Concept Related FAQ ?
Ans- It’s a simple single person firm. Remember it’s not a company, it’s a best way to start a business in India with the less costing and less compliance. its need only just one person for the legal registration.
Tip :- if you are working with another company as a employee then you can register on your family member for testing your ideas, if your company does not allow for doing the business in India and on later stage convert on your name.
2. What is Advantages in the Sole Proprietorship From Startup Point of View ?
Ans- Sole Proprietorship Firm have following advantages :-
a) Less Costing :-
If we talk about the service based firm then it’s can be easily start with less then 5000 Rupees through service tax registration.
if we talk about the product based firm then its depend on the type of tax registration or license as VAT/CST or Shop Act Licenses.
b) Less Compliance :-
You have to just file the income tax return as individual at the end of year nearby in July. You have to maintain basic invoices of income and expenses of the firm.
c) Less Income Tax :-
You have pay income tax to the government when your total real income is more than 2.5 lac INR per annual year. So its give you tax advantages on slab basis.
You can read here more about the Benefits of the Proprietorship Firm.
3. What are Disadvantages in the Sole Proprietor Firm ?
In the Sole Proprietorship Firm have following disadvantages :-
a) Unlimited Liability: –
In the firm you have unlimited business liability. For ex if you take the loan from bank on firm name or if you liable to pay any liability to creditors then bank or creditor can claim your personal assets also legally to repay the debt. In simple words your personal and firm liability and assets are same.
Hint :- Vijay Malaya and KingFisher (Limited Liability because it’s a Company).
b) Can’t include the partners:-
Sole Proprietorship firm can’t include the partners in future. That time you have to convert the firm into partnership or company or llp and bear the costing from scratch.
c) Can’t raise the funds :-
It’s a Simple firm so you can’t raise the funds from Angel Investor or VC Firms like selling your equity or share to another person and raise the money from that person.
d) Not a Legal Existence:-
Firm have no proper legal existence because its register on tax registration. There is no proper registration with the government so you can’t deal with the big companies or approach to big Customer. Outside India there is no existence of the Sole Proprietorship Firm.
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Registration, Costing, Documents, Related FAQ ?
- How to Register a Sole Proprietorship Firm ?
Ans- Sole Proprietorship have no any legal registration so ultimate objective is opening a current bank account but banks need always a legal proof to open a current bank account on your business name instead of your personal name, so you have to apply for minimum One Tax Registration Certificate and Open a Proprietorship current bank account :-
- What Documents Required as Service Based Firm for the Service tax registration certificate?
a) Pan Card Scanned Copy or images with Self Attested.
b) Adhar Card or Voter ID or Driving License or Passport anyone Scanned copies or images.
c) Business Place Address Proof :-
if your own property :- Need Just Electricity bills or Mobile Bills.
if it’s on rent :- Need Rent Agreement Copy and No Objection Certificate from Landlord.
Hint :- Business Place and Residential Address can be same. There is no issue as Serviced Based Business Registration.
d) Cancelled Cheque Copy or Bank Statement copy
Costing and Timeline in Service Tax Registration:-
MyOnlineCA Package Start from Just 2999/- INR (All Inclusive) with our some special startup offers. Its takes min 6 to 7 working days ore more depend on the state to state.
Queries Regarding the Service Tax:-
a) I read some where that service tax is mandatory after the 9 lac INR Turnover.
Yes right, but banks needs a legal proof so you have to show your service tax certificate but you have not charge service tax from the customer till the 10 lac Rupees turnover.
b) can I open a current bank account just on service tax certificate?
Most of the banks open a current bank account on just service tax certificate but we recommend to contact your desired bank where you want to open a current bank account because some banks need Chartered Accountant Authorization Certificate with service tax so we can provide you CA Certification also with our package.
- What Documents Required as Product Based Firm For the VAT/CST or Shop Act License?
VAT/CST Registration :- VAT/CST Registration is indirect tax registration which is imposed by state government so every State has own rules and regulations regarding the VAT/CST Registration.
Common FAQ regarding the VAT/CST Registration:-
a) What are the common documents for the VAT/CST Registration :-
-Pan Card, Voter id or adhar card or driving license and one business place proof as if its your own property then need electricity bills or phone bills, if it’s on rent property :- then need rent agreement and no objection certificate from Landlord.
Hint :- Business Place and Residential address can be same in the VAT/CST Registration just only in some state where you have to show your residential house as business place because in the VAT/CST Registration VAT Inspector is coming for the Verification at your place.
b) I Read somewhere that in some state VAT is mandatory after the 5 lac Rupees turnover or 10 lac Rupees Turnover or 20 lac Rupees Turnover?
Yes right, but again you have to show a legal proof to bank so you can show your VAT Certificate or Shop Act License. As a Ecommerce Business which wanna register as seller on the Flipkart/Snapdeal/Amazon they need VAT/CST in the starting.
c) How Much Costing for the VAT Registration?
VAT/CST Registration is bit expensive in some state due to Security Concept.
Costing Breakup :-
Government Charges Range in Major State :- 3000 Rupees to 5000 Rupees.
Government Security Range in Major State :- 10000 Rupees to 1 Lac Rupees as Bank Guarantee or Bond.
Alternative to skip the security :- In some state you have to provide min. 2 surety as guarantor who’s are already registered under the VAT/CST in that state.
Hint :- Find your relatives who’s are doing the business in your state and provide you surety as Guarantor.
Professional Fee Range in Major State :- 3000 Rupees to 5000 Rupees.
TimeLine :- Its take min 6 to 7 days or more depend on state tax department process.
Shop Act License :- Shop Act License is registered by the small shopkeeper when they have physical shop. In Some States its called Trading License or Gumastha in the Maharashtra state. It’s on renewal basis.
FAQ For the Shop Act License :-
a) Shop Act License is useful for the future ?
Startup Point of view, No it’s a just a certificate and on renewal basis so every year you have to pay nearby 3000 Rupees to 5000 Rupees. Instead of that apply for the Tax Registration which save your cost.
b) Documents ,Costing and timeline for the Shop Act License :-
Its need your basic docs like id & address proof with business place proof as mentioned above. Its cost or rules & regulations is differ state to state so costing range is nearby approx. 300 Rupees to 5000 Rupees on the 1 Employee in the Firm or Company. Its takes min 5 to 6 days or more state to state.
Recommendation From MyOnlineCA on 200+ Entrepreneurs Choice :-
a) Testing my ideas as service based business :- Apply for the service tax with or without CA Certification and open a current bank account on your firm & Start the Business. When you are growing startup just convert into the private limited company or LLP.
b) Testing my ideas as Product based Business :- Apply for the VAT/CST or Shop Act License or else choose another business legal entity as LLP/Company if you think VAT/CST is really expensive thing for me and enjoy the limit in your state.
c) Testing my ideas as Product or Serviced based both business :- Apply for the Service tax or open a current bank account and enjoy the limits of the VAT/CST in your state.