A sole proprietorship is with only one owner and is not registered with the state, unlike a limited liability company or corporation. Starting a sole proprietorship doesn’t requires any paperwork — all you do to create a sole proprietorship and start your business. Although you do not have to file paperwork to set up a sole proprietorship, you still have to acquire business licenses and permits, just like with any other form of business such as GST registration or any other registration.
It is very easy to register a proprietorship firm in India. In India particularly it is a very popular entity to carry out business. Individuals doing business under unregistered firm or without any legal identity or free lancers, service providers or Individual Retailers, traders, business, manufacturers.
In legal terms, the business and the owner are one and the same. No separate legal identity will be bestowed upon the sole proprietorship. So the owner will be wholly responsible for all the activities and transactions of the business.
A sole proprietorship does not have a separate law to govern it. There are not many special rules and regulations to follow. It does not require incorporation or registration of any kind. In fact, in most cases, we need only the license to carry out the desired business. There is hardly any legal process involved in its closure. It allows for ease of doing business with minimum hassles.
Since there is no separation between the owner and the business, the personal liability of the owner is also unlimited. So, if the business is unable to meet its own debts or liabilities, it will fall upon the proprietor to pay them.
The business owner is the only risk bearer in a sole proprietorship. Since he/she is the only one financially invested in the company. As a result, he must also bear all the risk. In other words, if the business fails or suffers losses, he will be the one affected. However, he also enjoys all the profits from the business. He does not have to share his profits with any other stakeholders since there are none.
The whole process of registering the proprietorship can be completed online. Please refer below the documents required for registration: –
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An audit will be required for the proprietorship firms if the total sales are over Rs. 1 crore during the financial year. In a professional case, an audit is necessary if the total gross receipts are more than Rs.50 lakhs during the financial year assessment. Further, any person opting for presumptive taxation firm is also required to get their accounts audited irrespective of their turnover if the income claimed is lower than the deemed profits and gains under the scheme.
Any person registering proprietorships must file income tax returns. As the proprietor and the proprietorships are the same, therefore the proprietor is required to file single income tax return,
As per the provision of the Income-tax Act 1961, every proprietor below the age of 60 is required to file ITR if the total income exceeds INR 2.5 lakhs. If the proprietor is over 60 years and below 80 years, he/she should file ITR only if gross total income exceeds INR3 lakh. Proprietors over the age of 80 years are required to file income tax if the income exceeds INR 5 lakh.
Form ITR-3 can be filed by a proprietor or a Hindu Undivided Family carrying out a proprietary business or profession. Form ITR-4-Sugam can be filed by a proprietor who would like to pay income tax under the presumptive taxation scheme.
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