Sole Proprietorship
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- An open and clear procedure, diligent follow-up, and consistent communication for ongoing update.
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What is Sole Proprietorship?
Sole proprietorship, also known as a sole trader, an independent businessman, or a business owner. It is a type of business that is owned and controlled by a single person. There is no legal distinction between the owner and the business entity.
The sole trader shall receive all revenues (subject to company-specific taxation). It shall have unlimited liability for all losses and debts. Each asset of the business is the owner’s assets, and all the debts of the business also belong to owners.
Advantages And Disadvantages of Sole Proprietorship
- Easy to set up
An Indian citizen may start proprietorships in India. Since no legal entity exists, the PAN Proprietors are used as the criterion for all registrations and enforcement. Udyog Aadhaar registration and Trademark Registration can be done using the promoter’s PAN and Aadhaar to establish and secure the company identity.
- Sole Gain Beneficiary
No business other than that of a sole owner and a company of one person shall be entitled to the owner as of the sole beneficiary of the profits. A minimum of at least two persons shall be involved in any other type of entity such as a partnership, LLP, or company.
- Compliance and Taxation
Since a company is not registered with any government authority, such as the Ministry of Corporate Affairs, the requirements for compliance are marginal. In addition, the owner would only have to file tax returns. If the organization had more than INR 2.5 lakhs of taxable income annually. With the case of owners who have reached the age of 60 years or more during the preceding year, the filing of income tax will only be required if the taxable income is more than INR 3 lakhs. Whereas owners who have reached the age of 80 years or more during the preceding year, the filing of income tax would only be required if the taxable income is more than INR 5 lakhs.
- Why is a sole proprietorship better than a partnership?
It’s easier to operate: As a single person is at the head of the table of affairs, it is easier to act as the individual will be the sole decision-maker, and there is no need to consider a myriad of opinions. There is no concept of a council meeting or approval by other individuals in a business firm.
Proprietorship Firm to Private Limited Company
Conversion of Proprietorship to Private Limited Company –
- Advantage of Private Limited company over proprietorship
The sole owner would have incurred limitless liabilities for any losses suffered, which means that he/she will be obligated to pay personally for any losses incurred by the firm. The regulation of a private limited company makes a clear distinction between the owner and the organization, thereby limiting its liabilities.
- Documents required
All documents are listed below –
- Identity and Address proof of the directors.
- Letter of Authority/POA.
- Proof of registered office address.
FAQs
Proprietorship Firm To OPC
One-person companies are a perfect model for medium-sized business organizations. One-person company is an enhanced and better type of sole proprietorship company and is, therefore, a smart business decision to transform sole proprietorship into a One-Person Company. This business structure gives full control of the business to the sole owner while at the same time restricts its responsibility to protect its personal assets since the owner of this company is a shareholder.
Documents required
- ID proof (Scanned copy of PAN Card of all directors, nominee and Aadhar card/ Voter ID/ Passport/ Driving License)
- Address proof (Bank Statement / Mobile Bill)
- Registered Office Proof (Rent Agreement / Electricity Bill)
- Consent of nominee
- Passport sized photographs
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Proprietorship Firm To LLP
The conversion of a sole proprietorship into a limited liability partnership (LLP) is a good alternative for anyone looking to grow their small and medium-sized business. As it has only one man, it is not possible to convert a sole proprietorship directly into an LLP. It can be achieved either by closing the ownership and registering an LLP or by involving someone else in the business and making him a partner and then converting him to an LLP.
Procedure Of Proprietorship Firm To LLP
- The two proposed partners must apply for DPIN (Designated Partner Identification Number).
- Documents required for DPIN:
- Passport-sized photograph
- Soft copy of the PAN card
- Identity and Address Proof
2. Acquire/register DSC: With the DPIN, you can register for DSC (Same documents required).
3. LLP Incorporation: A Form is to be filled for name confirmation and another Form Fillip should be filled for incorporating an LLP after the name is confirmed.
4. File LLP Agreement: After the incorporation of the LLP, an initial LLP agreement is to be filed within 30 days of incorporation of LLP.