If your business is closed, now you must be wondering how to close proprietorship firm in India. Operating a proprietorship firm is relatively simple and easy. A proprietorship firm is considered one of the easiest types of company to start in India. Anyone who wants to start a business with less investment can start a proprietorship firm.
How to close Proprietorship Firm in India?
There are no formal requirements for registering a proprietorship firm in India and there is no law that requires a proprietorship firm to be registered with any regulatory authority. But sometimes it becomes difficult to close a Proprietorship Firm in India after the death of the owner.
Similarly, a proprietorship firm is also considered one of the easiest types of company to close without any hassle. But certain procedural formalities do exist and that too depends on the firm’s status. However, the rules for closing a proprietorship firm in India are easy and different.
A Proprietorship firm owner can close a business at any time. When there are no formal requirements to start a proprietorship firm, then there are no formal requirements for closing it as well. But, if the proprietorship firm has obtained GST, VAT, Professional Tax, Shop & Establishment Act, Factories Act, and GST Registration, all of them must be surrendered. Knowing tax implications of closing a proprietorship is very important.
Before we know how to close proprietorship firm in India, here is a list of some common licenses and registration obtained by proprietorship firm:
- GST Registration
- Shop & Establishment Registration
- TAN Number
- Current Bank Account
- Trade Licenses
- Termination of Contacts & Agreements
- Surrender of Other licenses
- Pollution or Industrial licenses
- Food License (FSSAI).
- Trademark Registration and Licenses
Step to close a Proprietorship Firm in India
If you are a proprietor and have made the final decision to permanently close your proprietorship firm, please follow the steps mentioned below:
Step 1 – Surrender GST Registration
The registration granted under GST can be cancelled for any specified reason. If you are worried about how to close a firm in GST, you should be relaxed. Any person or firm registered under GST is allowed to surrender their GST registration at any point in time when they are no longer required GST Registration.
So, if a Proprietorship firm does not have GST Registrations, then no need to worry about it. But, If the Proprietorship firm is registered under GST, then it is safe to surrender the GST registration before closing the Proprietorship Firm. We should also know the tax implications of closing a proprietorship firm.
Step 2 – Cancellation of Shop & Establishment Registration
The process of Cancellation the shop and establishment license are easy. Many Proprietorship firms get Shop & Establishment Registration done under the Labour Department of the State. They need to surrender their Shop & Establishment Registration before closing the Proprietorship to avoid renewal fees & non-compliance penalties.
Step 3 – Surrender of TAN Number
First, there is no requirement of TAN for a Proprietorship firm. Still, if TAN number has been issued to a Proprietorship firm, it must be surrendered before closing the firm. The Proprietor is required to make an application to the jurisdictional AO for cancellation of TAN Number. TAN Number can only be surrendered if the deductor doesn’t require the allocated TAN number.
Step 4 – Closure of the Current Account of the Proprietorship firm
You must be having a current bank account in the name of a Proprietorship firm. There may be unused checkbooks and debit or credit cards. You must close your current bank account and return all unused cheques, debit, and credit cards to the bank as they may be misused in the future.
Step 5 – Surrender of Trade License
A trade license is a certificate that gives permission to the Proprietorship firm to start a specific business particular area. So, do not close your Proprietorship firm until you have surrendered your trading licenses granted by relevant municipalities. It is advisable to get NOC or Deregistration Letter from the relevant municipality after surrendering the licenses.
Step 6 – Termination of Agreements
Termination of a contract or agreement is very important as it provides parties with an exit option. A contract or agreement can be terminated by either of the parties or both by mutual consent. So, if you have entered into a contract or agreement with any party, it is advisable to terminate those contracts and agreements to avoid future legal consequences and financial liability.
Step 7 – Surrender of other licenses
If there is any other license in the name of the Proprietorship firm, it must be surrendered immediately before the closure of the firm to avoid legal consequences in the future.
Step 8 – Surrender Pollution or Industrial licenses
If your Proprietorship firm is running a business that require any Pollution or Industrial licenses and you have obtained it from the authorities, you must surrender them before closing your Proprietorship firm.
Step 9 – Surrender Food license (FSSAI)
If your engaged in any food business and there is any Food license (FSSAI) in your proprietorship firm name, you should surrender it before closing your firm.
Step 10 – Surrender Trademark Licenses
Thinking of how to how to close proprietorship firm in India while having trademark licenses may also make you uncomfortable. If you are having any trademark licenses, you should terminate it before closing your proprietorship firm.
If you want to know more about closing a various type of companies in India, click here.
For necessary approvals and closure of the company, there are many documents to be prepared and filed. Therefore, it is recommended to take the help of a legal advisor.
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