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Trade or Business License for Sole Proprietorship – Do We Really Need It?


Trade and company licenses are the two different names of one single license. There are many business compliances, and licensing and registration are one of them. One such compliance also comprises a Trade License. This is relevant to almost all business organizations, whether Pvt. Ltd. Company, OPC, LLP or single proprietorship firms.

The current blog will discuss the trade or business license for single proprietorship companies in detail. If you are a sole business company, you must go through this blog till the end. This is going to help you understand whether or not a sole proprietorship organization desires a business license due to the fact that there are many fake testimonies concerning the sole proprietorship within the marketplace.

Sole Proprietorship Firms

These companies are for small businesses set up in the local area. These businesses do not have any plans for growth, and they are just bound to a particular place. For example, local stores, sellers and hawkers, local bars, etc.

They are a self-funded business that does not want to draw any funds or partners for their companies. There is no need to register such businesses. They will be considered registered if they have GST registration or MSME registration. However, this does not mean that they are excused with respect to legal obligations; therefore, if needed, business owners have to get trade or business licenses for single proprietorship firms.

Types of Sole Proprietorships

 A sole operator may operate as an independent contractor, which is called a freelancer, a business owner, or a franchise called a partner.

  • Independent Agent or Contractor: An independent contractor is a self-employed sole owner who takes on jobs on a contract basis with clients. They have the liberty to select which clients they will take on, but they are often subject to the processes and methods that the client needs.
  • Business Owner: Business owners can be self-employed single proprietors. Unlike contractors, there is much more control in how the work is completed for clients. The business itself may even be more complicated with staff.
  • Franchisee or partner: Franchise owners may also be only proprietors. The franchise gains from the advice and business plan of a bigger company. In turn, fees are paid to the owner.

Documents Required for Sole Proprietorship

  • Aadhaar card.
  • PAN card.
  • Registered office proof.
  • Bank account.

Checklist required for Sole Proprietorship

  • PAN card of the owner.
  • Name and address of the business.
  • The bank account is in the name of the business.
  • Registration under the Shop and Establishment Act of the respective state.
  • Registration under GST if the business income crosses Rs.20 lakhs.

What are the Compliances required?

As a sole owner, you must file Income Tax Return yearly. Also, you need to make your GST Return if you are registered under GST. A sole owner should also collect TDS and make a TDS report if due for Tax Audit.

Timelines for Sole Proprietorship Registration:

The Sole Proprietorship involves getting a PAN card for an owner, opening a bank account in the name of the firm, a Certificate of Registration under the Shop and Establishment Act of the states and GST Registration. The registration process takes approximately ten days, subject to official approval and reverts from the respective department.

What is a trade license, and is it necessary to receive one?

A trade or business license is a certificate or a document that gives the permission to the person looking to open a business to start a particular trade business in a particular place or an area. This permit has been made necessary by the government to ensure that no one is carrying out illegal or shady business practices in a particular area or region.

The government’s main aim in giving a license is to control the locations by stopping people from carrying out different types of businesses from their home location to keep a proper business and neighborhood environment.

Proprietorship businesses need to get a trade license to run their business smoothly. According to law, they are needed to get a trade license. If they don’t have a trade license, their business will be considered illegal and they will need to pay fines in the form of big amounts of money according to the type or nature of their business.

The goal of a Trade License:

In the past years, trade licenses have come into use in the country. Now, the local body controls them as per the state government. This ensures that nobody is harmed by any business or trade problem or health risk. Government officials make it necessary to perform certain trades or businesses within a particular area and ensure that nobody is involved in illegal business or trade.

The license within the community guarantees that each company is sticking to the relevant rules and guidelines and following safety laws. This license is necessary to ensure the government can control trade. The major purpose of releasing this document is to control the location by stopping people from running different kinds of businesses from their local places to ensure the safety of the local and business settings.

Do We Really Need Trade or Business License?

The choice of whether or not to receive a trade or business license is a personal one. There are both pros and cons to be considered:

Pros Of Obtaining a Trade Or Business License

  • Legitimizes the business
  • Gives the business a more professional look
  • Protects the business from harm
  • It may be required by law

Cons Of Obtaining a Trade Or Business License

  • It can be time-consuming and very expensive
  • It requires the business to meet certain standards, such as having a certain amount of insurance or hiring a certain number of workers.
  • It could not be essential for all businesses.

Here Are Some Important Things Additionally to Consider When Deciding Whether or Not to Obtain A Trade Or Business License:

  • The type of business you are running
  • The place of your business
  • The size of your business
  • The number of workers you have
  • The local rules and policies in your area

Important things that need to be kept in mind while going for a trade license:

  • The Trade license is given by the city government and is purely for the trade or business carried out in a particular area.
  • Rules and laws regarding the granting of a trade license in different locations vary.
  • The fee structure of the license varies depending on the type of business carried out by the application.
  • A registered business entity given a license gains greater trust than an inactive company, and subsequently, it attracts more investors and clients.
  • Trade registration license ensures ethical business practices made by the sellers as they have to follow all safety measures and directions as per the rules and regulations.
  • If a person does not apply for the license or starts performing his business activities before the grant of the license as required under law and initiates any business or trade activity then the relevant government can impose penalties and charges as per their rules and regulation. In case of failure to meet with pre-requisites of the trade license can result in the shutdown of a business.

Benefits of Trade License:

If we look at the benefits of trade licenses, it will be clear that they are useful for both states and the applicants. Certain key benefits of a business license are stated below:

  • Compliance with the law.
  • Authorities can keep an eye on the business actions.
  • Security has been given to the consumer’s interest.
  • This license is very useful while building the trust of the clients or customers in the market among the competition.
  • Improves the work atmosphere and culture.
  • Safeguard the rights of the employee as well as the boss in the business place.
  • Fair and responsible business promotion.
  • Increases business reputation as well as dependability.
  • It helps in the growth as well as the development of the business and ensures that the goal of the business is legal.

Sachin Jaiswal

Sachin Jaiswal B.A.(Hons)! Sachin Jaiswal has been writing material on his own for more than five years. He got his B.A.(Hons) in English from the well-known University of Delhi. His success in this job is due to the fact that he loves writing and making material that is interesting. He has worked with a lot of different clients in many different fields, always giving them high-quality content that their target audience will enjoy. Through his education and work experience, he is able to produce high-quality content that meets his clients' needs.