How to start a sole proprietorship in India

I had posted earlier about the ways in which you could start your own business in India. One of them being a proprietorship firm.

A proprietorship firm has advantages such as being relatively easy to get up and running - not too many company and tax related formalities to be completed. Far fewer records need to be maintained, and compliance levels are also lower. You could start a proprietorship while still being employed at a firm, although most firms would see that as a violation of their policies, and it might even be unethical under some circumstance. You could run it out of your own home - no need to have a registered office or such-like. However, if you are running it out of a commercial place, then you need to check in with the Shops and Establishments Act. I think in Mumbai, you'd have to fill in some paperwork with the BMC.

However, the biggest disadvantage is the lack of credibility. For some strange reason, people tend to have more faith in companies with a board of directors than in sole proprietors. For the same reason it is also difficult to get loans, since you'd have to put some of your personal property as collateral. In a private limited company, you always have the option of trying for a debt-for-equity swap.

I was advised pretty early on to convert operations from being a proprietor to a private limited company. It also has to do with the fact that a proprietor is usually perceived as a small enterprise with limited capabilities to satisfy large customers. So it's largely suited if you want to get up and running quickly, and the large majority of your clientele is not likely to perceive that as a credibility issue.

As a proprietor you could be up and running the very day that you decide you want to be on your own. So just:

1. Think up of a trade name, ensure it is not trademarked. You probably simultaneously want to apply for a trademark as well.
2. See if you can get a .com or a .in for it and set up your website. I cannot overstate the importance of a good website, with effort spent on SEO to help you get more business.
   
3. Go to your local bank branch, ask for the form they have for proprietorship firms and have that bank account ready just in case people are lining up to buy your stuff.
   
4. Get some stationery printed - letterheads (actually these you can simply design on your PC, get some good quality A4 papers and print as you need), visiting cards (sigh, well, we still need these around), and if you're really moneyed, get some brochures designed and made up as well.
5. Register for tax other than income tax. Your income from the proprietorship firm would get included into your personal income and would be taxed accordingly. However, you would be able to write off certain expenses incurred as part of running the enterprise. Do check with a good CA on what you can, and cannot, write off as an expense. In addition, you will probably need to consider:
• Service Tax (if you're offering a service covered as per the rules)
• Professional Tax (if you have employees)
• Sales Tax, Excise and VAT (if products)
• Check with your CA on Fringe Benefit Tax, though I don't think this is applicable.

And that's about it. So go make some money!