Monday, April 15

Is the current account mandatory for a sole proprietorship?

Primarily, there are two types of bank accounts in India, i.e., savings accounts and current accounts. While people on an individual level prefer savings accounts, current accounts are preferred by businessmen and companies for carrying out high-volume transactions.

As savings accounts cater to people who want to save money and deposit their salaries for personal use, current accounts are meant for people who want to carry out business transactions daily. Hence, current accounts come with higher limits on deposits and withdrawals as compared to savings accounts. Be it sole proprietor, businessmen, associations, or trusts. If you want to have a bank account for carrying your business, then it has to be a current account!

Let’s take a look at how to open a sole proprietorship current bank account-

Carrying out business in the name of an individual is known as a sole proprietorship. A proprietorship is not registered with the central government of India as an independent business entity. It is categorised as an unregistered business.

A sole proprietorship is apt for small businesses in an unorganised sector whose annual turnover is less than Rs. 10 Lakhs. In several cases, the sole proprietor will run a business under a different name, for example, Kumar Groceries, etc.

It is important to note that the sole proprietor’s business names are not strictly verified or controlled. Usually, entrepreneurs use a general name that does not infringe on popular brands and trademarks.

Finally, in order to increase the legality to make and receive payments in the sole proprietorship business name, you have a current account. Let’s take a look at the current account opening procedure for a sole proprietorship.

Current Bank Account For Sole Proprietorship

The RBI or the Reserve Bank of India has made some KYC rules for opening a sole proprietorship current account. All the banks and people must follow these rules. Look at the KYC norms laid by RBI to open your current account in your business name.

Proof of the name & address:

You need to present name and address proofs such as registration certificate, licence issued by the municipal administrations under the Shop and Establishment Act, income tax returns, certificate of GST, and registration issued by the Registering authority. For example, the Certificate of Practice issued by the Institute of Chartered Accountants of India, the Institute of Cost Accountants of India, etc.

Providing all the above documents is mandatory. You must oblige and produce these documents without fail.

Secondary proofs:

You must submit registration and licensing documents issued by the Central Government or State Government Authority in the name of the proprietory concern. NBFCs or RNBCs can also accept the Importer Exporter Code offered by DGFT as an identity document for the proprietory. This can help in opening the account as well.

You need to produce the complete income tax returns certificate and not simply the acknowledgement in the name of the sole proprietor where the business name is reflected and verified by the Income Tax personnel.

You must produce utility bills like electricity, water, etc., in the name of the proprietory.

Any two of the above proofs can be used for opening your sole proprietorship current account.