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The sole proprietorship is the most fundamental and oldest form of business arrangement. A sole proprietorship is a type of business where a person creates a company under his or her own name. It's a one-person operation; if you have more than one owner, the company won't qualify as a sole proprietorship. You are the company in a sole proprietorship; the business is not a separate entity from you. Let’s discuss in detail what all compliance requirements are necessary for a sole proprietorship.
What is a Sole Proprietorship business in India? 

A sole proprietorship business is a form of a business where an individual runs the business solely or by employing others as an employee in their organization. A sole proprietorship business is recommendable in the case of startups or when you are at an initial stage where handling compliances becomes hectic for a business person. But this does not mean that you ignore some of the formalities necessary for starting a business of sole proprietorship. But before understanding the registration requirement let’s understand who is the proprietor.

Who is a Proprietor?

The proprietor is the single owner of all assets and is responsible for all debts of the business. A sole proprietor is recognized the same as an entity and he is the only one who makes the decision in the sole proprietorship business. Business can differ from the legal name of the sole proprietor and the Proprietor may trademark get protection over his business name through trademark registration. The Sole Proprietor is entitled to have all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. 


What are the Features of Sole Proprietorship Business?    

1. Single Ownership

A sole trading firm is owned by one individual with unlimited liability in which the proprietor is responsible for the management and capital requirements of the business.

2. Personal Organization or Common Identity 

A Sole Proprietorship concern has no separate legal entity independent of the owner. The owner owns the business and he owes everything the business owes.   

3. Capital

The capital is invested by the owner from his personal resources. Another option is to borrow money from his friends and relatives if he cannot depend solely on his personal resources.

4. Unlimited Liability

The liability of the Proprietor is unlimited. Dues of Business can be recovered from the personal property of the Proprietor in case the business assets are not sufficient to pay their debts.

5. One Man Control

Sole Proprietor is a one-man show. The sole trader manages the complete business and all the decisions, material procurement resources, employment of persons are controlled by the Sole proprietor. Also, he can delegate his duty to his/her subordinate if he wants.

6. Profits and Losses

The Profits earned from the business of the sole proprietorship belongs to the proprietor and losses and risk are to be borne by himself.

7. No Special Legislation

Sole Proprietorship is not governed by any special legislation.

What are the advantages of a sole proprietorship?

  • All profits belong to Sole Proprietor

  • Low start-up costs

  • Maximum secrecy

  • Establishing and operating a business is simple

  • It’s easy to change your legal structure later if circumstances change

  • Easy winding up of business.

What are the disadvantages of a sole proprietorship?
  • Unlimited liability for debts.

  • The capacity to raise capital is limited.

  • All the responsibility for making day-to-day business decisions is on the Sole proprietor

  • Retaining and attracting high-caliber employees can be difficult

  • Taxed as a single person

  • The business has a limited life.

What are the required registrations for a sole proprietorship?

  1. Shop and establishment registration

This license is issued by the local municipal corporation and the information of a number of employees and organizations needs to be informed and filled in to get your establishment registered. Under the shop and establishment act, it covers all business entities such as restaurants, shops, commercial establishments, the retail trade/business, profit-making profit-making organizations, amusements parks, etc.

  1. MSME Registration

Micro, small and medium enterprises in India are registered under the Micro, small, and medium enterprise development Act, 2006. Registration under this act gives you and your business protection to carry on your business properly in the market. The process of this registration is completely online. This registration is known by the name of Udyog Aadhar Registration. The objectives of getting this registration are as follows:

  • It enables you to compete with the international competition in a legal and efficient manner

  • It promotes the growth of MSMEs on a large scale and tries to solve the issue of poverty and unemployment effectively.

  • It gives you the benefit of various government schemes and concessions in trademark, patent, and copyright. 

  • It provides you the protection from financial losses also, as it has the mechanism for resolving the payment issues faced by the MSMEs.

  1. GST Registration

GST Registration gives your business legal recognition as the supplier of goods or services. GST registration is mandatory for some kind of business as per the GST Act.  

  1. PAN and TAN Registration

PAN of the individual is the valid PAN in the case of a sole proprietorship. TAN (Tax Deduction Account Number) registration is a mandatory number who are supposed to pay the Tax deduction at source or TDS on behalf of the Government.

Which ITR is required for proprietorship?

Proprietorship firms are required to file the following income tax returns:

  1. ITR 3

           Form ITR -3 is filed by a proprietor or a Hindu undivided family carrying out a proprietary business or profession.

  1. ITR 4

Form ITR 4 Sugam can be filed by a proprietor who would like to pay income tax under the presumptive taxation scheme. This scheme is designed to ease the compliance burden of MSMEs by assuming a set profit margin on the business or profession’s total income. 

Required Documents

Acceptable DocumentDocument TypeAdditional Details
NOC from the Owner of Premises..
Self-Attested Copy of Pan Card ..
Two Colour Photograph ..
Valid Identity Proof of Proprietor..
Cancelled Cheque..
Proof of Registered Address ..
Latest Address Proof of Proprietor ..

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You Ask, We Answer

Yes, only an Indian Citizen can start proprietorship business. Similarly, no foreign funding is allowed during a proprietorship sort of business. However, an NRI or a Person of Indian Origin (POI) can invest in proprietorship with prior approval from the central government of India.
There is no limit on the minimum capital for starting a Proprietorship. Therefore, a Proprietorship is often started with any amount of minimum capital.
There is no law which enforces registration of a proprietorship firm as such, We helps entrepreneurs in securing registration under MSME, GST, Shops & Establishment, etc. the MSME registration is done under Micro, Small and Medium Establishments Development Act, 2006 of Central Government.
PAN Card for the Proprietor along with identity and address proof is sufficient to start a Proprietorship and to obtain other registration, as applicable or required.
Yes, the proprietorship is often converted to LLP or Private Ltd Company.

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