Sole Proprietorship and Partnership Firm

Registration requirements and thresholds can be fact-specific. This article is for general information and does not constitute tax advice.

Sole Proprietorship

Not a separate legal entity; the business and owner are legally the same thing, so there’s no mandatory registration for the structure itself. Other registrations, GST above the applicable threshold, Shop and Establishment, optional Udyam/MSME, can still apply. Liability is unlimited and personal, business income is simply added to the owner’s individual income at slab rates, and the business has no legal continuity of its own; it can’t be inherited as a continuing entity, only the underlying assets and goodwill pass on.

Partnership Firm

Governed by the Indian Partnership Act, 1932, needing 2 to 50 partners. Registration with the state’s Registrar of Firms isn’t mandatory nationally (Maharashtra and Gujarat are exceptions), but an unregistered firm can’t sue a third party, claim a set-off beyond ₹100, or have partners sue each other, under Section 69 — though it can still be sued by others. Liability is unlimited, joint and several. The firm is taxed as its own entity at a flat 30% plus surcharge and cess, with its own PAN; a partner’s profit share is exempt in their hands since it’s already taxed at the firm level, while remuneration and interest, within limits, are taxed as the partner’s own business income.