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What are the steps to start a business in India legally?

Starting a business in India is an exciting adventure that needs good planning and following the right legal steps. Here’s a simple guide to help you get started legally, covering important points like picking the right business type, registering and getting licenses, handling taxes, following employment laws, and protecting your ideas and brand.

Choosing the Right Business Structure

The first step in starting a business is choosing its legal structure. This choice affects how the business runs daily, how it's taxed, and the legal responsibilities involved. Here are the main types of business structures in India:

Sole proprietorship: A sole proprietorship is a type of business that is owned and managed by just one person. It is the simplest form of business to start because there are few legal requirements. However, the owner is personally responsible for all of the debts of the business. This means if the business owes money, the personal assets of the owner, like their home or savings, could be used to pay off those debts.
Partnership: In this structure, two or more people own the business together. They share the profits, losses, and responsibilities. A partnership deed is important to outline the role and share of profits of each partner.
Limited Liability Partnership (LLP): A Limited Liability Partnership (LLP) is a business structure that combines features of a partnership and a company:
1. Partnership Features: It operates like a partnership where two or more people work together to run the business.
2. Limited Liability: The personal assets of the partner are protected. This means if the business faces debts or legal issues, the personal belongings of the partners- like their homes or savings are not at risk. So, an LLP allows people to work together in a business while keeping their personal finances safe from business problems.

It needs to be registered with the Ministry of Corporate Affairs (Ministry of Corporate Affairs).

Private Limited Company: A more organised business structure where shareholders have limited liability. It requires at least two directors and shareholders and must be registered with the Ministry of Corporate Affairs (Ministry of Corporate Affairs).
Public Limited Company: Ideal for larger businesses, a public limited company can raise money from the public by issuing shares. It has more rules and reporting requirements than other structures.

Registration and Licensing Requirements

After choosing a business structure, the next step is to register the business and obtain the necessary licences. Here's what needs to be done:

Register the Business Name: A unique name must be selected for the business, and the availability should be checked on the Ministry of Corporate Affairs website. For companies and Limited Liability Partnerships, the name can be reserved during the registration process.
Obtain a Digital Signature Certificate (DSC): This certificate is needed for online registration with the Ministry of Corporate Affairs and is used to sign electronic documents.
Apply for Director Identification Number (DIN): The directors of the company need to get a DIN from the Ministry of Corporate Affairs.
Incorporate the Business: Based on the chosen structure, incorporation documents like the Memorandum of Association (MOA) and Articles of Association (AOA) must be submitted to the Ministry of Corporate Affairs.
Get a Permanent Account Number (PAN): A PAN, which is necessary for tax purposes, can be obtained from the Income Tax Department.
Obtain a Goods and Services Tax (GST) Registration: If the turnover of a business exceeds a certain threshold, GST registration is required.
Apply for Other Licences and Permits: Depending on the business type, additional licences may be needed, such as a trade licence from the local municipal corporation, a Shop and Establishment Act licence, or specific licences like the Food Safety and Standards Authority of India (FSSAI) licence for food-related businesses.

Recently, it was reported that 12 types of Indian spices failed to meet the quality and safety standards set by the Food Safety and Standards Authority of India (FSSAI). This failure is concerning as it affects food safety and consumer health. Businesses dealing with food products should be aware of these standards and ensure their products comply to avoid any legal or health issues.

Compliance with Tax Laws

Tax compliance is an important part of operating a business in India. Here's what businesses need to do:

Income Tax: Every business must file an annual income tax return. The tax rate varies based on the business structure.
GST Compliance: Registered businesses must regularly file GST returns and pay any required taxes.
TDS (Tax Deducted at Source): If a business makes payments above a certain limit, it must deduct tax at the source and send it to the government.
Professional Tax: In some states, businesses must pay professional tax on behalf of their employees.

Employment Laws for Hiring Staff

When hiring employees in India, it is important to follow the employment laws of the country:

Employment Contracts: Create clear contracts that define job roles, responsibilities, salary, and terms of employment.
Minimum Wages Act: Pay employees at least the minimum wage required by law for the state and industry concerned.
Provident Fund (PF) and Employee State Insurance (ESI): Register for PF and ESI if the business has more than the required number of employees. These schemes offer social security benefits.
Workplace Safety: Follow safety regulations to ensure a safe work environment.
Gratuity: If the business has more than 10 employees, gratuity must be paid to those who have worked for more than five years.

