Sole Proprietary or Partnership? How to choose your company’s legal avatar?

February 5, 2008

By Sharda Balaji

[Guest post by Sharda Balaji, Legal Counselor and Corporate Secretary; and is co-founder of Novojuris Services India Pvt. Ltd. ]

You are planning to start on your own. How do you choose the legal form you need to operate as?

Some of the parameters you need to consider are taxability, registration requirements, legal compliances, continuity, ownership and very importantly, liabilities.

The options range between a sole proprietary concern, partnership or a limited liability company. India does not have limited liability partnership yet and is still being debated as a concept. There are many other forms like the Hindu Joint Family business, registered society too.

Here is the feature comparison for different forms:

Features	Sole proprietary concern	Partnership firm	Limited liability company (includes Private limited and public limited companies)
Liability of business debts	Unlimited liability. Liability extends to the individual’s private property.	Unlimited liability. Liability extends to the individual’s private property for satisfaction of partnership debt.	Limited liability. Limited to the extent of shares held but not paid.
Minimum and maximum no. of people	One person	Minimum 2 but not more than 20.	In a private limited company the minimum is two and maximum is 50. In a public limited company the minimum is seven and no limit on maximum.
Separate legal entity status	No separate legal entity	It does not acquire a separate legal personality even if registered.	Has a corporate personality distinct from the individuals who are its members.
Charter documents	None	Partnership Deed	Memorandum and Articles of Association
Registrations required to start. Other registrations required are under the purview of separate legislations such as service tax, professional tax, PF, ESI etc. as applicable.	None.	Register the Partnership Deed with the Registrar of Firms.	Incorporate the company with Registrar of Companies
Termination / continuity	Dissolved on the death of the sole proprietor.	Dissolved on the death of a partner, unless there is a contract to the contrary. Can be terminated by voluntary action of dissolving the partnership.	Perpetual. Terminated through prescribed winding up processes.
Ownership of property	Property belongs to the individual.	The property of the firm belongs to the partners and they are collectively entitled to it.	Property belongs to the company.
Capacity to sue	Not a separate legal entity, hence the individual can sue or be sued.	Only a registered partnership firm can sue or be sued. Else, action may be brought in the name of the members either individually or collectively.	Since a separate legal entity, a company can sue and be sued in its own name.

The key differentiator between private limited and public limited company to consider while starting up, are the numerous legal compliances applicable to a public limited company even though the company may be closely held among just 7 members.

To mention a bit about the current income tax slabs applicable:

Sole proprietary concern

Partnership firm

Company

Taxed as an individual.

Tax Slabs:

Upto Rs. 1,10,000 : No tax

Rs.1,10,000 to Rs.1,50,000: Taxed at 10%

Rs.1.5 lakhs to Rs.2.5 lakhs: Taxed at 20%

Rs.2.5 lakhs to Rs. 10 Lakhs: Taxed at 30%. No surcharge

Above Rs. 10 Lakhs: Taxed at 30% + surcharge

Taxed as a partnership firm. The profits from partnership is not included in the partner’s (individual’s) tax return.

Tax Slabs:

Upto Rs. 1 crore: Taxed at 30% + cess

Above Rs. 1 crore: Taxed at 30% + surcharge + cess

Taxed as a company. Dividend tax to be paid by the company.

Tax Slabs:

Upto Rs. 1 crore: Taxed at 30% + cess

Above Rs. 1 crore: Taxed at 30% + surcharge + cess

Please leave your questions in the comments section. or email to sharda@novojuris.com

Disclaimer: This article is for informational purposes only and is intended but not promised or guaranteed to be correct, complete and up-to-date. This is not a legal advice or opinion.

Tags: legal issues in startups

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Vaidhy on February 5, 2008 at 9:46 am

Nice note

James on August 19, 2009 at 5:25 pm

Hi,

Can someone clarify for me. Is a proprietary concern the same as a sole proprietary concern? I have 2 contracts from 2 different people to do with the same company name, both say that it is a proprietary concern of theirs. They are from the same family, or at least have the same surname.

Any help gratefully received!

Thank you,

James

Guneet Sahai on February 5, 2008 at 10:35 am

Very nicely written article. I have few question and it would be really helpful if you can let me know your thoughts on them.

a) “Minimum and maximum no. of people” column in the feature list – I think by “people” you meant only owners. Is this right?

b) Can you shed some more light on the legalities related to hiring employees. Are there any limitations on the number of employees or the overall hiring mechanism for a sole proprietorship.

Thanks
Guneet Sahai
http://www.guneetsahai.com

Sumit on February 5, 2008 at 12:21 pm

Hey Sharda, Great piece of Information. Thanks for it.

Nilesh Trivedi on February 5, 2008 at 2:46 pm

I think that something worth mentioning is here that if you’re planning to raise venture capital, you should stick to a pvt. limited company form. VCs will almost never fund a proprietorship or partnership because of personal liability clauses.

Sharda Balaji on February 5, 2008 at 5:11 pm

Thanks Vaidhy and Sumit.

Nilesh, You are right. VCs prefer a limited company (private / public) because of the separation of management and ownership feature too.

Guneet, Question 1: In partnership form, it is ‘partners’ and in limited company form, it is ’shareholders’. (yes, owners)

Question 2: There is no upper limit on the no. of employees. There are registrations required under PF if there are more than 20 employees and under ESI if there are more than 10 employees.

naman on February 5, 2008 at 5:17 pm

thank you .. i was looking for something like this..

Pavan on February 5, 2008 at 8:39 pm

Very well written Sharada, It makes the decision making very easy when you have the right info with you. looking forward more such post from you.,

Also curious,
Is there any Tax Benefit if you are a women entrepreneur in case of Sole Proprietary or Partnership Firm.,

brij on February 6, 2008 at 4:51 pm

Sharda – as most of us agree,great article.

wanted some more information – can a person go in for a pvt. company incorporation while already working in another company – are there any legal issues with that.

