Starting my own business- Legal Aspects

When you are starting your own business, whatever the nature of your business, there are certain licenses, registrations etc to be taken under various Gov. Regulations.

This Article tries to explain what are the legal requirements for a small business to be setup in India.

 Choosing the form of your business

First you need to decide what kind of legal entity you are going to set up. Following are the options:

  1. Sole proprietorship concern: Suitable when capital required for the company is not much and entire capital contribution is going to be made by the entrepreneur himself/herself without any external funding. This form of business organization is suitable as long as your scale of operations are quite small, that is to say less than 1 crore rupees per anum. This is more risky as there is no differentiation between your business liabilities and the personal one’s.

 

  1. Partnership firm: Suitable when the scale of operations are same as explained in point no. a above and you have one or more partners who are also jumping in along with you. Not suitable if you are looking for external funding. More risky as there is no differentiation between your business liabilities and the personal one’s.
  2. Limited Liability Partnership (LLP): Suitable for the same conditions as explained in Point No. a and b above. But less risky as your business liabilities and personal one’s are differentiated (so the word ‘’Limited Liability’’). Minimum two partners are required.
  3. One Person Company: Similar to private limited company. But only one Director is sufficient to start OPC. OPC can be opened only by Resident Indians and OPC needs to be compulsorily converted in to Private limited company after crossing specific threshold limit of capital or turnover.
  4. Private Limited Company: More widely used form of business. Suitable when you are looking for external funding (either as loan or equity) and even funds can be raised from foreign investors. You will have shares to be issued against capital contributions. Board of Directors shall be constituted and will enjoy more credibility in the business. Minimum two Directors required.
  5. Public Limited company: Not an option to go with initially for setting up your business. Suitable when you are business reaches very large scale operations.

 

Choosing a professional to do paperwork and for proper advice.

In India Chartered Accountants, Company Secretaries or Cost Accounts are the best suited professionals to go with for your business setup. Better to approach a professional known within your business circle or within your city whom you can visit personally at least once. Doing completely everything online is not recommendable even though it may look cheaper option.

 

What Documents you need?

  For sole proprietorship:

  1. Your PAN
  2. Address proof (Voter ID/ Driving license/ Passport/ Adhar card)
  3. Latest month Bank statement
  4. A rent agreement for the premises where your business is to be setup
  5. Electricity bill for the premises
  6. 10 passport size photographs

For Partnership:

  1. PAN of all the partners
  2. Address proof of all the partners (Voter ID/ Driving license/ Passport/ Adhar card)
  3. Latest month Bank statement of all the partners
  4. A rent agreement for the premises where your business is to be setup
  5. Electricity bill for the premises
  6. 10 passport size photographs

 For LLP:

  1. PAN of all the partners
  2. Address proof of all the partners (Voter ID/ Driving license/ Passport/ Adhar card)
  3. Latest month Bank statement of all the partners
  4. A rent agreement for the premises where your business is to be setup
  5. Electricity bill for the premises and NoC from the premise owner for registered office
  6. Passport Size Photographs (10)

For Pvt. Ltd:

  1. PAN of all the Directors
  2. Address proof of all the Directors(Voter ID/ Driving license/ Passport/ Adhar card)
  3. Latest month Bank statement of all the Directors
  4. A rent agreement for the premises where your business is to be setup
  5. Electricity bill for the premises and NoC from the premise owner for registered office
  6. 10 passport size photographs of all the directors

 

(There may be many other documents required depending on the requirements like foreign directorships, establishment of subsidiary companies etc)

 

How much time it will take?

 It will usually take 15 to 20 days to setup any form of business. There may additional licenses and tax registrations you may have to take that may require more than 15 to 20 days. But all such registrations can be parallely taken while you start running you business.

Whats next?

 

Open a current account with the Bank of your choice and start your regular business transactions through Bank account.

 

Licenses Required for your Business:

 

  1. PAN: For Partnership, LLP or OPC or Pvt. Ltd or Public Ltd, one has to take a separate PAN for the business. For Sole proprietorship Concern no Separate PAN for business is required.
  2. TAN: Compulsorily taken for all businesses.
  3. Shops & Establishment Registration: Required in most of the states. Required for all businesses
  4. Professional Tax Registration: Required in most of the states and required for all businesses
  5. VAT (TIN No.): Required if you are trading in any goods
  6. Service Tax Registration: Required if you are providing services and your turnover (in the financial year) is 10 Lakhs or more.
  7. Import Export Code: Required for import or exports
  8. Central Excise Registration: Required if you are engaged in Manufacturing
  9. Provident Fund: Required if you are employing 20 or more employees in your establishment
  10. ESI Registration Required if you are employing more than 10 employees in your establishment.

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