Starting a Proprietorship in India

A sole proprietorship is one of the oldest and most common forms of business in India. Proprietorships are business entities that are owned, managed and controlled by one person. Proprietorships are very easy to start and have very minimal regulatory compliance requirements. However, proprietorship's do not offer the proprietor/proprietor is a host of other benefits such as limited liability, independent existence, transferability, etc., which other types of business entities like LLP and Private Limited Company do. In this article, we look at the processes surrounding the starting up of a proprietorship.

Starting a Proprietorship

Starting a sole proprietorship requires no legal formalities or registration. However, business licenses as required by State / Central Government and tax registrations must be obtained. Further, the trademark registration is recommended, in case the name of the business is unique or brandable.

Business Licenses

Business licenses are a must for any business, irrespective of the type of business entity. For example, if you are a Doctor, you would require a License to Practice from the State/Central Government; similarly, a restaurant would require a Food Business Operator License from Food Safety Standards Authority of India. Therefore, it is important to understand the regulatory framework surrounding the activity you wish to undertake in the proprietorship and obtain the relevant licenses from the respective Local, State and Central Governmental / Statutory authorities. Examples of business licenses include:

Food Business Operator License - Required for businesses handling food
Customs Broker License - Required to act as Customs Broker
Security Agency License - Required to provide security services
Shop & Establishment License - Required while operating shops and commercial establishments

Tax Registrations

The tax registrations must be obtained from the relevant tax authorities which are based on the type of activity to be performed by the Proprietorship. Some of the tax registrations that would be required for a proprietorship include:

GST Registration - Required as per GST turnover limit based on the type of business
Professional Tax Registration - Required for businesses employing Professionals
ESI/PF Registration - Required for most businesses having employees

Trademark Registration

There is no Registrar or Registry for Proprietorships in India. Therefore, a proprietorship can usually be operated under any name, as long as it doesn't conflict with any trademark registrations and/or is not in conflict with other rules and regulations. Therefore, if proposed to invest a significant amount of time and money in the proprietorship, or if the business name must be used exclusively to identify goods and services originating from the business; then it is recommended to obtain a trademark registration.

Opening a Bank Account

Opening a bank account in the name of the proprietorship firm is one of the first steps after opening a proprietorship. To open a bank account in the name of the proprietorship, two of the following documents are required as per the RBI's Know Your Customer (KYC) norms:

Certificate/license issued by the Municipal authorities under Shop & Establishment Act,
GST Registration Certificate
Registration / licensing document issued in the name of the proprietary concern by the Central Government or State Government Authority / Department.
IEC (Importer Exporter Code) issued to the proprietary concern by the office of DGFT as an identity document for opening of a bank account.
A license issued by the Registering authority like Certificate of Practice issued by Institute of Chartered Accountants of India, Institute of Cost Accountants of India, Institute of Company Secretaries of India, Indian Medical Council, Food and Drug Control Authorities, etc.

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