This is the simplest form of business existence and refers to those businesses which have a single owner and the entire business’ profits and losses are taxed under the owner’s income tax filings. The owner is inseparable from the business and is entirely liable for all the losses and debts along with the profits and income of the company. In this mode of business establishment, the owner doesn’t have a lot of legalities and documentations to worry about. However, a sole proprietorship is not a legal business entity.
Indian legalities do not have a separate formal procedure to register a business as sole proprietorship. It is always assumes to be an extension of the owner. Such business can be established by opening a separate business account under the name of the firm or through holding licenses enable business functioning.
The owner can submit any of the relevant documents verifying the existence of the firm for opening an account under the firm’s name. The documents many range from sales return filings, income tax returns, VAT certificate, registration document, IEC code, or any utility bill. There are many other documents which banks accept for account opening and can be discussed with the relevant authority.
For obtaining licenses in the name of the company, the business owner can get a PAN card in the name of the company. For companies into manufacturing and trading, the relevant VAT and CST, TIN, MSME registration can be undertaken. For service related companies the relevant license includes service tax registration from the service tax department, MSME registration in case the company is a small or mid-sized firm, ESI registration and Professional license.
After sole proprietorship, the next easiest form of business establishment is a partnership firm. This is a firm wherein two or more people jointly own, manage and control the business for profit.
Partnership firms like the sole proprietorship firms can exist without registering also. It is not a compulsion to get a partnership firm registered and an unregistered Partnership firm has the freedom to choose any name as long it doesn’t coincide with an already registered brand name. There are however added advantages and benefits of registering the firm.
A partnership firm can be registered by the Registrar of Firms under the Indian Partnership Act of 1932. The basic documents required for registering such a firm is a valid PAN card in the name of the company along with identity proofs and address proofs of the partners, application of registration or partnership (Form 1), Signed specimen of affidavit, ownership proof of the business address, or rental/lease agreement (whichever the case may be). One would also require a Partnership deed duly signed by the partners. The deed must consist of the following details:
To be a partner in an Indian partnership firm, one needs to be a citizen of India. NRIs and people of Indian Origin can only invest in these firms with a valid approval from the government of India. A firm can file a case or enforce rights of the contract legally; the firm needs to be registered.
On submission of the entire required documents and the prescribed fees of registration, the registrar would issue a certificate of registration and the firm would be entered in the register maintained for registered partnership firms.
Once the certificate is issued, the firm can apply for its PAN card (if not already done) and has to mandatorily register itself in the Income Tax department.