Sole Proprietorship Firm

Sole Proprietorship Firm Registration


To start with the literal meaning, "Sole" corresponds to "only," and "proprietor" refers to "owner." A Sole Proprietorship Firm (SPF) is a business that just one person owns. This is the most basic structure in which a business can operate. As per the law, this business does not have a distinct identity. This type of business can be established in fifteen days, making it one of the most prominent types of unsystematic businesses to start, especially among merchants, traders, freelancers, and other self-employed citizens.

The sole proprietor will invest in the sole proprietorship business. He is liable for all of the firm's losses and profits. He controls and manages the firm and has the authority to appoint people to manage the business, but only he preserves the sole ownership. Many new businesses start as sole proprietorships because they are created automatically when somebody decides to sell goods or services.

Table of Contents
  • Eligibility Checklist
  • Benefits of a Sole Proprietorship Firm
  • Disadvantages
  • Documents Required for Registration of an SPF
  • Capital Required to start an SPF
  • Registration Process of a Sole Proprietorship Firm in India
  • Compliances of an SPF
  • SPF- Important Points to Remember
Eligibility Checklist

A sole proprietorship can be started by any Indian citizen who has a current account in the name of his or her business. Depending on what type of business will be started, registration may or may not be required. Banks, on the other hand, typically require a Shops & Establishments Registration in order to open a current account.

  • As sole proprietors, individuals are required to file an annual income tax return. If you are GST-registered, you should also file your GST Return. If a sole proprietor is subject to a tax audit, he or she should deduct TDS and file a TDS return. The Shop & Establishment Act requires municipal authorities to issue a certificate or license.
  • The Institute of Chartered Accountants of India issues the Certificate of Practice, which would be a license issued by the Registering Authorities.
  • The Central Government or a State Government Authority/Department issues a registration/licensing document in the name of the proprietary concern.
  • Banks may accept the IEC (Importer Exporter Code) issued by the DGFT office to the proprietary concern as an identity document for opening bank accounts as well as other purposes.
  • Completed Income Tax Return (not just the acknowledgement) in the sole proprietor's title, indicating the firm's income, formally validated and acknowledged by the Income Tax Authorities
  • Utility bills in the name of the concerned proprietary, such as electricity, water, and landline telephone bills
  • Issue of GST Registration/Certificate.
Benefits of a Sole Proprietorship Firm
  • Tax Advantages

A major advantage of a sole proprietorship would be that tax regulations are much simpler and straightforward, especially when compared to other business entities.

The compliance requirements for a proprietorship firm are minimal as it is not registered with any federal agency such as the Ministry of Corporate Affairs. Besides that, if the firm's taxable income exceeds Rs.2.5 lakhs per year, the proprietor is only required to file income tax returns.

Only if the taxable income is more than Rs 3,00,000, income tax filing is required for proprietors who have reached an age of 60 or more during the previous year. Only if the taxable income is more than Rs 5,00,000 is income tax filing required for proprietors who have reached an age of 80 years or more during the previous year.

Eventually, the sole proprietor can decrease his or her tax liability by taking advantage of the various deductions:

  • Contributions to the provident fund, life insurance premiums, and subscriptions to specific equity shares or debentures, among other things.
  • Make contributions to specific pension funds.
  • The premium on medical insurance.
  • Caring for a reliant who is ailing with a disability.
  • Health-care costs.
  • Repayment of a student loan borrowed for higher education.
  • Payment of rent/lease.
  • Royalties that bring in revenue.
  • Persons with disabilities.

A sole proprietorship does not require the filing of a separate business tax return. Instead, they will include business data and statistics in their personal tax returns. This can lead to significant savings on accounting and tax preparatory work. The business will be taxed at personal income tax rates, not corporate tax rates.

  • Lesser Government Regulations

You can start a sole proprietorship business as soon as you have a business idea. There is no requirement for prior registration in order to start a sole proprietorship business. The proprietorship has no legal identity of its own and is only known by its proprietor/owner. As a result, a proprietorship business can be started right away without the need for registration. The proprietor's PAN number is used as the sole proprietorship's PAN. We recommend trademark registration to protect your company name, brand, logo, punchline, and other proprietary information.

  • An   Inexpensive  Registration Process

The simplicity and low cost of this type of business are perhaps its most significant advantage. You are not required to file with the government, and you are not required to have a legal charter.

  • Full Control   of the Firm

The owner is not required to share the profits of their hard work, business idea, and investment. The sole proprietorship firm's profits are wholly controlled by the owner or proprietor. In the proprietorship business, there is no benefit sharing.

The business decisions are completely under the control of the owner or proprietor. Since the sole proprietorship business is owned by a single person, decision-making is swift; the business is managed by only one person, who makes all decisions without consulting anybody else. Unlike a corporate entity where decisions are taken by a board of directors and the opinions of several individuals are considered, a proprietor can make decisions quickly in a proprietorship business. As an outcome, a proprietorship firm is simple to manage and operate. Because of this flexibility, sole proprietorships are a popular first step in starting up a business because they allow owners to experiment before committing to the regulations that emerge with running a Limited Liability Company (LLC) or a corporation.