Sharda Balaji on February 6, 2008 at 5:22 pm

Pavan, The special tax treatment for women is only in the individual tax return (applicable to sole proprietary concern), wherein, there is no tax upto Rs.1,45,000/-.

Brij, I think your question is ‘can a working person start a business (by incorporating a company) alongside his employment. This depends on the internal policies of the employer (conflict of interest / moonlighting policy) or restrictions in the employment agreement.

Thanks Pavan and Brij.

brij on February 6, 2008 at 5:31 pm

thanks Sharda….right, that is what i meant to ask!

Guneet Sahai on February 6, 2008 at 7:17 pm

Hi Sharda,

Thanks for this whole thread – It is really useful.

From the chain, I gather that the most simple, quick and hassle free way to start a business is to do a proprietorship. Now my question is that is it possible to convert a proprietorship into a pvt ltd company later on. If yes, how complex is the process as compared to opening a new pvt ltd?

Thanks
Guneet Sahai
Freelance Software Architect
http://www.guneetsahai.com

raj on February 8, 2008 at 2:49 pm

Can you please answer “is it possible to convert a proprietorship into a pvt ltd company later on. If yes, how complex is the process as compared to opening a new pvt ltd?”

Innovation Series #2 « Harisays…. on February 9, 2008 at 10:06 am

[...] post info By Harinath Categories: BoP, Entrepreneurship, Innovation and Innovation Series Tags: BoP, Creativity, Entrepreneurship, Innovation Well Well, the week has been pretty hectic for me. In this issue I have few interesting links to share with you and before that, let me share you interesting information on 1.6 Lakh ($3500) Tractor which is making rounds in news. Bhanjibhai Mathukiya, a small time innovator from Junagadh, has created a mini tractor of 10 HP (Horse Power), after being moved by the plight of the small groundnut and orchard farmers in Saurashtra. This is the power of thinking minds. We definitely need 1 Lakh car and a Rs.10,000 2-wheeler, but we also need innovation at the grass root level to sustain our living. Just imagine having huge building, good houses, affordable and comfortable transport systems etc provide quality of life, however, what if we dont have any thing to eat? Does it make sense? In the last 10 Years, the price of rice which we buy from the dealer has not gone up by more than 5% at the farmers end. But, we have been seeing huge price raise in the rice we buy at regular intervals. This simply means that the more money you are paying the shop is actually going to the trader who is selling rice and almost negligible amount is going to the farmer. There is another similar innovation to the poor farmer – “Bullet Sathi” where there is a lost cost equipment which is fitted to an Bullet (2 wheeler brand in India) which can help the farmer in various activities during farming.The above two are classic examples of innovation at the roots and affordable solutions to the bottom of the pyramid farmers.Found an interesting link on Pluggd.In by Sharada on choosing your firms Legal Avatar. [...]

Sudesh Dewar on February 9, 2008 at 2:43 pm

I have justed started my own business on proprietoryship basis in the manpower sector & I am due for the 1st invoice. My question is whether I need to have & mention the pan number on my invoice & should the pan number be obtained on my company name. FYI I do hold a pan card. Please advise

Best Regards
Sudesh Dewar

Pavan on February 9, 2008 at 3:27 pm

Hi Sudesh,

Since its a Sole Proprietor Firm, your pan card is taken into consideration, there wont be any “Company Pan Card”.

If there are payments in excess of 20K they may deduct TDS, for which you have to give them your PAN No. however I don’t think you have to mention your Pan No in the invoice., it can be given to your client on request.

My two cents, but Sharda can you give you accurate info.,

anirudh on September 15, 2008 at 1:49 pm

Am I to understand that a PAN card is not required for a sole proprietor concern (ie., on the name of the concern),if the proprietor is having a PAN card in his / her name is sufficient to apply for a bank account / apply for IEC No. Request a calrification on this please as I’m in the process of starting a sole prop concern in export / import trading. Looking forward to your prompt response. Thanks in advance. Rgds, Anirudh

Sharda Balaji on February 11, 2008 at 10:23 am

Thanks Pavan. Good response.

Dear Sudesh, It is ok if you mentioned your PAN on the invoice. It might reduce one email ……

Chinmay on February 13, 2008 at 3:34 pm

I want to start up a financial planning sole proprietary firm.. for this do i need any clearances from SEBI ?? Can u please explain how can i open the firm??.. i dont have any office space, most of the work would be done online and thru phone…

Sharda Balaji on February 17, 2008 at 12:23 am

Chinmay,

The registrations required are dependent on the financial products that you would be dealing in. If Insurance, then you need registration under IRDA, if Mutual Funds, then under Association of Mutual Funds in India. If you are planning for being a stock broker, then registrations with the stock exchanges.

Thanks,
Sharda

Mangesh on February 17, 2008 at 3:18 pm

Hey, Thanks for your help.

I have a question here. As you mentioned above, registration is not required for sole proprietary business.
But if someone wants to reserve his business name so that nobody else can use it, then is there any option available?
If yes, then please give some details for doing the same

Thanks

Sharda Balaji on February 18, 2008 at 9:04 am

Mangesh, You need to register the name as a Trademark.

farheen on February 19, 2008 at 1:47 pm

Can you please anwser “hou to convert firm into pvt.limited company”if yes please tell me procedure and what is the requirements.

Venkat on February 19, 2008 at 10:48 pm

My Question is for Sharda Balaji

((Query 1 ))

I have a internet startup. On viewing my progress, a person has started a pvt ltd company this month with the same name.

