Is setting up proprietary concern a bad idea?

Proprietary Concerns

Mr. Samarth, a young boy came to our office to know about the procedure of setting up a company for him. He wanted to serve as a freelancer to a US company in the software industry. When I asked him, he said he has no plans of joining hands with any of his friends to do this business. So, I suggested him to set up a proprietary concern. But he was not very convinced with my reply. He said “ Don’t you have experience in setting up private limited company’; by his question, I could make out that this boy has read a lot about setting up private limited company through internet sources. More or less, he had made up his mind to set up a private limited company before he entered my office.

This was not new to me, for that matter we incorporate over 200 companies per year and equal number of other entities. Setting up entity (or company) is based on the need and requirement. There is no particular fancy for a particular type of entity.

Without losing my patience, I explained about proprietary concerns to this boy-

Entity Registration for a proprietary concern there is no Entity registration. For a partnership firm, you have to prepare a partnership deed and get the firm registered under Registrar of Firms (ROF) and for a private limited company, you have to prepare MOA and get the company registered under Registrar of Companies (ROC). So, the advantage of proprietary concern – save the cost of setting up Entity!

Business Registration – This is same for all, be it proprietary, partnership or company. If you intend to sell goods, then register for VAT, for providing service, you have to register under Service Tax Laws, for setting up shop or office, you have to register under Shops and Establishment, etc.

Bank Account – All business, irrespective of the type of entity, should have Current Account in a Bank.

Taxes – As a proprietary concern, you will be assessed as Individual taxpayer. You will pay taxes based on tax slabs applicable for the respective financial year. Firms and companies have to pay 30% taxes on their net profits.

Service Tax Payment – Proprietary concerns have an advantage over Companies when it comes to payments of service tax dues. You can pay service tax dues on every quarter as against the Companies which have to pay every month. For that matter, even partnership firms have to pay taxes on quarterly basis. This will help for better cash flow management.

Advance Tax – The first advance tax payment is due on 15th Septemer against 15th June in case of Companies. This will also help in better cash flow management.

Liability – The liability, if you borrow money from the bank/financial institutions will be the same for proprietary concern or a private limited company. Generally, in 99% of the cases; the lenders take personal guarantee of the Directors of the Companies while lending money to their companies. The proprietors or the directors of the companies are equally responsible for all statutory liability payable to the Governments.

Name – You can choose the name you feel like! Just a word of caution, please get your name checked through your consultant in Trade Mark Registry, if the name which you chose is already registered under trade mark, better you look out for an alternative name. Otherwise, there is no restriction on the type of name which you can keep for your dream venture.

Designation – In case of proprietary concern, you can call yourself as Proprietor (for females – Proprietrix)

PAN – there is no need to obtain a separate number for proprietary concern. You have to use your personal PAN for all transactions.

TDS – You needn’t bother to comply with Tax deduction at Source (TDS) provisions on all the payments made by your concern, till you reach a turnover of Rs.1 Crore per year.

I will write more about proprietary concern in my next article. Before ending this article, I must say that based on the need or requirement, proprietary model of business is not a bad idea. It’s easy and cheaper to set up and cost effective to maintain.

If  you need more clarification please mail it to me at or raise query in comment section below.

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About B E Kumar Prasad

B E Kumar Prasad
He is a Practicing Chartered Accountant in Bengaluru, India. He has 28+ years of experience in income tax, business setup, and NRI matters. He is also an Insolvency Professional, Registered Valuer (F&SA) and Social Auditor.Prasad welcomes your comments and questions. Please email him at

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