The company can be wound up as easily and informally as it was started. Liabilities and taxes must be paid or settled before the proprietorship could be closed. Before the business is closed, all tax registrations and business licences should be surrendered.

  • More   Straightforward Banking

The proprietor manages all banking and other business transactions of his own. You can only deposit or withdraw money from your banks if it is necessary for your business.

Sole proprietorships are a special type of business entity that advantages from simplified banking because they don't need a business checking account to operate. However, as a sole proprietor, you can make and accept business payments directly from your personal bank account. A business owner does not need to worry about opening a business checking account or determining out how to set up business centric financial services in general. It is however favourable to open a current account in the name of the business for convenient accounting.

  • Privacy

Because sole proprietorships are unregistered, the government does not maintain a record with a list of all proprietorships. As a result, proprietorship firms are more private than a company or LLP whose data is accessible on the MCA website.

  • The number of people you can hire is  limitless

The owner of this company has complete control over everything, including the people who contribute to it, and does not need the approval of a board of directors, stockholders, or anyone else. A single person is in charge of all hiring and firing.

The benefits of a sole proprietorship are numerous, but that does not mean that they are without downsides or that they are suitable for everyone or every business. It's not without its drawbacks.

  • As a proprietor, you have  unlimited liability

Unlimited liability is a disadvantage of this type of proprietorship. When you pay your debts as a sole proprietor, creditors can easily examine your confidential info such as savings, property information, income, and so on. As a result, you must also reveal information about your personal assets.

Any losses, debts, or violations emerging from the business will be held directly responsible by the owner. This is in marked contradiction to corporations, where members have limited liability where they cannot be held liable for any losses or violations in any form.

  • The law does not distinguish between the owners’ personal assets and the firm's assets in a sole proprietorship

The amount of capital available to the firm is restricted to the owner's personal funds as well as any borrowed funds. This disadvantage limits the business's potential size, despite of how appealing or widely known its product or service is.

Obviously, you would raise resources to pay off debts or plan to increase the productivity of the company by diversifying your portfolios. However, you must repay the money to the parties on your own, which include the interest. If you go bankrupt, you should go through legal proceedings because no one else is responsible for your losses and debts.

  • Countless Decisions

As the owner is the only individual making all the decisions throughout the process, it can be overwhelming and can result in inaccurate decisions which can have an ampilifed effect on the business, consumers and the most significantly, the owner of the firm. Being accountable at all times can be a power and a boon.

  • There will be no continual succession

The survival of a sole proprietorship business is contingent on the proprietor's life because they are treated as one and the same, the firm does not continue if the owner dies or becomes incapacitated. The business is liquidated upon the owner's death and becomes part of the owner's personal estate, which is distributed to beneficiaries. Beneficiaries may confront significant tax consequences as a result of inheritance and estate taxes.

  • Raising Capital Has a Limited Scope   for a Sole Proprietorship

It can be difficult to raise capital because the owner usually provides the initial funds. Corporations issue stocks as well as other money-generating investments, whereas sole proprietorships do not.

So, while a sole proprietorship does not necessarily result in greater liabilities, it does put the business owner at risk of being sued. Lawsuits against the business owner can be filed both for legal violations and to obtain any remaining debt. Furthermore, because the proprietorship firm's existence is tied to the proprietor, banks are cautious of lending substantial sums of money to it.

Documents Required For Registration of an SPF

For the registration of a Sole Proprietorship firm, the following documents are required:

  • The proprietor's PAN Card.
  • The firm's Name and Address.
  • Registration under the respective state's Shop and Establishment Act.
  • If the firm’s turnover exceeds Rs.20 lakhs, GST registration is required.
  • Open a current bank account, in the name of the company, .
Documents Required For Opening A Current Account?

To open a current account for the firm, the following documents are required:

  • Proof of your business's existence
  • Shops and Establishments Act Registration
  • PAN card
  • Address and Identity Proof
Capital Required to start an SPF

Starting a small business as a sole proprietorship does not require a large upfront investment. Some states permit the creation of sole proprietorships without the double taxation rules that apply to most corporations. The proprietorship can be named after the owner, or it can be given a fictitious name to assist with marketing. So the effective cost can be amounted to be Rs.0.

Registration Process of a Sole Proprietorship Firm in India

Step 1: Obtain an Aadhar Card

For any business to be legalized in India, an Aadhar number is required. Furthermore, an IT return can only be filed if the taxpayer has linked his or her PAN card to his or her PAN number. To secure the Aadhar number in a legitimate manner, the applicant can go to the nearest Aadhar, Seva Kendra, or E-Mitra.

Step 2: Apply for a PAN Card

If you don't have a PAN, you won't be able to file an IT return. A dedicated government portal allows individuals to apply for a PAN for a small fee. A photograph of the applicant, proof of identification, and proof of address are all required documents when applying for a PAN. After successful verification, the authority issues the applicant a PAN number within the first week.