Now If Im sucessfull in the trademark search (first step while u register a tm), will this pvt company raise an objection ?

If they do, Can I prove with my domain registration date (which is a year back)

((Query 2 ))

I have a domain xyz.com (eg),and there is a site called myxyz.com, in thsi case will I be able to get a TM (if the myxyz is not trademarked)

And once I get a TM, will myxyz.com object ?

>> Anyone who can help, please do so <<

Awaiting your responses

Muralidharan Kuppuswami Iyer on February 21, 2008 at 12:24 pm

Dear Ms Sharda,

Greetings. I am through with the entire thread. Just wonderful. What I like most was the comprehensiveness in your replies. Keep up your great service, esp. the comparison in the begining.

Kindly answer my questions too. I too have an idea to have one (sole proprietorship) soon.

M K IYER

Sharda Balaji on February 21, 2008 at 12:56 pm

Thanks Muralidharan Iyer. My endeavor is to try and respond to as many questions as I can.

Venkat, Suggest you act fast, get a search for the name that you are keen on and make an application for a trademark, if available. The pvt. ltd. co might object to granting, but you need to prove your usage which might be longer than the pvt. ltd. co.

Farheen, There are many steps involved in converting a partnership firm into a private limited company, including incorporation of the company. Suggest you take professional help for the same. I can help you with the process. You can reach me offline on sharda@novojuris.com

scott and white health plan on February 23, 2008 at 12:02 pm

scott and white health plan…

insulate goodbye outputting …

PIYUSH on February 25, 2008 at 9:15 pm

if i convert my partnership firm into a pvt. ltd. then from where i have to file return. from a firm or a company? u can mail me.

RAZZAK SHEKH on March 7, 2008 at 11:44 pm

Hi i m new one watching this site.i m very pleasure that all question r here,which answer i want.
I have a FIRM now i want convert in pvt.ltd. company.I know that it is posible but how i don’t know.I m small contractor doing job which gov.requied on quatation base or tender base.I m working hard 4 converting my firm in pvt.company.so pls help me and so me way what 2 do.
RAZZAK SHEKH

Swati Dandekar on March 8, 2008 at 11:05 am

This is very useful information for someone wanting to start out. Sorry to ask a very preliminary question…

So what does one do to start a proprietary concern. Is there any documentation required? Esp for opening a bank account?

And how does one file IT returns then? Continue to do so as an individual or in the name of the concern?

Thanks,
Swati

Venkatesh on March 8, 2008 at 11:16 am

Hi,

Amazing information, questions and answers
I have a query too. I do have one sole proprietary concern. I am expecting several abroad visits. There might be invoices from abroad. Is there a process for getting foreign income?

Best Regards Venkatesh

RAZZAK SHEKH on March 9, 2008 at 7:59 pm

HI,
THANKS FOR UR MAIL.BUT U SAID NOT 2 ASKED PRELIMINERY QUES.
BUT IT VERY IMPORTANT QUES. 4 US WE DONT NO WHAT IS NEXT STEP AS U R EXPECT IN THIS CASE I HAVE READ OPINION/COMMENT ON SOLE PROPRITER SHIP.AS U SAY I HAVE TIN.NO.VAT NO. IT RETURN, BANK ACCOUNT,ECT.
NOW MATTER IS TO WHO 2 CONVERT MY FIRM IN 2 Pvt.Lmt.COM.
ON THIS MATTER U CAN HELP PLS.
PLSSSSSSSSSSS
THANKING YOU.
RAZZAK SHEKH

Sharda Balaji on March 10, 2008 at 12:12 pm

Piyush, You will have to file the return from the Private Limited company. I am assuming that you would have intimated the Tax department of the conversion already.

Swati, There is no specific registration to ’start’ a sole proprietary concern. For opening a bank account, your PAN should be sufficient. You might have to fill the account opening form something as Swati Associates, proprietor Swati Dhandekar…
IT returns will be filed as an individual.

Venkatesh, The process of getting your foreign income is through the banking channels. Please get in touch with any nationalised banks (Authorised Dealers). If you have a STPI registration, you have tax exemption (available till 31 March 2009).

Sharda Balaji on March 10, 2008 at 12:16 pm

Razzak Sheikh,

For conversion of a partnership firm to a pvt. ltd. co., as I have mentioned in the earlier post, there are many steps involved. Suggest, you get professional help for the same. You can get in touch with me on sharda@novojuris.com, if you wish to proceed.

Reah Ganguly on March 28, 2008 at 2:19 pm

Extremely insightful and useful article! However, like a couple of others have asked, would appreciate ifyou can explain the process of coverting a sole proprietorship into a Pvt Ltd company.

Cheers,
Reah

LALIT on March 29, 2008 at 4:06 pm

I want to open a Sole Properiter Firm and want to have a Service Tax Registration. Could you please help me out in this issue and send me the service charges and the fees for the same.

Sharda Balaji on March 31, 2008 at 11:48 pm

Reah,

I dont think sole proprietary concern can be ‘converted’ into a private ltd. co. It is more an incorporation of a ltd. co and taking over of the assets / liabilities of the sole proprietary concern.

Lalit,

I presume you read that there are no specific registrations required to ’start’ a sole proprietary concern. You would need a service tax registration if the annual turnover has reached Rs.9 lakhs.

If you need specific info to your business, feel free to drop me an email – sharda@novojuris.com.

Vineet Sharda on April 3, 2008 at 1:06 am

Dear Sharda,

I have the following query :

1. There is a Proprietary Concern (my mother is the Proprietor) in the family which is fully operated by me.

2. I want myself to be the owner of the business concern either by way of a Partner or Proprietor. I can introduce either myself or my HUF.