Protecting Intellectual Property

Protecting the intellectual property (IP) of a business is important for keeping its brand, products, and innovations safe. Here’s how it can be done:

Trademark Registration: The business should register the name, logo, and any other unique symbols as trademarks to stop others from using them.
Patent Registration: If the business has invented something new or developed a unique process, applying for a patent can help protect these innovations.
Copyright Registration: Copyright covers original works like software, music, literature, and art. Registering these creations ensures the security of the rights of the businesses.
Design Registration: If the business creates unique product designs, registering them can prevent others from using these designs without permission.

Recent Update: Small Business Ideas and Legal Steps in India

According to Forbes, there are several promising small business ideas that can be started in India.

Illustrative image showing a nurturing plant

Here’s a simple guide on how to get started with each idea according to the Indian legal provisions, along with key employee benefits and future employment opportunities:

1. E-commerce Store

Steps: Register the business as a Private Limited Company or LLP, obtain GST registration, and set up a digital payment system. Get any required licences based on the products sold.
Employee Benefits: Provide health insurance, paid leave, and a provident fund (PF).
Future Opportunities: E-commerce can create many jobs in logistics, customer service, and IT support, contributing to India's growing digital economy.

2. Food Delivery Service

Steps: Register the business, obtain an FSSAI license for food safety, and get GST registration. Comply with local municipal regulations for food handling.
Employee Benefits: Offer health insurance, paid leave, and performance bonuses.
Future Opportunities: This sector can generate employment in delivery roles, food preparation, and customer service, supporting the gig economy and providing flexible job options.

3. Fitness Studio

Steps: Register the business, get a trade licence, and follow health and safety regulations. If employing staff, register for PF and ESI.
Employee Benefits: Provide health insurance, paid leave, and wellness programs.
Future Opportunities: Fitness studios can create jobs for trainers, administrative staff, and marketing professionals, encouraging healthier lifestyles across India.

4. Consulting Services

Steps: Register the business as a sole proprietorship or company, obtain GST registration if applicable, and set up a professional service agreement.
Employee Benefits: Offer flexible working hours, health insurance, and professional development opportunities.
Future Opportunities: Consulting services can lead to new job roles in various sectors, establishing a culture of expertise and innovation in India.

5. Home Renovation Business

Steps: Register the business, obtain necessary local permits, and ensure compliance with building regulations. Register for GST, if needed.
Employee Benefits: Provide health insurance, paid leave, and safety equipment.
Future Opportunities: This business can create jobs in construction, design, and project management, addressing the growing demand for home improvement.

6. Digital Marketing Agency

Steps: Register the business, get GST registration, and set up a digital marketing strategy. No specific licenses are required, but ensure compliance with advertising regulations.
Employee Benefits: Offer health insurance, flexible working hours, and skill development programs.
Future Opportunities: With the rise of digital media, this sector can create jobs for content creators, SEO specialists, and social media managers, driving growth in the digital space.

By following these steps and providing good employee benefits, these businesses can thrive and contribute extensively to the job market in India.

Conclusion

Starting a business in India involves a series of legal steps that ensure your business operates smoothly and complies with all regulations. By choosing the right business structure, registering your business, complying with tax and employment laws, and protecting your intellectual property, you can build a solid foundation for your business's success. Proper legal compliance not only protects your business but also establishes the authenticity and helps it grow ethically.

Frequently Asked Questions (FAQs)

1. What is the most common business structure for startups in India?

The Private Limited Company is a popular choice for startups in India due to its limited liability protection, ability to raise funds, and organised structure.

2. How long does it take to register a business in India?

The time to register a business in India varies, but typically it can take anywhere from a few days to a few weeks, depending on the business structure and how quickly the required documents are prepared and submitted.

3. Do I need a specific licence to start an online business in India?

Yes, an online business may require several licences, such as GST registration and possibly an additional licence depending on the nature of the business, like the FSSAI licence for food-related businesses.

4. Is GST registration mandatory for all businesses in India?

GST registration is mandatory if the business's annual turnover exceeds a certain threshold, which varies depending on the type of business and the state it operates in.

5. What employment laws should be followed when hiring staff in India?

Businesses should adhere to employment laws such as the Minimum Wages Act, Provident Fund (PF) and Employee State Insurance (ESI) schemes, and ensure compliance with workplace safety and gratuity requirements.

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Written by Seersha Chaudhuri

Driven legal professional with a BA LLB and a knack for writing and media reporting. Previously, I’ve crafted legal documents and managed court proceedings at Terkiana PC, focusing on immigration law. I’m also brushing up on my Spanish with Duolingo—learning a new language has never been this fun! Eager to blend my expertise in legal research with my passion for global policy and creative writing. Apart from being a professional, I am a full time lover of fish, dystopian fiction and Brooklyn 99.

What are the steps to start a business in India legally?

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