Step 3: Open a current bank account in the name of the firm (preferably)

You can open a current account at any designated bank once you have acquired your PAN and Aadhar Number. PAN, Aadhar Number, GST registration, and address and identification proof are all common documents required for this purpose.

Step 4: Obtain a license under the Shop and Establishment Act

A shop and establishment licence is a legal requirement for any business that sells goods or services to the public. Owning a small business, such as a restaurant or a shop, necessitates acquiring a license, and that is a legal requirement.

Step 5: Make a GST registration

GST registration is required for all types of businesses with annual revenues surpassing the prescribed threshold. Businesses with a yearly turnover of more than Rs 40 lakh are currently needed to acquire this registration. Keep in mind that the GST applies to online business owners as well.

Compliances of an SPF

A single person can easily start a sole proprietorship business. There is a minimum level of compliance that must be met in order for it to be incorporated. This type of business is cost-effective because it is less expensive to start than a corporation or Limited Liability Partnership (LLP). As a sole proprietor, you are required to file an annual income tax return. If you are GST-registered, you must also file your GST Return.


In conclusion, a sole proprietorship is suitable for a small business if the risk is low and the turnover is low. As a result, sole proprietorships are ideal for businesses with moderate risk and limited financial resources. However, if the business involves a high degree of risk, a one-person company should be considered. After considering the circumstances, available financial backup after and before investment, personal asset protection needs, and the tax situation, a decision has to be made.

Frequently Asked Questions (FAQs)

1. What is a SPF?

A Sole Proprietorship Firm (SPF) is a business that just one person owns. This is the most basic structure in which a business can operate. This type of business can be established in as little as fifteen days, making it one of the most prominent types of unsystematic businesses to start, especially among merchants, traders, freelancers, and other self-employed citizens.

2. Who is eligible to establish a SPF?

Anyone who possesses an AAdhar card and a PAN card is eligible to start a SPF. However, banks, on the other hand, require sole proprietorship enrollment if you want to open a bank account in your firm's name, but it is not required by law.

The government will not issue a new PAN Card for your sole proprietorship even if you register it. The proprietor's PAN card would continue to be valid for the sole proprietorship as well.

3. How to start a SPF?

There are no other governmental prerequisites for establishing a sole proprietorship; nevertheless, depending on the business, certain registrations could be required.

    1. The registration of a sole proprietorship under the SSI/MSME Act. The Proprietor's PAN and Aadhar card are the only documents on the list.

    2. Submit an application for GST registration.

    3. Obtain a certificate of GST registration from the authorities.

    4. Open a current account with a bank.

4. Which documents do I need to start my SPF?

It does not, in general, necessarily require any documents. A sole proprietorship requires the following basic registrations:

The Shops and Establishment Act of the state in which the business is located requires a registration certificate.

  • GST registration is required
  • Registration with the Ministry of Micro, Small & Medium Enterprises (MSME) is required
5. Is Sole Proprietorship considered as a firm?

A sole proprietorship is a business which is owned and controlled by one person, a corporate entity, or a limited liability partnership. So yes, as the name suggests it is a legal firm.

6. What is the difference between have a one-person company and a SPF?

A One-Person Company (OPC) is regarded as a limited-liability private limited company. Only one person is the sole promoter of a one-person company, and the other is a Nominee who is not supposed to be a minor.

A sole proprietorship is not the same as a partnership or a private limited company in terms of legal status. Furthermore, because the sole proprietor is owned and controlled by the Proprietor, there is no need for board meetings or annual meetings. The personal income tax return is used to report earnings and losses.

7. What kind of businesses are run as SPFs generally?

A proprietor can engage in retail activities such as selling groceries, household goods, merchandise, electric goods, and so on with little or no risk. The initial investment requirements are also relatively low, which supports the choice of proprietorship. This section also covers bakeries and general stores.

Similarly, in the service industry, Chartered Accountants, Company Secretaries, and Lawyers frequently choose proprietorship. The business requires very little capital, and professionals, regardless of the organizational structures, are directly responsible for their actions.

8. What is the limit to the number of employees in an SPF?

There is no limit on the number of employees that can be hired, any ethical or legal violations is a liability on the owner of the firm.

9. Is it necessary to get a GST number as a sole proprietor?

If your company's annual sales or turnover exceeds Rs. 40 lakh, you must register for GST. Businesses registered in special category states, on the contrary, must register for GST if their threshold limit surpasses Rs.20 lakh. Regardless of their turnover, any individual or entity thinking of starting their own e-commerce business needs to register for GST.

10. What are the taxation slabs of sole proprietorships?

If the proprietor is under the age of 60,

Taxable income Tax Rate
Up to Rs. 2,50,000 Nil
Rs. 2,50,000 to Rs. 5,00,000 5%
Rs. 5,00,000 to Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

If the proprietor is between the ages of 60 and 80,

Taxable income Tax Rate
Up to Rs. 3,00,000 Nil
Rs. 3,00,000 to Rs. 5,00,000 5%
Rs. 5,00,000 to Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

If the proprietor is over the age of 80,

Taxable income Tax Rate
Up to Rs. 5,00,000 Nil
Rs. 5,00,000 to Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

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