical of lending large sums of money as loans to a Proprietorship Firm because the liability will have to be paid by a single person, unlike in any other kind of business set up.
- A Proprietorship falls into the same tax bracket as any individual taxpayer does. The Income Tax Rate for a Proprietorship Firm, whose annual turnover is upto Rs. 10 Lakhs, is much higher than the tax rate for any other company.
File Income Tax Return for your Business. Get Details
We discussed earlier, a Proprietorship does not have any major compliance requirements like the other companies do, but it has certain Tax Returns that are supposed to be filed, as per the due dates.
- It is mandatory for a Sole Proprietorship to file Income Tax Return every year on the income it has earned.
- If the business is registered under the GST Act, it is also mandatory to file a GST Return.
- In case the Proprietorship deducts any tax at source from its employees, filing of TDS Return also needs to be done.
