Many individuals prefer to start their own business after gaining some work experience/industry exposure. An individual can choose the form (such a sole proprietorship, partnership, private limited company and so on) of his/her business.

To begin with, it may be difficult to find an appropriate partner (for the formation of partnership firm) or second director required for a private limited company. In such a scenario, an individual is left with the only option of forming a sole proprietorship firm.

In case of a sole proprietorship firm, owner is responsible for all business decisions and is entitled to all the profits earned from the business. While, it may be easy to form a sole proprietorship firm, it is important to understand the key steps involved in its formation.

Five Important Steps in Starting a Sole Proprietorship

Arrange Capital

In order to meet the initial costs associated with the formation of sole proprietorship firm, it is important to arrange the appropriate amount of capital. Further, capital will be required to finance the operations of the company once it has been formed.

Decide a Name for your Business

First and foremost step in the formation of a sole proprietorship firm is to identify an appropriate business name. It is advisable to obtain a trademark for your business name.

If the name is already registered with the trademark registration authority, you may have to consider a new name. It is important to select a business name that reflects the nature of business to be carried on by the firm.

Find Office Space

One of most important aspects of forming any type of business is identification of appropriate office space. While many sole proprietors prefer to operate from their residence, it is always advisable to check the relevant laws and regulations in relation to conduct of business from a residential property.

Relevant laws may impose restrictions on the operation of a company/firm from a residential area. In case office space is taken on rent, a no objection certificate may also be required from the owner of the property to be filed for firm registration.

Open a Bank Account

In order to receive and make payments, it is always advisable to open a bank account in the firm’s name. Opening a bank account in firm’s name is important because many customers prefer to make payment in the name of the company only.

However, different banks may have different requirements for opening a bank account in the name of the sole proprietorship firm. Many banks may require a valid registration number (such as service tax number) as a documentary proof for opening the account.

Obtain Relevant Licenses and Permits

Depending on the nature of business, location of registered office and so on, a sole proprietorship firm may be required to obtain licenses and permits from the relevant registration authorities.

In case sole proprietorship firm is engaged in sale of goods, it may have to obtain sales tax number. A service tax number may also be required to be obtained by a sole proprietorship firm engaged in providing services.