3. There is absolute no opposition to this in the family.

4. What are the recourses ?
a. I / my HUF join as a Partner.
b. The business concern is sold to me / my HUF at a consideration.
c. My mother gifts the concern to me. In this case; her capital in the firm shall also come to me.

5. What is the best solution looking to various business laws (eg Sales Tax) & taxation angle looking at Income Tax ?

PLEASE SUGGEST / GUIDE me.

Thanks & Regards,
VINEET SHARDA.

Sudesh Dewar on April 3, 2008 at 5:10 pm

Dear Sharda

I had applied for service tax code & the service tax department had issued me the service tax code in my name & based on my pan number.

My client wants the service tax code to be on my company’s name i.e. Demps Offshore Service & not on my name.

Kindly advise what should i do in such circumstances. FYI, I have already paid my service tax amount in the service tax code given.

Please advise at your earliest.

Best regards
Sudesh

RAJESH NAIK on April 3, 2008 at 11:21 pm

Hello,

I would like to open a sole prop firm in a name diffrent from my own (E.g., My name is Rajesh Naik, but I would like to open the sole prop firm in the name of Dolphin Publishers).

Questions:

1) How can I get a bank account in the name of Dolphin Publishers? What documents do I need to produce to the bank?
2) Do I need to register the firm anywhere for the bank account?
3) Can I issue Invoices, Receipts, Purchase Orders, etc in the name of the firm (Dolphin Publishers)?

I would appreciate if you could provide some inputs for the above questions

Best regards

Rajesh

deepak on April 4, 2008 at 4:02 pm

i am ruuning a propeitorship firm in the name & style of sharma group & co. i want to admit some person as patner in this firm. what is procdure ? i have many liability on this firm . how i can divided this among other person (partner) i have issue post dated cheque (liabilities).after making a partnership firm i want that i am out from it. No liabilities on me ?

Raj K on April 5, 2008 at 2:31 am

We started a pvt. limited company 3 years back. Me and my wife are the two directors. For better growth prospects we are require to raise capital. One of the interested investor is lookiing forward for 40% stake against some lucarative amount and he will be a director on board.

Although we being the majority on the board, after sharing this much of stake, how and what affect will it have over our control of the business and its operations.

Please provide me the detailed reply urgently.

Prashanth on April 6, 2008 at 8:35 pm

First of all, let me say ‘Thank you’ for this whole idea… I have got all the info I need (and more) in the past 20 minutes by going through your wonderful article and the subsequent questions and answers.

Just one question though. You said registration is not essential for sole trader. But if I would like to register, whom do I register it with ? With what statutory body ?

Thanks and regards,
Prashanth

Nilesh Gaikwad on April 8, 2008 at 4:29 pm

Dear Sharada,

I running a bussine as a sole proprietorship. I don’t want to convert in Pvt. ltd. or in Partnership Firm?

Is there any turnover limt to convert proprietorship to Pvt. Ltd? If yes tell us Limit amount?

Sharda Balaji on April 8, 2008 at 10:30 pm

Vineet Sharda: If your mother sold the concern to you / HUF, she might have to pay tax on the income earned. If partnership, then you need to have a partnership deed with your mother, and this per se does not attract taxation.

Sudesh Dewar, Service Tax for a company has to be based on company’s PAN. Looks like the department has issued erroneously? I think the best way is to apply afresh in the name of the company.

Deepak, Your question is not clear to me.

Raj K, Decision making in the company is through resolutions passed at the Board meeting and in a few cases resolutions passed by the shareholders. Share holders resolutions can either be ordinary resolution (wherein 51% shareholders approve) or special resolution (wherein 75% shareholders approve). If you are parting with 40% shareholding, then there are situations wherein your new director ‘has to’ approve.

Prashanth, Please check my article on the registrations required.

Nilesh Gaikwad, There is no turnover limit.

vinod on April 21, 2008 at 3:20 pm

first of all thanks for the informations,it was what i m searching for days.
I am going to set up a online service in which income will be foreign money.As you told being sole proprietorship it does not require registration.but what about import export registration and service tax account .Is it required ?
Thanks and regards
vinod

Giridhar on April 24, 2008 at 11:13 pm

I wanted to start a proprietary concern. I know that specific registration is not required to start the proprietary concern.

But if there are say 4 employees working in the concern, whether Profession Tax number is required to be taken.
whether registration under shop act is not at all necessary, or whether it is required once the business gets to be settled.
whether in the initial stages we can issue invoices for the services rendered, even if registration under shop act is not required.

Anil kumar on April 29, 2008 at 9:18 am

I would like to start a proprietorship for providing web designing and web development services.
I like to get a bank account on my company’s name. What are the documents needed to open an account in my company’s name.
And also i like to know what are the kind of registrtion have to do and documents i have to maintain.

veena on May 7, 2008 at 5:55 pm

I am thoroughly confused about a few things, my husband is running a proprietorship firm and would like to convert it to a pvt ltd company.

We’re confused about how the registrations and everything will be taken over from the proprietorship to the pvt ltd, since we do not want to lose credit we have in VAT, ST & Excise.

Please inform us whether we need to take new registrations for pvt ltd or can the ownership of the registrations also be changed from proprietor to the company.

Regards,

sumati ganesh on May 9, 2008 at 10:49 am

what are the advantages of converting a sole proprietorship to a private limited company? waht is the most efficient way to do it?

Ankita on March 30, 2009 at 1:09 am

hi Sumati,
I have the same Querry you posted “what are the advantages of converting a sole proprietorship to a private limited company? waht is the most efficient way to do it?”
Can you please mail me the reply of this answer, as i didnt get any satisfactory ans for the same.
I’ll be very thankful to you.
pls reply me as soon as possible.

@nkita

Debolina on May 14, 2008 at 4:53 pm

I want to start my our organization as private limited company, with my wife.. without quiting my current employment..

