These days, we witness a lot of startups making their way into the world of business. The world is buzzing with young enthusiastic entrepreneurs tinkling with astounding ideas and concepts waiting for the whole world to take advantage of. Such an enterprise or a business that is run by a single individual is termed as “Sole Proprietorship”.
Generally, in a time span of 15 days, it can be started. Hence, it is highly popular for small merchants, traders and service providers. Still, there are some legal formalities that one needs to follow to register a proprietorship firm in India. Although in the formal sense, there is nothing called registration of a sole proprietorship firm, all one requires are capital, some licenses and PAN number of the proprietor.
The first and foremost step one needs to take in this regard is using the name of the business and opens a current bank account. This accounts for legal identification for the business in concern. To understand it better let us understand that business can be categorized and based on their type different documents are needed for opening a bank account. These are:
- Business based on services
These are business that provides online or offline services to the customer. For example, website development, digital marketing, the marketplace, hotel booking, etc. These require the following kind of documents for opening bank current:
- Service Tax Certification
- Some privatized banks ask for a Chartered Accountant Certification.
- Product or Manufacturing providing firms
These are products that are applicable to VAT and usually, sale of such products happens offline or through the web. For example, any online shopping website. Even here we need the two following documents:
- A Trade License or Shop Act Licence or Gumasta. The name varies as per state.
- Sales Tax/VAT/TIN Registration
Now since we are clear about what is required for a business to open a current account let us give a brief look at the various licenses needed and the process to obtain them.
Following are the varied registrations or licenses needed for registration:
- Service Tax Registration:- If in a year the total turnover of a firm is over 9 lacs, then one needs to pay a service tax which is 10%. One needs to register and pay it if one wishes to pay a service tax online. In the online procedure, there is one problem and that is the person needs to submit the documents physically in the respective department. It is recommended one must get the expert help of a CA when going for this registration.
- VAT/CST Registration:- Vat signifies tax based on a State. Whereas CST means tax based on the central. VAT registration is obtained when one buys or sells products that are taxable in a State. However, if such transactions are made beyond one State then CST registration is obtained. Depending on States their rules vary.
- Shop Act License:- If the business operations are made from a store or a factory then one requires a Trade License or Shop Act License procurement. The Department of Labour in every State usually provides it.
With these above-mentioned ideas any sole proprietorship firm will comply with the rules of the RBI and can successfully open a bank account in the name of their proprietorship firm.
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