How to Close a Registered Sole Proprietorship Firm in India?

No one else needs to be consulted before a sole proprietor ends their business. It is simple to dissolve a proprietorship by cancelling all your business registrations and licenses, relieving the proprietor of future tax filing and compliance obligations. To avoid further repercussions and liabilities, the proprietor must terminate all contracts with suppliers and clients before dissolving the business.

For the benefit of interested readers, we go over the procedures to take to dissolve a sole proprietorship registered in India in this blog post.

Reasons for Closing a Sole Proprietorship

The following are some frequent causes of sole proprietorship business closures:

• Bankruptcy or death of the sole proprietor:  If a business cannot be transferred to another individual or cannot pay off its debts due to bankruptcy or the death of the sole proprietor, it could be shut down.
• Legal orders issued against businesses: If legal authorities believe a business is illegal or unethical, the business must be shut down immediately upon receiving a legal order.
• Failures or limited resources: Few investment and funding sources are available to a solo proprietor. As a sole proprietor, you are responsible for managing your company with the minimal resources you have. You may have to close your sole proprietorship if your business fails due to resource constraints.
• Voluntary dissolution: Due to difficulties, a sole proprietor may decide to permanently shut down his firm or follow the advice of a legal expert who states there are no chances for the business to expand.

Steps to Close a Sole Proprietorship Firm in India

Why legally wind up or close a sole proprietorship?

• Legal protection: If your proprietorship ends successfully but without the consent of the relevant state, central, or concerned authorities, the company will be responsible for any compliances or liabilities that may develop. Consequently, gaining government clearance and approval from relevant authorities removes commercial obligations from legal actions against a business or proprietor.
• Easy final settlement: The better resolution of business obligations will result from pursuing sole proprietorship dissolution through formal agreements with all creditors, employees, and others connected to the business.
• Eliminate unforeseen liabilities: The business is no longer subject to any further responsibility after receiving the certificate of closure from the state or other relevant authorities.

Cancel Registrations and Licenses

• Cancel GST registration: To avoid the burden of compliance filing and additional fees or fines, it is advised to relinquish the GST registration before terminating the proprietorship firm if it is registered.
• Surrender trade license: Since the neighbourhood municipal council issues trade licenses that must be renewed annually on or before March 31 for a set renewal price, it is usually advised to file a request for cancellation of the registration with the concerned municipal corporation if the business owner is preparing to close down the operation.
• Surrender other licenses: Before closing the firm, the proprietor should cancel any other licenses registered in the company’s name to avoid renewals, other consequences, and return filing requirements.
• Cancellation of shop and establishment registration: The state’s labour department provides shop and establishment registration. That shop and establishment registration must be renewed annually with a certain fee in many states; this is a requirement. You must cancel the shop and establishment registration before dissolving the proprietorship business to prevent renewal costs and non-compliance.
• Surrender TAN number: Both a proprietor and a proprietorship firm have the same PAN. As a result, notifying the income tax department of a proprietorship business termination is unnecessary. However, the proprietor must no longer have the allocated TAN number. The proprietor must submit a cancellation application to the jurisdictional AO.
• Termination of agreements: Any agreements you have established with parties or suppliers should always be dissolved to avoid unfavourable consequences and financial liabilities. For example, if the proprietor has hired a space for their business, the rental agreement must be ended for you to stop paying rent.
• Closure of bank account: You must close the current bank account for your business and provide the bank with your unused credit card, debit card, and chequebook to prevent fraud. The owner must contact the banker to close a bank account and obtain a closure certificate.
• Surrender trademark: The phrase “withdrawal of trademark” denotes trademark cancellation. If the trademark holder is ready to relinquish their rights, they can send a withdrawal letter to the relevant Trademarks Registry to avoid renewal and other oppositions.
• Inform your stakeholders: You must call, text, or email your stakeholders to inform them that your sole proprietorship business is closing so that they are informed and that no one else may use your company’s name for any ill-gotten gains.