Is it possible to do so? What are the rules as per company act 1956 or later, regarding incorporation of a business by an employeed person.

Regards

Vivek on May 19, 2008 at 10:54 pm

I have a single ownership firm, and I would like to give profit percentage to people who aare funding my business, is possible to have it legall done. I mean can I have them added as partners in my single ownership firm

Gurdeep Singh on June 6, 2008 at 12:07 pm

Can a person is being a director on Board of the company if he is salaried employed in other company.

if not, then please share with the company rule where this is mentioned.

Regards
GS

Sharda Balaji on June 6, 2008 at 4:31 pm

Gurdeep,
A salaried employee can be a director on the Board of the other company. Companies Act does not prohibit it. Pls. check the guidelines from your employer if there are any restrictions.

Vivek,
Yes, you can share profits with investors. If you want your investors to be ‘partners’, then you need to have a partnership firm.

Debolina,
You can start a private limited company while being in employment. However, suggest you to check your employer’s guidelines if there are any restrictions (conflict of interest, being in the same business as your employer, and the like…)

Gurmukh Jethwani on June 16, 2008 at 3:44 pm

Can a private Limited Company form a proprietorship firm ? If yes, Would it be called the subsidiary of the parent company ?

Gurmukh Jethwani

Harsh on June 23, 2008 at 5:25 pm

Hi Sharda,
You said that the Sole proprietary concern will be taxed as an individual. If I register a Sole proprietary concern, will I be taxed on the revenues or the profits (revenue – costs)?
I understand that normally one is taxed only on the profits, but then in case of a proprietary concern, since I only own it, I can show all my expenses into cost and minimize the profits thus minimizing the taxes. Please put some light on it.

Thanks in advance

Austin on July 9, 2008 at 5:29 pm

Sharda,

Fantastic article. Just what I was looking for.

I have the same question posted by Harsh above. I’d like to just add another angle to it. That is, what if the individual is a salaried employee and is having a proprietorship firm. While calculating the individual’s income tax can the business expenses be deducted from the business income (by business income I mean profits & assume only profits are taxed, please correct me if I am wrong)?

Thanks once again for a wonderful post and sharing your knowledge.

Lorena on July 16, 2008 at 11:12 pm

If I started a business under sole propietarior with only 2 employees
and now is growing to about 7 employees, do I have to change it to a Corporation or how would I go by doing that???

Lorena on July 16, 2008 at 11:14 pm

I also have one concern, I am not that familiar with this business thing but I am concern about any liability that might come to me, how can I protect my house in case of a liability what insurance is recommended to cover my personal assets? I am new to all this and appreciate any suggestions. Thank you so much for your advice!

suresh on July 17, 2008 at 11:54 pm

is only partnership deed paper are effective in propraitor firm

Thanks,

Tafseer Ahmad on July 25, 2008 at 5:39 pm

I think in the above TAX SLAB TABLE for individual only Tax % as per slab is mentioned but EDUCATION CESS is not mentioned where as an individual also has to pay Tax % + Education Cess .

If I am wrong please correct me .

Thanks & Regards,

Tafseer Ahmad

Tafseer Ahmad on July 28, 2008 at 4:49 pm

Dear All,

Can any one tell me about some facts:

There are two persons carrying their Proprietary Firm separately. Now these two proprietors want to form Partnership firm and also wants to carry their individual firm simultaneously . Please tell me whether they can carry both proprietary firm and partnership firm together.

Sudesh Dewar on July 28, 2008 at 6:36 pm

Dear Sir/Madam

I have a proprietory firm & wish to convert it into private ltd. What are the procedures for the same & mainly I want to know what happens to the service tax I am paying. Will there be any impact on the service tax that I pay. Please advise.

Regards
Sudesh Dewar

Basha on July 30, 2008 at 9:43 pm

Raman on September 1, 2008 at 1:14 pm

Dear Ms. Sharda Balaji,

I am in the process of starting an Export / Import Trading Sole Proprietor concern. Request kindly guide me with the procedure to obtain a PAN card (documents to be submitted for same).

Looking forward for your revert per return.

Thanks for your prompt response.

Raman

Sharda Balaji on September 1, 2008 at 1:59 pm

Raman, You need to submit Form 49A along with proof of identity and proof of address. http://www.incometaxindia.gov.in/Archive/Form49ae.pdf
You would also need an Import Export Code registration. If you are based in Bangalore, we could help with the registrations.

Basha, You could approach a bank of your choice and ask for the documentation requirements.

Thanks,
Sharda Balaji
http://www.novojuris.com

Raj Phogat on September 14, 2008 at 6:01 am

Hi Sharda,
A great post indeed for the persons like me.
It is pleasant that there is a lot of information available here. But perhaps one or two questions have gone unnoticed by you.
I will put vinod’s question in other words:
I have opened a proprietorship company, have opened bank account, have my PAN number. My company will be developing software for the foreign based clients and it will have income in foreign exchange.
Are there any special/ specific rules where the income is in foreign exchange. Is it falling under export/import category? The bank asked to apply for IC number. Can you through some light on it please.

Austin on September 14, 2008 at 11:45 am

Raj >> Per my knowledge, you’ll have to get an Import Export Code (IEC) coz you’re getting foreign exchange into the country for your services rendered. The bank will require details such as reason for incoming foreign exchange, details of the sender etc. If you speak to the bank they will be able to assist you with information as required by them.

Hope this information helps.

- Austin
http://www.theorangepaper.com

Raj Phogat on September 15, 2008 at 4:41 am

Thanks Austin,
Yes, I inquired from the bank and the IEC code is must as it falls with in the ’services’ import/export category.
Your reply was really helpful.
A great effort by you guys and a really great forum.
Thanks again

Saurabh on October 3, 2008 at 3:01 pm

Your post on the subject is great. Need your advice on the folowing issues:

Q1: Is it possible for a salaried person (working with a private company) to independently start a new venture like a placement agency?

