Sole proprietorship company compliances
This is Ajay Malik from Bengaluru.
I am starting a security services providing company as a sole proprietorship company.
I want to know what all licenses are required to be procured as per law for such a company to do business in Bengaluru. I will be either working from my own residence or from clients' offices itself. I don't need an office untill I touch a turnover of minimum 50 lacs, which will atleast take minimum 3 years from now. Right now I have many clients who are willing to give me business, however their auditors are not allowing them to pay to an individual as a consultant for security services. My clients auditors are asking my clients to make a payment by cheque to a company for such a services rather than an individual. Therefore my clients are forcing me to setup a company. Since, right now I am going start off on a zero budget basis and even clients (as well as their auditors) are OK with a sole proprietorship firm as well, I would like to know the procedure to be followed. SInce, I don't have monies to be paid to CAs or CSs, I will be taking the pain of going through all of the procedures on my own. My initial monthly billing will be approximately 40K, which may increase in near future depending on quality of services those I will be providing.
It will be a real great help from you, if you facilitate me in navigating through this jungle of various laws, licenses, permits & legal documents those I have to keep in mind in order to be compliant while doing business in this country.
Asked 12 months ago in Business Law from Bengaluru, Karnataka
1) for running your music business you will need license under Shop and establishment act , . you will need service tax registration if taxable services are more than Rs 10 lakhs in a year
2) .you must satisfy RBI guidelines for KYC for opening current account in name of sole proprietorship
3) obtain PAN card in name of sole proprietorship
4) Professional Tax: This tax is mandatory if you have even one single employee. Each state is allowed to create its own guidelines, so it would be advisable to check whether it is mandatory to register for professional tax in your particular state.
1. Either it can be a sole proprietorship or a company. It cannot be a sole proprietorship company. If you wish to set up a sole proprietorship then even a current account in a bank will suffice as a sole proprietorship does not require mandatory registration, whereas a company will have to be incorporated under the company law.
2. Remittance of money to a sole proprietorship firm will have the same legal character as to a company. So you can attempt to convince them to let you make a firm instead of company. Be that as it may, to set up a company the memorandum and articles of association are to be drafted. This is the first step in the formation of a company. This should be got drafted from a lawyer.
3. A company, as it is a separate legal entity, is also required to have a registered office where all the communications relating to its functioning are to be sent. Thereafter, you have to chose the name of the company. Once all this is done you can apply to the Ministry of Corporate Affairs for the incorporation of the company. The certificate of incorporation is now issued within 24 hours if all the documents are in order.
Thanks for your answers. However, I have following things as a conern of mine.
1) I provide security advisory & travel advisory services to my clients. For this I can either work from home or from clients' offices or I have to keep on travelling most of the time to gather sufficient data. Hence, I don't require my own separate office premise at all. my residence &/or my clients' office acts as my office itself.
2) When I approached my bankers for opening up of a current account in my sole proprietorship's name, they asked me to get atleast any two sets of legal registration documents in name of my firm by any government authorities, so as to prove the identity & address of my firm. This they told me is as per KYC norms of RBI.
3) I have my residential leave & license agreement in my & firm's name with my landlord. However, since it is not a government authority issued document, it is not being accepted as a legal document by my bankers to open up a current account.
4) When I approached IT department for PAN number in my firm's name, they said it is not necessary since my own PAN number itself is more than sufficient to act as my firm's PAN number. However, this is also not acceptable to my bankers to open a current account in my firm's name.
5) I approached Tax department for TAN, they said that since it is a one man sole proprietorship firm & since neither anyone will be working under me in this firm nor I will be employing any vendor under me to work on my behalf, I don't require a TAN number as there would be no TDS deductions, those will be done at my end on behalf of or for anyone.
6) I approached service tax department for getting a ST number in the name of my firm, then they also said since you are not charging any service charge to your clients (I charge consultancy fee per article) AND since your clients also don't pay you any service tax, in that case you will not be required to remit any service tax to government and hence there is no need to generate any ST number for your firm.
7) I approached the local labour department here in Bangalore for issuing me a S&E Registration certificate & License (since here in Karnataka, it is labour department which issues such a license), they also said that since you are using your residence as your office with zero employees working under you, it can not be issued to me.
Forming a company itself will be costly stuff for me since it includes a lot expenses like having to look for se parate office premise involving monies for security deposit & rent, requirement of keeping atleast 1 lac in my current account, many of registration & license fees, under the table favour monies required to be paid for various government authorities from whose table all of my documents' file will be moving etc. Hence, please provide me with a a concrete & comprehensive solution which will ensure that I end up paying as little monies as possible keeping in mind my requirements as stated above.
Asked 12 months ago
RBI guidelines For sake of clarity, in case of accounts of proprietorship concerns, it has been decided to lay down criteria for the customer identification procedure for account opening by proprietary concerns. Accordingly, apart from following the extant guidelines on customer identification procedure as applicable to the proprietor, banks / financial institutions should call for and verify the following documents before opening of accounts in the name of a proprietary concern:
Proof of the name, address and activity of the concern, like registration certificate (in the case of a registered concern),
Certificate/licence issued by the Municipal authorities under Shop & Establishment Act,
Sales and income tax returns,
Certificate/registration document issued by Sales Tax/Service Tax/Professional Tax authorities,
Licence issued by the Registering authority like Certificate of Practice issued by Institute of Chartered Accountants of India, Institute of Cost Accountants of India, Institute of Company Secretaries of India, Indian Medical Council, Food and Drug Control Authorities, etc.
The complete Income Tax return (not just the acknowledgement) in the name of the sole proprietor where the firm’s income is reflected duly authenticated/ acknowledged by the Income Tax Authorities.
Utility bills such as electricity, water, and landline telephone bills in the name of the proprietary concern.
ii) Any two of the above documents would suffice. These documents should be in the name of the proprietary concern.
3) in your case you can apply for licence under shops and establishment act in name of firm
4) file income tax returns in name of proprietorship concern
5) pay profession tax in name of sole proprietorship firm .
If you desire to start your own company (whether security or any other company), you can register it under shop and establishment act. A PAN on sole proprietor to be obtained. Current account in the name of the company with a bank observing KYC norms to be opened. Professional tax and service tax (if necessary) to be paid.
These will be sufficient for the start up company for the present.