Sole Proprietorship in India: All You Need to Know

What is a Sole Proprietorship?

Sole proprietorship registration in India is for that type of business owned by one person called sole proprietor. He or she handles profit and income tax under their name or a trade name. It is a popular choice for small businesses and individual entrepreneurs. One can set it up in fifteen days, which is why it’s favored by small traders and merchants. Sole proprietorship businesses don’t need registration because they are identified through other registrations like GST. But, they have unlimited liability and don’t last forever.

Features of a Sole Proprietorship

Here’s a breakdown of what a Sole Proprietorship can do:

Formation and Closure

A sole proprietorship is launched by one person without any official legal steps. There aren’t any particular legal rules to kickstart this kind of business. The owner can shut down the business whenever they want without any formal procedures.


In a sole proprietorship, the owner has unlimited liability. This means the owner is personally responsible for all the business debts and obligations. If the business takes a loan, the owner is solely responsible for paying it back.

Sole Risk Bearer and Profit Recipient

The owner takes on all the risks linked with the business. Any profits or losses from the business belong only to the owner.


The owner controls everything about the business. There’s no outside interference in the daily operations.

No Separate Entity

In accounting, they treat the owner and the business as separate, but legally, they’re seen as the same. The owner is the one who decides everything for the business.

Lack of Business Continuity

Events such as the owner’s death, imprisonment, or bankruptcy directly impact the business. Unlike other types of businesses, there’s no automatic continuation; the business might stop existing.

Checklist for registering a Sole Proprietorship

Here’s a checklist for registering a Sole Proprietorship, along with the required documents:

The PAN Card of the Proprietor

Get a PAN card for the proprietor, which acts as both identity and address proof.

Name and Address of the Business

Clearly state the trade name and give the business address.

Bank Account in the Name of the Business

Open a bank account specifically for business transactions.

Registration under the Shop and Establishment Act

Register your business under the Shop and Establishment Act of your respective state.

Registration under GST, if applicable

If your business turnover exceeds Rs. 20 lakhs, get GST registration

Compliances for Sole Proprietorship

Here’s a breakdown of the compliances for Sole Proprietorship:

Income Tax Return (ITR) Filing:

As a sole proprietor, you must file your Income Tax Return every year. This ensures you follow tax rules and accurately report your business income.

Goods and Services Tax (GST) Return Filing:

If your sole proprietorship is registered for GST, ensure you submit your GST Return by the deadline. Make sure you adhere to GST compliance rules.

Tax Deducted at Source (TDS):

If your business needs a Tax Audit, you must deduct TDS as needed and submit the corresponding TDS return. This makes sure you follow tax withholding rules.

Bookkeeping and Accounting:

Keep accurate records for your sole proprietorship. This ensures financial transparency and compliance.

Shop and Establishment Registration (if applicable):

Think about getting a Shop and Establishment registration for your business, depending on what you do and where you are. This registration makes sure you follow local laws about work hours, days off, and other things.

Health and Safety Regulations:

Make sure your business follows health and safety regulations. This involves keeping the workplace safe, implementing fire safety measures, and prioritizing employee well-being.

Data Protection and Privacy Laws:

If your business handles customer data, stay aware of data protection and privacy laws. Protect personal information and follow the relevant regulations.

Process of Registering for Sole Proprietorship

Registering an LLP in India has a few steps. Let’s break it down

Gather All the Documentation

Gather your identity proof, address proof, and any other needed certificates.

Select a Unique Name

Select a unique name for your sole proprietorship. It is important to check the name follows the guidelines and isn’t already in use.

Obtain MSME / Udyam Registration / Udyog Aadhar

Apply for Udyam registration (formerly known as MSME registration or Udyog Aadhar). This registration brings many benefits and recognition to your business.

GST Registration

If your yearly sales go over the limit (currently Rs. 40 lakhs for goods and Rs. 20 lakhs for services), you have to register for GST. This is important for following tax rules.

Other Tax Registrations

Depending on your business activities, you might need to register for other taxes like Professional Tax, ESI, or PF (if applicable).

Register the Business Name

You don’t need to officially register sole proprietorships. However, registering your business name can still help it become known.

Obtain Permits and Licenses

Depending on your business type and where you are, you might need particular permits or licenses. For instance, if you have a shop, you should get a Shop and Establishment Act License.

FAQ on Sole Proprietorship

What is a sole proprietor example?

If you work as a freelance writer or photographer, you’re considered a sole proprietor or sole trader. Depending on your industry and local rules, you might need different permits or licenses.

What is a sole proprietorship called?

A sole proprietorship, also known as a sole trader, is the simplest type of business to set up or close down because it has minimal government regulations.

Is Coca-Cola a sole proprietorship?

Initially, Coca-Cola began as a sole proprietorship owned by Dr. John S. Pemberton in 1886. Asa Chandler bought it in 1892. Over time, the company changed, and now it’s a corporation.

What are the rules of sole proprietorship?

To set up a Sole Proprietorship, you need to get a PAN card for yourself, open a bank account in your business’s name, and get a Certificate of Registration under your state’s Shop and Establishment Act. You also need to register for GST.

Is GST required for sole proprietorship?

As a sole proprietor in India, you have to register for GST if your annual turnover exceeds Rs. 20 lakhs. However, even if your turnover is below Rs. 20 lakhs, you can choose to register for GST voluntarily.

Who controls a sole proprietorship?

Control: As a sole proprietor, you have total control and authority over your business. Being the sole owner means you can run the business as you see fit, making all the decisions yourself.

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