Q2: In case, if it is possible, what is the best form of opening the concern i.e sole proprietary concern or partnership concern and what are the various registration requirements (registration of name, registration of registered premises, application of separate PAN, any minimum capital holding requirements, service tax registration, a separate bank account etc)in each of these forms?

ravada lakshmi on October 20, 2008 at 3:41 pm

hi,
great place to get answers. can you please tell me if i as an individual can save by putting money in a public provident fund.
also can you please suggest the best investment options for any couple married for the last 3 years.

Austin on October 21, 2008 at 12:16 am

Ravada >> Suggest you check out http://www.theorangepaper.com for information regarding investments/savings etc.

Harshneet Singh on December 3, 2008 at 3:11 pm

Nice article. But i would like to know further.
I am having a proprietorship firm since 25 years. What exactly i will have to do to convert it into a Private Limited company? All my bank accounts are in this name, i have availed overdraft facilities in my 2 accounts. Further I have many loans running on the vehicles i have purchased, mortgauge loan on house property, and some personel loans as well. I am into transportation business.
Can you tell me something about this..
Any information will be appreciated.

Sharda Balaji on December 4, 2008 at 1:34 pm

Harshneet,

You need to incorporate a private limited company. Decide on the assets and liabilities of the proprietary firm that you want to take over. (Very importantly, assess the tax implication). And then allot shares against the same.

Saritha Somani on December 6, 2008 at 8:14 pm

Pls let me know the procedure for conversion of Sole proprietorship to Private lt.company. Whether stamp duty is to be paid for transferring the immovable assets of proprietorship to new company.

gauri on December 12, 2008 at 1:11 am

dear sharda
thank you for the brilliantly written article. looking at the comparisons set out above, which should be the best way to start an enterprise for a set of young graduates who do not expect the annual turnover for initial years to be very high? is it advisable to start as a sole proprietorship and then convert to a pvt limited company by sale of assets or will it be a cumbersome process considering the high stamp duty rates in maharashtra?
regards

H.VENKITASUBRAMANIAN on December 27, 2008 at 3:46 pm

I have retired. i am getting an opportunity from our employer for a service centre set up (printers and telecom products) and marketing of their products (toners and printers). I checked with a CA firm the requirements, but they are not giving clean and efficient solutions. but i now got the details from your website. I want to start without any investment, but of course with some basic amount of 20,000/-. i am 58. I have a work experience in various departments in the administrative side (receivable,logistics, warranty management, spare parts stores management etc). Is it ok that i can make a try. if so what precautionery measures I have to care for this start up. Pl enlighten me.

Rajasekar on January 14, 2009 at 7:47 am

Ms. Sharda, I have just seen your answers related to company formations and it is really useful for me to start up. I have a domain name elanzers.com registered some 3 years before to start up a freelancer website similar to elance.com. I would like to know about trade mark and service mark issues if i am using the name elanzers.com. Am i infringe copyright if i am doing so? Please suggest me. Thank you.

Sharda Balaji on January 15, 2009 at 12:26 pm

@Rajasekar,
elanzers is ’similar sounding’ to elance. If elance has a trademark protection in India, they may come after you as ‘infringement’, else as ‘passing off’. You are better off in thinking of another name…

Thanks,
Sharda
http://www.novojuris.com

Ashok on January 14, 2009 at 11:31 am

what was stamp duty applicable as per bombay stam act during 1987 for partnership deed

Rajasekar on January 15, 2009 at 7:51 am

Ms. Sharda, Can i have to register a proprietary concern to get a current account for the name of that concern? Where do i contact to register it if so. Thank you.

Sharda Balaji on January 15, 2009 at 12:28 pm

@Rajasekar,
Your (as in ‘you’) PAN should be sufficient. Get in touch with the bank where you want to open the account.

Thanks,
Sharda
http://www.novojuris.com

Ravi on January 19, 2009 at 9:45 am

I want to start my our organization as private limited company, the co. will work in different sectors like… finance, education, etc. with different names. Plz. suggest me some authentic names for the Mother Company….. Thanks……

ksr on January 20, 2009 at 1:10 pm

Good comments.

Let me know in detail about sale of business as a whole. How we account in books and is there any tax implications for the same.

Rajasekar on January 23, 2009 at 8:56 pm

Dear Ms. Sharda, When filing income tax returns can i have to give information about the money i keep in offshore bank accounts?

Naveen on February 4, 2009 at 1:14 pm

Dear Sharda, Fantastic effort and has already cleared my mind on most of the issues. However a few questions which have been posted by some of the friends but still need some clarification. These are : (a) You said that the Sole proprietary concern will be taxed as an individual. If I register a Sole proprietary concern, will I be taxed on the revenues or the profits (revenue – costs)?
I understand that normally one is taxed only on the profits, but then in case of a proprietary concern, since I only own it, I can show all my expenses into cost and minimize the profits thus minimizing the taxes. Please put some light on it. And any other way in which I can reduce my tax liability. (b) Since in a sole proprietary firm the liability is on the owner. How , as a proprietor, I can protect myself from any such liability? Should I transfer my funds , house etc in my wife’s name ? Pl advise.

Chakkapayyan on February 9, 2009 at 10:17 am

Hi, Currently I am working in a company; I am planning to start a business.
My question is that whether is it legal to do so…
Please advice.

