Proprietorship firm registration

A proprietorship firm, also called a sole proprietorship, is a business owned and controlled by one person. Company Suggestion sets up the owner’s registrations that banks and tax departments ask for.

What is a proprietorship firm?

One person owns the firm, keeps the profit and bears the loss.

The firm is not a separate legal entity. The owner’s personal assets can be used to pay the debts of the business.

There is no incorporation with the Ministry of Corporate Affairs. The owner’s PAN is the identity of the business.

The owner can employ other people. The owner remains the person who signs the firm’s legal documents.

Who should start a proprietorship?

Two plans fit a proprietorship:

One owner who wants to start without a company or an LLP.
A small trade that does not need limited liability or outside shares.

One owner who wants limited liability can register a one person company instead.

Which documents does a proprietorship need?

A proprietorship uses the owner’s own identity papers.

PAN of the owner
Aadhaar of the owner
A passport-size photograph
Proof of the business address, such as a rent agreement and a utility bill

What are the steps to start a proprietorship?

Company Suggestion sets up a proprietorship in four steps.

The owner uses an existing PAN, or applies for one.
A current account is opened in the firm’s name with the owner’s PAN and address proof.
GST registration is filed when turnover crosses the threshold in section 22 of the CGST Act.
The state shop and establishment licence is filed where that state requires it.

Frequently asked questions

4 questions cover the rules that decide this registration.

Is a proprietorship a separate legal entity?

No. The owner and the firm are the same person. The owner is personally liable for the debts of the business.

Does a proprietorship register with the Ministry of Corporate Affairs?

No. A proprietorship is not incorporated. The owner’s PAN identifies the business. GST, a current account and a local shop licence are separate registrations.

When does a proprietorship need GST?

Section 22 of the CGST Act requires registration when turnover crosses the threshold. For a supplier of goods the threshold is ₹40 lakh in most states and ₹20 lakh in special category states. For services it is ₹20 lakh, or ₹10 lakh in special category states.

When does a proprietorship need a tax audit?

Section 44AB requires a tax audit when business turnover exceeds ₹1 crore, or ₹10 crore if cash receipts and cash payments are each within 5%. A profession needs the audit when gross receipts exceed ₹50 lakh.