Phoenix Auditing

Sole Proprietorship

What is Sole Proprietorship?

sole proprietorship (also called sole trader, individual entrepreneurship or proprietorship), is a simplest form ofbusiness that is owned and run by one person and in which there is no legal distinction between the owner and the business entity.

Advantages of Sole Proprietorship

  1. It can be started by one person with minimum capital.
  2. No government registration required to start a sole proprietorship business.
  3. Minimum paperwork and compliance requirement.
  4. The Proprietor will have complete control of the entire business.
  5. No Corporate tax on the sole proprietorship business.

Disadvantages of Sole Proprietorship

  1. There is no legal distinction between the owner and the business entity. The owner will be personally liable for all the losses of the business.
  2. Limited access to capital as the business is unregistered.

Starting a Sole Proprietorship Business

  1. Choose aunique business name
  2. Select a location as the place of doing business
  3. No formal registration of sole proprietorship is required
  4. Apply for PAN in the name of the Proprietor (if not already applied)
  5. Open current account with bank (optional)

Documents required to start a Sole Proprietorship

  1. PAN card of Proprietor
  2. Identity proof of Proprietor
  3. Address Proof/ Rental Agreement for the place of business
  4. Shops and Establishment Registration Certificate (if applicable)
  5. GST Registration Certificate (if applicable)
  6. Any other permits/ license applicable to business

Compliance Requirements for a Sole Proprietorship

It is always advisable to consult a Chartered Accountant to ensure you are legally compliant in all aspects.

  1. Shops and Establishment Registration as per respective State Acts
  2. GST Registration and filings if turnover exceeds Rs.40 lakh per annum (w.e.f -1st April 2019)
  3. Micro, Small and Medium Enterprise (MSME) Registration to avail government benefits (optional)
  4. Annual Income Tax Return filing of the Proprietor
  5. Tax Audit (if applicable)

It is always advisable to consult a Chartered Accountant to ensure you are legally compliant in all aspects.


1. What is the capital requirement?

There is no limit on the minimum capital for starting a Proprietorship

2.Is there any separate legal identity for proprietorship?

The PAN Card of the Proprietor will be the PAN Card of the Proprietorship business. So they are treated as one and same .Therefore there is sole proprietorship is not a separate legal identity.

3.How to register the name of proprietor?

There is no registry or regulation for the registering the name of a Proprietorship. Therefore, proprietorship firms can adopt any name that do not infringe on registered trademarks. Since there are no regulation for registering the name of a Proprietorship, the only way to ensure exclusive use of the business name is to obtain a trademark registration of the business name.

4.Audit requirements for proprietorship?

It is not necessary for Proprietorships to prepare audited financial statements each year. However, a tax audit may be necessary based on turnover and other criteria.

5.Can I Convert Proprietorship into a Company or LLP?

Yes, there are procedures for converting your Proprietorship business into a Company or a LLP at a later date.

6.What are the annual Compliances required for Proprietorship?

Proprietorship will have to file their annual tax return with the Income Tax Department. Other tax filings like GST,Customs filing may be necessary from time to time, based on the business activity. 

7. What documents are needed for opening a current account in the name of my Sole Proprietorship?

To open a current account, you need proof of the existence of your business. Many banks will ask for MSME registration and/or GST Registration. In addition, you will need a PAN card and address and identity proofs.W