Conclusion

The following procedures must be followed for your sole proprietorship business to be closed properly in India:

• You must advise your employees that you are closing your proprietorship business in India before you do so. This will provide them with the opportunity to explore alternative employment possibilities. If you want to close your business, you must give your employees notice before 60 days have passed.
• It is crucial to give employees advance notice of closure since, as an employer, you must let them know so they can hunt for other employment. If you fail to do so, you may be held legally responsible.
• After providing notice, you must liquidate your proprietorship business in India by distributing the last paychecks to your employees and completing other processes.
• Before closing the business, you must let your suppliers and clients know you’ll do so soon to settle your financial obligations. You can fulfil the remaining projects and contracts during this period.
• Notifying your suppliers and clients is crucial so you can settle your accounts with them before settling your balance sheet. You must create a termination agreement for shutting down a sole proprietorship business with your suppliers, in which you must specify the last day of operation and state that after that date, our business will be closed, and we will no longer be able to provide our services. Termination agreements are crucial since they help you prevent problems down the road for your proprietorship business in India.
• Cancelling all business registrations in India is one of the most crucial things you must do since once a business is shut down, the license should be revoked to prevent future false accusations. If you already have a GST identification number, you should cancel it immediately so no one can use it to create fictitious invoices for your company.
• If you have any other licenses in your firm’s name, you should cancel them immediately when you close your doors. To do this, go to the licensing department and submit an application; they will then cancel your license.
• If you have rented a space for your business, request the cancellation of your rental agreement so that you will no longer be required to make rent payments in the future. You may also request the cancellation of your power and water connections to save money on future costs. If you own any gear or equipment that will no longer function, you can also sell it. However, you must keep copies of the invoices and cancellation paperwork for tax purposes.
• To prevent misuse, you must close the business’s present bank account and cancel the chequebook, debit card, and credit card. To close your bank account, you must visit your bank, complete a form, and submit it. After receiving this information, the bank will close your account.
• Finally, you need to pay your taxes and follow all legal requirements of the GST and income tax departments. So keep this in mind as you close your sole proprietorship business.

You can also contact Govche India Pvt. Ltd.’s web portal, Kanakkupillai.com, located in Chennai, for assistance terminating your registered sole proprietorship. They simplify the closure process and ensure adherence to pertinent rules and regulations by providing thorough guidance and help. They offer services to simplify the procedure so you may confidently and easily continue your entrepreneurial path with your other firms.

In light of the above, we genuinely hope that this blog will be helpful to any interested readers who are looking for information on how to close a registered sole proprietorship corporation in India.

Related Services

Proprietorship Firm Registration in India

Private Limited Company Registration in India

Trademark Registration Online in India

FAQs

• How do I inform the concerned authorities about closing my sole proprietorship?

To formally declare the closing of a sole proprietorship, a legal agreement establishing that the business is closed in the eyes of the government must be approved by the relevant state body.

• What liabilities must I pay off before closing my sole proprietorship?

Limited liability does not protect sole proprietorships. Instead, the single owner is completely liable. This implies that the business’s debts and expenses are personally liable to the lone proprietor. The sole proprietor risks losing their assets if the business is sued.

• How do I cancel registrations and licenses for my sole proprietorship?

Pay the company’s statutory dues in full. Clear up all of the company’s debts. Send a request for the shop and establishment license to be revoked to the relevant authority so that future false accusations cannot be made.

• Do I need to file income tax returns after closing my sole proprietorship?

Notifying ITR of a company’s closure is not essential. You must give up the TAN number assigned to the proprietorship, though.

• Is there a specific timeline to close a sole proprietorship in India?

A sole proprietorship’s lifespan is sometimes unpredictable. The owner could get disinterested, go ill, retire, or pass away unless the owner makes plans for it to carry on or lists it for sale; the company will cease to exist. Owners are accountable for losses.

• What happens if I don’t close my sole proprietorship properly in India?

If your proprietorship ends successfully without the consent of the relevant state, central, or concerned authorities, the company will be responsible for any compliances or liabilities that may develop.