Legal Requirements for Starting a Business in India

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Starting a business legally is very crucial. You must do all the legal paperwork perfectly so that the flow of business is not disturbed. If you want to start a business but have no idea of any legal works needed, do not worry. We are here to familiarize you with all the legal terms and the complete information of legal requirements for starting a new business in India.

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Type of Business Incorporation

Incorporating your business entity is the first step towards starting a new business. You must know what kind of business you want to do before doing incorporation as all have their own set of rules and regulations. Below are the common types of business incorporations in India:

 

1. Sole Proprietorship Company

This is the simplest form of all business incorporations- a single person runs the business and he/she alone is responsible for all the incomes, losses and debts. It’s extremely simple to start and requires lesser documentation as compared to other incorporations.  The major disadvantage is that the proprietor’s liability is unlimited- if the business runs into a financial crisis and the debts stay unpaid, then only the sole proprietor will be held responsible for this.

 

2. Partnership Company

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This is the type of company is operated by more than one individuals. The work and profit are divided among all the partners. The decisions to be taken for the company must be discussed with all the partners only then it can be passed. The shares can never be transferred in the favor of others without the consent of other partners.

 

3. Limited Liability Partnership

As the name suggests it is the kind of partnership where there are limited liabilities to all the partners. Even in this kind of incorporation, a minimum of 2 members or partners is required.

 

4. Private Limited Company

Private Limited Company consists of multiple shareholders. The total capital of the entity is made up of several shares. The people who own the shares of the company become the owners. The shares can be sold/transferred to another individual who in turn becomes the owner of the company. The major benefit of this type of incorporation is that if the company suffers a financial crisis then the shareholders would not have any risk to lose their asset, as the financial liabilities of the shareholders are limited to their shares.

 

5. One Person Company

This is a fairly new type of business incorporation mainly launched to help entrepreneurs, like you who want to start a venture themselves without any partner. OPC comes with a lot of advantages, the biggest being that there is a requirement of only one member in an OPC, while other types of incorporations require a minimum of 2 members. Another major advantage is that OPC is a separate legal entity and offers liability protection to its shareholders.

 

Registration of Company Name

Legal Requirements for Starting a Business

With the advancement of technology, registering a company has been easier. You can complete most of the formalities online. You first need to select the type of incorporation you want to go ahead with that. Depending on that you need to go ahead with the procedures.

Registration of company name can be done on MCA (Ministry of Corporate Affairs) website. You need to fill a few forms to register your company name and get approval. In case you do not have the necessary knowledge, it’s recommended that you take help from an expert like a chartered accountant.

 

Documents Required for Starting a Business

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Below are some of the common documents which are required while registering a company in India.

  • Identity Proof of all the directors/partners/owners involved in business
  • Address Proof of all the directors/partners/owners involved in business
  • PAN No. of all the directors/partners/owners involved in business
  • Shop & Establishment License
  • Address Proof of your business establishment

The exact documents might vary depending on the type of business incorporation you are planning to do.

 

Register for VAT/Sales Tax

Registering for Value Added Service or VAT is mandatory for business trading and manufacturing goods in India. For every state, there are set rules based on what business you are doing and the VAT applicable for that service. The VAT is collected the state government.

  • To register for VAT you can visit your respective state’s tax website and fill up the eForm.
  • Once the form has been submitted properly it will go through thorough processing by the Officials of the Tax
  • On completion of the processing, the Tax department will issue a VAT registration for your business. They will provide you with an 11-digit code which will serve you as the VAT Identity Number.

 

Apply for TAN

TAN stands for Tax deduction and Collection Account Number. Every assessee who is accountable to deduct TDS must apply for a TAN number. TDS is a system devised by the Tax department; it stands for Tax Deducted at Source. A person who is responsible for making payments such as salary, commission, rent etc. is liable to deduct a percentage of the amount before making the payment. The deducted amount is deposited directly to the government.

One can apply for TAN number online at respective state’s Income Tax website, after making a payment of requisitive fees online or by cheque.

 

Find State Specific Guidelines & Procedures

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Every single state has their own set of guidelines and procedures to set up a business legally. You must abide by those rules set up by your state properly to reduce future hassles. For a better understanding of the rules & guidelines prevalent in your city, contact a consultant or an official or a chartered accountant.

 

Open a Current Account in a Bank

A current account is generally opened by business organizations to carry out business transactions. A current bank account will allow you to carry out huge transactions with no interests. Yes, there will be no added interest in your current bank account. Thus, most banks provide you with numerous additional benefits on opening a current bank account. The biggest advantage with a current account is you can overdraw money, i.e. you can withdraw a sum of money greater than your current balance. The bank might or might not impose interest on that extra money. Other benefits might include free IMPS/NEFT/RTGS, DD’s, unlimited cheque withdrawals, etc.

 

Register for Service Tax

If you are providing a service by doing a business then it is mandatory for you to apply for service tax registration. Service tax is to be paid only if the value of services rendered is more than 9 lakh in the previous financial year. The service tax is imposed by the government on the service provider. The tax is actually paid by the service receiver to the service provider, who in turn pays the sum to the government.

 

Obtain Digital Signature Certificate

For the authenticity of all the electronic documents to be submitted, you need a valid digital signature. The digital signature must only be acquired from agencies that are authorized by the controller of certification agencies, any other means will be considered illegal. There are three classes of Digital Signature Certificate- of which the Class III is most secure and used to verify the identity of the signer.

Apply for your Digital signature to authorized organizations online and provide them with all necessary documents.

 

Copyright and Trademark

In today’s markets, it is very important to distinguish your brand from yours. Registering your trademark is one of the best ways to make your company name unique. Once your trademark is obtained, you can utilize it for 10 years. Once you register your trademark name, no one can use that, it’s your property.

Filing for a trademark is quite easier these days, you can fill it just by sitting at your home.

You can protect your services and products by a copyright policy. Once you copyright your products and works no one can reproduce or copy your work. Registering for copyright is also quite easy and can be done from home.

 

Rental Agreement

If you are setting up the business on someone else’s property, you must do it legally. The rental agreement is a contract where you agree to pay a rent to the owner of the property monthly or annually. Signing this agreement transfers the right to use the property to you.

 

Create a Stamp with Your Company Name

You have your Digital Signature Certificate to authenticate your electronic documents, but for paper and pen work you need a stamp. There are many online merchants who provide such service; you must contain all the legal documents needed for manufacturing the stamp with the company name.

 

Compliance Under Labour Laws in India

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The Labour Law deals with the relationship between the employees, the employers, and the government. Individual Labour Laws are concerned with the employee’s right to work through the contract of work. The contract is signed between the worker and the employer. There are set rules by the government of India. If the employer fails to comply with the laws, the government can interfere and place penalties.

 

Conclusion

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Starting a business is a cumbersome procedure, but if done properly, it reduces the risk of running into future problems. The processes are being made more and more simple and the introduction of GST in India will help increase the ease of doing business. You must start a business legally and pay all the necessary taxes. We hope this article helps you with setting up your new business. For further queries, you can post your question in the comment box below.

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