Setting up as a sole proprietor is often the first step for individuals starting a business in India. While the process is relatively simple, many overlook key legal registrations, timelines, and compliance steps.
This guide outlines everything you need to know to register a sole proprietorship correctly, from choosing the proper structure to opening a business bank account, so you can operate smoothly and stay compliant from day one.
A sole proprietorship is the simplest and most widely used form of business in India. It is run by a single individual who owns all assets, earns all profits, and bears full responsibility for liabilities. Unlike companies or LLPs, it has no separate legal identity from its owner, making it easy to form and dissolve.
This model is commonly used by small traders, freelancers, consultants, and service providers due to its low cost and minimal compliance requirements. However, it also comes with personal liability risks and limited options for raising capital.
Before proceeding with registration, it is important to weigh the benefits and drawbacks of this structure.
Any Indian citizen 18 years or older with valid identity proof can start a sole proprietorship. There is no restriction on profession or skill type, making it accessible to a wide range of occupations, from shop owners and tutors to web developers and digital marketers.
Key eligibility points:
Foreign nationals are generally not allowed to register a sole proprietorship in India. This business structure is reserved for resident Indian citizens, and non-residents face strict limitations under Indian law.
However, there are certain distinctions based on the individual’s connection to India:
Overseas Citizens of India (OCI) and Persons of Indian Origin (PIO) may be permitted to operate businesses in India, but not in sectors that are restricted under the Foreign Direct Investment (FDI) policy.
In most cases, foreign individuals and businesses entering the Indian market do so by incorporating a Private Limited Company or LLP under the FDI framework. These routes are governed by the Department for Promotion of Industry and Internal Trade (DPIIT) and require compliance with sector-specific investment rules, FEMA regulations, and company law.
If you're based in the U.S. and planning to expand into India, it's advisable to choose a formal structure like a private limited company or LLP, both of which offer legal recognition, limited liability, and access to banking and regulatory systems.
For more details, check: Set Up a Company in India: Simplified Process for International Business Owners.
To establish and operate a sole proprietorship, you will need to furnish basic identification and address documents. These serve as proof of identity, business ownership, and operational legitimacy.
Documents may vary depending on the licenses and registrations you apply for.
Setting up a sole proprietorship doesn’t involve a central registration authority, but a combination of government-issued documents can establish your business identity.
Choose a name that reflects your services and is not already in use. While there's no formal name approval process, you should check for trademark availability if brand identity is a priority.
Here are the most common registrations needed:
Applicable to all businesses operating from a physical location. Issued by the local municipal authority or labor department. Banks often request this registration before they allow a current account to be opened in the business’s name.
Mandatory if your turnover exceeds ₹20 lakh (₹10 lakh in special category states), or if you're engaged in inter-state trade or e-commerce platforms. You can register for GST on the official website free of charge.
Even if your turnover is below the GST threshold, registering voluntarily allows you to collect GST from customers and claim input tax credit on your business expenses, which can reduce your overall tax burden.
The Udyam scheme supports micro, small, and medium enterprises by offering access to government subsidies, credit without collateral, and priority sector lending.
A sole proprietor becomes eligible for these benefits by registering under Udyam. The registration process is simple, free, and fully online through the official Udyam portal.
Some states require professional tax registration for individuals with employees or for self-employed professionals. Check the official websites of the respective state governments for up-to-date requirements and application processes.
Depending on the type of business activity, certain regulatory licenses may be required before you can begin operations.
Once you know which licenses apply to your business, begin the registration processes for them simultaneously to save time.
Most banks require at least one business registration (Shop Act, GST, or Udyam) as proof of business existence. Additional KYC requirements include PAN, Aadhaar, and address proof.
Also Read: Benefits of Registering a Business in India
A sole proprietorship is taxed under the proprietor's income tax slab. You can opt for the presumptive taxation scheme under Section 44AD (traders) or 44ADA (professionals), simplifying accounting and lowering compliance effort.
Tax Obligations:
No mandatory audit unless turnover exceeds:
While setting up a sole proprietorship is low-cost, there are recurring expenses for compliance and professional services.
Also Read: 10 Tips for Successful Company Registration in India
Sole proprietorships are easy to start but come with a few limitations. Here are the common challenges and what you can do about them:
A sole proprietorship is ideal for individuals looking to start small and operate independently. It allows quick market entry with minimal paperwork. However, to stay compliant and credible, you should register under relevant acts, maintain proper accounts, and plan ahead for growth. When your operations expand or risk exposure increases, consider migrating to a more structured entity like an LLP or Private Limited Company.
For businesses exploring opportunities in India, VJM Global offers expert support to simplify the setup process. Whether you're establishing a sole proprietorship or structuring a larger entity, our team ensures full compliance with Indian regulations and provides guidance tailored to your market goals.
Get in touch with VJM Global to make your business launch in India smooth, compliant, and future-ready.
