Starting a proprietory firm in father’s name

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

01 May 2012 I am a working professional in 30% tax slab and my wife is also working in 20% tax slab. We are planning to take a franchisee from one of the company on a revenue share basis. While the capital investment and monthly running expenses would be from my funds, we both cannot take the franchisee in our name since we both are employed. My father is a retired person of 70 years with NIL taxable income. Can i take the franchisee in his name or make him the proprietor of a proprietory firm. The funds required shall be transferred from my accoun to his personal/proprietor account in different intervals. He resides in a different city than the place of proposed franchisee. I intend to take a power of attorney in my name to conduct the operations of the franchisee , including bank account operations etc…is this the correct approach …?What are the tax implications of making such an arrangements..? If this is not the correct way, please suggest alternate arrangements to avoid using of my wife’s and mine PAN number because of our current employment in respective organisation

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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01 May 2012 You should not try any such step as the provisions being brought by the Finance Act 2012, dealing with GAAR, may load the entire tax burden upon the doer of the business, and in the suspicious cases, IT authorities are being given free hand to deal with such tax plannings.
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In case your father himself actively engages himself in the business, better, by entering into a partnership with a person having the specific business knowledge, then the planning may be termed as purposeful one.
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Querist : Anonymous

Querist : Anonymous (Querist)

02 May 2012 can my spouse be a partner. She is employed with a similar type of organisation ( not in the same organisation for which the franchisee is proposed)

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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25 July 2025 This is a good and quite common question when employed individuals want to run a business without impacting their own PAN or employment compliance. Here’s a breakdown of your scenario and suggestions:

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### 1. **Can you register the franchise in your father’s name (Proprietorship)?**

* **Yes, legally it is possible** to have a proprietorship firm in your father's name even if he is retired.
* You can take a **Power of Attorney (PoA)** from him to operate the business, including managing bank accounts.
* The funds transferred from your account to his account should be **properly documented** as either loans or capital contributions to avoid any tax scrutiny.

### 2. **Tax implications for your father (proprietor):**

* Income from the proprietorship will be **taxed in your father’s hands** as per individual slab rates.
* Since your father has NIL taxable income currently, this could result in tax savings if his total income stays within the lower tax brackets.
* However, any income earned will need to be reported in his income tax return.
* **Gift tax rules**: If you transfer money as a gift to your father, there is no tax implication as gifts from a son to father are exempt.

### 3. **Using Power of Attorney:**

* Taking a PoA is a common and correct approach.
* The PoA should be properly drafted and notarized, clearly authorizing you to operate the business.
* Maintain all documents to show you are acting under PoA authority to avoid legal/tax complications.

### 4. **Potential issues:**

* The franchise agreement may have clauses about the proprietor’s active involvement, so confirm if PoA operations are accepted by the franchisor.
* If your father is not actively involved and just a figurehead, the tax department may question the arrangement in case of a tax audit (though this is generally okay if properly documented).
* Operating in a different city from your father is acceptable.

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### 5. **Alternative: Partnership with your spouse**

* Your spouse can be a **partner in a partnership firm** (not proprietorship, which is only one person).
* Partnership income is taxed in the hands of partners individually, so it helps split income.
* However, if your spouse is employed, check her employer's policy and any conflict of interest clauses.
* Partnership deed and operations should be transparent and documented.
* In case of partnership, funds can be contributed by you as capital or loan to the firm, not directly from spouse’s employment income.

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### 6. **Other suggestions**

* You could also consider a **Private Limited Company or LLP**, with your father or spouse as shareholders/partners.
* This limits personal liability and offers more formal structure.
* But compliance costs and regulatory requirements are higher.

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### Summary

| Point | Your Idea (Father’s Proprietor) | Alternative (Partnership with Spouse) |
| --------------------- | -------------------------------------------- | ---------------------------------------------- |
| Legal Feasibility | Yes | Yes |
| Taxation | Taxed in father’s hands at individual rates | Income split between partners |
| Control | Through Power of Attorney | Direct involvement by partners |
| Compliance Complexity | Simple (Proprietorship) | Partnership deed required, moderate compliance |
| Suitability | Good if father agrees and franchisor permits | Good if spouse’s employment permits |

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### Final Advice

* Consult a **chartered accountant** or tax advisor to draft documents and ensure compliance.
* Ensure **clear documentation** of all fund transfers (gifts or loans).
* Check with the **franchisor** about accepting PoA and proprietor name conditions.
* Review employment agreements for any conflict restrictions.

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If you want, I can help draft a sample Power of Attorney template or a checklist for documentation. Would you like that?

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