Thanks
chakkapayyan

Akshay Sahni on February 16, 2009 at 7:11 am

@chakkapayyan : Its legal as long as you don’t breach any contacts with your present employer , like conflicts of interest etc

Akshay

Sohil jain on March 25, 2009 at 8:28 am

Sir,

I have gone through ur artical, but an additional information required on following points.
1. For starting a Propritery firm i have to get registered with which all govt agencies.
2. List of documantation required, which carry out registration activity with various govt agencies
3. My business model is trading, commission, services, consultancy, for tax purpose which all code numbers has to be applied

regards

Rwiju Pal on March 30, 2009 at 7:02 pm

My question is for Ms Sharda

I am starting a online store with 6 of my friends would like to know the cheapest way of getting my self registered. Apart from 6 of us we will be hiring 2 more and our capital will be less than a lakh.
I was thinking of getting ourselves registered as a small scale service enterprise.

Please advise. I need it desperately

Hardy on March 31, 2009 at 4:20 am

I created a company and got partners. I asked and obtained 10% of the company for creating it. What is my share of the company called?
How should my dividends be calculated, as a cost of together with the others?

Radhika on April 9, 2009 at 4:50 pm

Hi Sharda, Gr8 info.
I own a propritery IT firm. would like to have employees now with salary ranging from 2.4 L pa tp 6 L pa. what should be the salary break up to attract min taxation on both saides

Rakesh on April 18, 2009 at 6:41 pm

Please let me know whether we can continue our employment with the propritership firm.

How to give the tax, as my salary would be around 4 lacks & my firms net profit would be 2-3 lacks, How the income tax would be calculated , individually or combined.

Chinmay on April 25, 2009 at 2:47 pm

I want to start my own financial planning proprietary firm. It will be a sole advisory role firm. There will be no selling of financial products included. What will i have to do to start such a firm. I intend to do the business online for which i have already registered a domain and will be putting up a website in next week. I m doing my MBA Finance right now. What all will be the procedure to start the firm.

Thanx in advance for your valuable guidance.

Regard

Ankita on April 26, 2009 at 11:15 am

Hi, I’m pursuing for CA.
As my principal wants me to draft a scheme of ‘Demerger’.
I have read the rules relating thereto, but now I’m in confusion about how to draft that scheme.Can anyone guide me for report and tell me more about how can a unit be demerged?

Thanks in advance for your guidance.
@nkita

prakash on April 26, 2009 at 9:14 pm

Hi we are running one advertising & marketing firm, Its a proporitorship firm. can my wife work as my employee??… I means she is already working & looking after marketing & communication department. please guide thanks

piyush

mudit garg on April 30, 2009 at 7:10 pm

I am running a proprietorship firm and would like to convert it to a pvt ltd company.

Iftikhar on May 5, 2009 at 10:07 am

Thank you for your article. I have a small start up proprietary company in software services exclusively for international clients. I have the following 3 queries for you:

Q1: Am I required to pay turnover tax? If so, how much? Last year my turnover touched 14 lakh.

Q2: If the turnover in 09/10 is <= 9 lakhs, would I have to pay the turnover tax as well?

Q3: Because I rely on my business solely on international customer therefore a purely export oriented company, can I do something differently to avoid turnover tax?

Greatly appreciate your response.

Raji on June 1, 2009 at 2:34 pm

Hai,
Please tell me the complete procedure for converting a partnership firm into a private limited company also the advantages of such conversion and tax benefits if any. Do reply soon bcoz this is urgent.

Rama on June 3, 2009 at 2:16 pm

Hi,
I am working with one small manufacturing co. which is under loss. So I wanted to start a communication centre (as sole proprietory) like internet,DTP etc., in the ground floor of the said firm which is lying waste being with all infrastructure. Please tell me what are formalities i have complete to start communication centre like what permission I require and how to approach, what about the tax liabilities. Please reply me as early as possible becaused I have convencied my MD I wanted start before his mind changes.

Thank You.
Rama

shailesh shah on June 6, 2009 at 6:26 am

dear iam apropietor of indian company . i have started asubsidiry company in america on its basis i have got L-1 intrcompany visa of america for i year . main purpose of me geting visa is to do buisness in america and hence give employment . my question is wether my indian prop company can remitt small amount of funds to american company and under what head can it remit . Has the indian(parent) company to take any R B I ermission and wether the same investments should be shown in the parent companys balancesheet

Madhu on June 9, 2009 at 9:01 pm

Hi shardha,
I have some querry regarding filling the income tax of partnership firm. From two assesment years we are showing partners profit share, renumeration for two partners and intrest on capital two all the partners. So my question is out of five partners 3 are working for the company so out of renumeration can we draw salaries. if yes at what extent we can show it. And how should we show the same in our individual filling….becoz i also have an individual business (interior decorators), and also hold investments in other two firms. So what ever the salary i draw from the above firm. should i attach form 16. please kindly suggest.

Madhu on June 9, 2009 at 9:05 pm

Shardha you can please revert me to emailvmb@gmial.com
If possible can you please suggest any Good FCA in hyderabad who can suggest me better.

Ashwani Kumar on June 12, 2009 at 1:59 pm

Hi Shardha

i work with a private ltd company in hyderabad and intrested in taking a distribution & sales dealership for a product. Can i go ahead on this after registering as a propritery firm.

Please advice me on this.

Varun Gupta on June 20, 2009 at 12:13 pm

Hi Sharda,
I am planning to open up an online store (selling products). I have the following queries and would really appreciate if you could respond:

1. What is the procedure of registering the company both as limited and as sole proprietorship?

2. Do I need to get the IEC as the buyers will be primarily foreigners and paying online through a third party processor such as paypal.

3. In case of a sole proprietorship concern, can someone else use my company/business name, as it is not registered with the registrar of companies?
4. What are the other legalities involved such as VAT, sales tax etc. I will be selling products online.

