Set Up Your Sole Proprietorship - Licensing and Documentation
A sole proprietorship is also known as a sole trader or a proprietorship. It is an unincorporated business involves just one owner who pays personal income tax on profits earned from the business. A sole proprietorship can operate under the name of its owner or it can do business under a fictitious name. It is the easiest type of business as it involves minimal government interference. The sole proprietor owns cent percent of the business and makes all the decisions on his own. They are themselves the driving factor of the business and have say in all the matters.
Sole Proprietorship Business Licenses
Sole proprietors are themselves responsible for the debts of their business. They may need state or local permits and/or licenses to legally operate their business.
• Operational License - Most sole proprietors need to possess an operational license. The license is mostly needed only if the proprietor has a taxpayer identification number. Sometimes, sole proprietors are expected to maintain a state-issued license along with general license when the activities are being regulated by the government. Proprietors can obtain operational licenses from the city or county where they are conducting business.
• Occupational License - Proprietors who are involved in a profession or trade need an occupational license. It ensures that the proprietor has the required permission and authority to provide a particular service.
• Federal License - A federal business license is required by a sole proprietorship in sectors that are federally regulated such as investment advising, air or ground transportation, manufacturing firearms, etc. Federal industries include alcoholic beverages, aviation, radio and television broadcasting.
• Local Licenses – They can be obtained easily and are quite inexpensive.
• State Licenses - A federal business license is required when a sole proprietor is selling products or services regulated by the state. It is mostly requires by mechanics, lawyers, barbers, restaurant owners, etc.
• Permits - Sole proprietors need permits in order to be able to operate, like a fictitious name or ‘Doing Business As’ permit if operating the business under another name. They may also need permits from the health department for the sale or preparation of food, land use and zoning permits for home-based business operations, etc.
• Sales tax – Many states require a sales tax permit or license for most retail businesses.
So, these were the different licenses required by a sole proprietor for starting his/her own venture. But, every procedure requires certain documentation and so does sole proprietorship. The following documents are required –
1. Aadhar Card – It is a 12-digit unique identity for every Indian individual. Aadhar card number is necessary for the official registration. Also, income tax return can only be filed if the person has linked his PAN card with Aadhar number.
2. PAN Card - PAN (Permanent Account Number) is an identification number assigned to all taxpayers in India. PAN card is needed at the time of proprietorship registration to file Income Tax Returns. You can’t file your income tax return until you get a PAN.
3. Bank Account - You also need to carry identity proof and address proof. The bank account linked with office transactions needs to be submitted.
4. Registered Office Proof - The certified office proof is needed for any registration.
• If it is a Rented Property: Rent agreement and NOC from a landlord.
• If it is a Self-owned Property: Electricity bill or any other address proof.
These are the essential documents and it is advised to refer the official website for updates and changes. If all these documents are given in a correct manner, the registration for sole proprietorship goes smoothly.
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