So you are ready with a product and you have got a good number of customers also to buy your product, the dilemma you have is , how to go about the business, how to start your company, do you need Sales tax number , what will be the mode of service tax payment, EPF registration , ESI and many more such questions. In this post we will try to answer many of such questions. A business can be owned in several forms in India: Sole Proprietorship, One Person Company (OPC), Private Limited Company, Partnership Firm, Co-operatives, Public Limited Company, Joint Hindu Family business, Limited Liability Partnership (LLP). Each form of organization has its own merits and demerits so considerable deliberation is required at your part before you make a long term commitment.
A sole proprietorship is the oldest and the most common form of business. It is a one-man organisation where a single individual owns, manages and controls the business (NRIs can not have sole proprietary firm in India) . The biggest advantage of starting a proprietary concern is the simplicity of procedures and the flexibility you have . Decide on the name of the firm, open a current account in the name of the firm in any bank, stating that you are sole proprietor. Deposit money in that account (this is your capital) and go ahead with your business however you will need some of the below mentioned registrations / cards as the case may be :
- If the products you are going to deal with are taxable, you have to get registered with local VAT (sales tax department) and get a sales tax number. The Tax Payer’s Identification Number (TIN) is new unique registration number that is used for identification of dealers registered under VAT. (http://www.mahavat.gov.in/ERegistration/ ) (http://delhi.gov.in/wps/wcm/connect/DoIT_TradeAndTaxes/tradeandtaxes/home) (http://www.tnvat.gov.in/ )
- If you are a service provider and your turnover is Rs 10 Lacs and above in a financial year, you should charge service tax from your customers and remit the amount to the government. For this purpose get your firm registered for service tax with service tax department. (http://www.servicetax.gov.in/forms/st1.pdf )
- If the number of employees in your firm is 20 or more , registration for EPF and ESI is mandatory ( http://www.epfindia.gov.in or http://www.epfindia.com and http://www.esic.in). If the number is less than 20 employees in your firm , EPF and ESI number can be taken under voluntary scheme.
- You may also require TAN card . This card is essential to a person/firm for deducting or collecting tax. It is mandatory to give TAN number in TDS or TCS return. PAN card is another compulsory requirement. https://tin.tin.nsdl.com/tan/index.html
- All income you get from your sole proprietary business is treated as your personal income and taxed accordingly.
- If the turnover of your firm crosses 1 Crore rupees per annum, it is mandatory to get the account of the firm audited by an auditor.( as per 2012-13 budget of India ).
Though, sole proprietary firms accounts for the largest number of business organizations in India , it has its own disadvantages
- The amount of capital available to the business is limited to the owner’s personal funds and whatever funds can be borrowed by the owner. This disadvantage limits the potential size of the business, no matter how attractive or popular its product or service is.
- Sole proprietors have unlimited liability for all debts and legal judgments incurred in the course of business. Thus, a product liability lawsuit by a customer will not be made against the business but against the owner.
- The business has a limited life; it exists only as long as the owner is alive. Upon the owner’s death, the assets of the business go to his or her estate
The other forms of organization will be taken in the next post.
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