Thanks in advance.
- Varun Gupta

Ramesh on July 1, 2009 at 7:20 pm

I run a small “website development” Prop. Firm in Delihi with 4 – 5 peopel as employee. I’m running it from a residential locality. is it alright or i need to move to industrial area for such a small firm?

Please let me know on my email id techdsj@yahoo.com.

Thanks a lot.

Ramesh D.

rakesh kapoor on July 30, 2009 at 7:58 am

want to start a sole proprietorship business in india. My plan is following:

1. I will start a website and I will charge a certain amount for membership of a person.
2. New members will be reffered by existing members and I will pay some amount to the existing member as referral bonus.
And in the whole process i will earn a certain amount of money.
3. i will not have any employee as I will be able to manage it right now.

I need help regarding what legal formalities i need to do for it. I hope these will be easy as it is sole proprietorship business.

thanks

gayatri on September 20, 2009 at 3:40 pm

hi sharad,
i run (propritory) my business from 2004. I arrenged tours for the childrens at my native place. i have register trademark and my logo is also registered. i have shop establishment certificate on my sole propritory firm. is anything more, which i have to do as legal point of view?

Sudesh on September 28, 2009 at 3:13 pm

I am presently having a proprietoryship company & would like to know which of the company stands beneficial for me proprietoryship or private ltd. & why.

Bijay Rungta aka @rungss Spreading Knowledge.. on October 6, 2009 at 6:50 pm

Thanks for the Post…

It was really very useful for People like me who is from complete Science Background and has entrepreneurial aspirations…

@rungss on Twitter..

Venkat Reddy on October 11, 2009 at 10:32 pm

Thank you very much indeed for such a nice article and detailed explanation for most of queries.

I recently started a proprietary firm (Swikruthi Corporate Services) that has interests in Serviced Apartments (Swikruthi Inn) to start with. I am not registered anywhere.

I collect and pay Luxury Tax (only applicable tax for accommodation).

I have corporate clients whom I invoice for more than 30000 Rs. would they be deducting any TDS?

Thanks and Regards,
Venkat
swikruthi@gmail.com

venkat on October 11, 2009 at 11:10 pm

Thank you sharda, GREAT JOB …keep it up

Kanchan on October 12, 2009 at 3:06 am

We have property with three partners and we would like to remove one name and make it in the name of two? what would be the procedure?Would it be possible to give a gift as it is in the name of family?

Kanchan on October 12, 2009 at 3:12 am

In a proprietership with partners, how do you delete the name of one partner?
Out of three partners , if it is to be put in the name of two, what is the procedure.

Santosh More on October 12, 2009 at 6:32 pm

Its really of a great help so far. i still have a few queries, request you to revert on this asap. it would be great if you can revert on my mail id i.e. santosh.mailbox@gmail.com

I want to start a proprietary firm for carrying out recruitment and staffing business which will also deal in overseas education consulting service to aspiring sudents.

1. Can I register for service tax, as pvt. ltd. companies are required to do?
2. Is there any limitation on number of employees I can hire? (internal or contractual employees on our payroll)
3. Can I sign business agreements with entities operating outside India?

Looking forward to your assistance on the same. Thank you in advance.

Santosh More.

Girija Iyer on October 21, 2009 at 10:02 am

Nice discussion.

Can someone answer my questions?

I am a fulltime employee and also run an Internet startup. My monthly income from the startup is below 1 lakh. I have separate account for my salary and for my startup company. However both are savings account. Should I open a current account for my startup or can I continue with my two savings account.

In either case, how do you I file my IT returns – for the company I work, the company takes care of it. But how do I file the returns for my startup? Will there be a conflict between the two accounts? Please suggest as to how I can handle this.

Thanks for your time reading this. Look forward to your suggestions.

Regards
Girija

bhuvana on October 24, 2009 at 1:52 am

is there any instance of a private limited company being purchased by a partnership firm

vinayak on November 18, 2009 at 2:53 pm

I need to start a Consultancy where I will provide professional courses for the engineering students in the BE course itself. After that I am thinking of opening a company.
So can provide a detail procedure how do I start

vinayak on November 18, 2009 at 2:55 pm

procedure in the sense registration, tax thing and all the legal procedures

RAVISHANKAR on December 7, 2009 at 1:18 pm

one shot..!! great info sharda..got cleared all my doubts..!!

ARVIND on January 2, 2010 at 7:02 pm

Dear Sir /Madam,

Can we get PAN CARD for prorietorship business, not on individual name but on company name ?
Pls. guide us.

Thanks
Regards,
Arvind

Harish on January 20, 2010 at 3:49 pm

Ms. Sharda,
Thank you very much for this wonderful thread. I am planning to start a business and your thread has been very helpful to me.
It makes a lot of things clear for people not well versed with business laws.

Vipul Mehta on January 24, 2010 at 7:43 pm

Dear Sharda,
I just wanted to know that one company Name M/s. Transelektra (Partnership firm) was transformed to M/s. Translektra Domestic Pvt. Ltd., in 1987. all the assets & liabilities, along with the immovable assets were been transfers. all the partners change to the directors.
So my question is does the transfer of Immovable assets attract any Stamp duty.
please do reply.
regards
Vipul

Manoj on January 27, 2010 at 3:18 pm

Posting a similar earlier question where I could not find an answer in this forum. I would like to open a sole prop firm in a name diffrent from my own (E.g., My name is Manoj, but I would like to open the sole prop firm in the name of XYZ Enterprises).

1) How can I get a bank account in the name of XYZ Enterprises? What documents do I need to produce to the bank?
2) Do I need to register the firm anywhere for the bank account?
3) Can I issue Invoices, Receipts, Purchase Orders, etc in the name of the firm (XYZ Enterprises)?

MKJ