Legal Formalities for Starting a Small Business – Fundamentals To Be Aware Of

    Starting a business in India is not a child’s play. Ranging from financial regulations, law regulations related to employment and tax obligations, there are several aspects that you must consider before starting your business here. Legal startups in India have mushroomed of late and with that the need to abide by the legal formalities for starting a small business in India. 

    Legal requirements apply to startups and those businesses that have already established themselves and are old enough. In this brief article, let us find out the legal formalities for starting a small business in India. 

    Legal requirements for starting a business in India – follow these steps

    Any entrepreneur intending to set up a business in India must ensure that the business model complies with the laws of the land. And one such step is to register the business legally. If you have registered the company, the next step is to select the business or company structure while at the same time looking into the documentation of the same. To start a business, you can choose from among the following types of proprietorship, namely, 

    1. Partnership
    2. Sole Proprietorship
    3. OPC or One Person Company
    4. LLP or Limited Liability Partnership
    5. Private Limited Company
    6. Public Limited Company

    Aside from choosing from among the above business structures, you also need to adhere to other legalities. These steps must be followed for the same-

    • Zeroing on a business name
    • Founder’s agreement – The Founder’s agreement includes details of the founding members, their nature of ownership, their liabilities, responsibilities, and how the dispute would be resolved.
    • Legal licenses and registrations -Acquiring legal licenses and registration is the next step. Registrations can be of different types. 

    General Registrations include-

    • GST registration
    • Permanent Account Number
    • Tax Account Number
    • Bank Account
    • Shop and Establishment License

    Specialized Registrations include-

    • IEC Code for import and export business
    • FSSAI License for doing food business
    • Kosher Registration for dealing in kosher goods
    • Halal Registration for doing business in Halal goods
    • Other License for other types of business
    • Be aware of the relevant tax regimen and how you have to abide by the accounting norms
    • Be acquainted with the labor laws
    • Safeguard IP or Intellectual Property
    • Create a proper business policy
    • Buy business insurance that will suit the need of your new business
    • Plan a wind-up strategy- There are 3 ways in which you can wind up the business, namely, 
    • Voluntary Closure
    • Fast Track Exit Mode
    • Court or Tribunal Route

    Having briefly walked through the procedure, what are the requirements to start a business aside from the procedure mentioned above? There are legal documents that you must be equipped with. The most crucial paperwork and documents you require include-

    • Digital Signature Certificate (DSC)
    • Certificate of Incorporation
    • Director Identification Number (DIN)
    • Registration on the MCA Portal
    • Commencement of Business Certificate

    Aside from the above, you will also require,

    • PAN Number
    • Business Office Address
    • ROC registration
    • Registration of Professional Tax
    • Provident Fund registration
    • ESIC registration

    For startups, the following documents will be required-

    • By Laws
    • Memorandum of Understanding
    • Licensing Agreement
    • Non-Disclosure Agreement

    It is always better to seek professional assistance from a legal professional or firm to unintentionally violate any of the regulations or norms set by the government.

    Also Read: How to Register a Company in India?

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    Daniyel Chatterjee
    Daniyel Chatterjee is a Young Researcher in the field of Data Science & Analytics having research experience of more than 8 years. He has a Masters in Computer Engineering and currently serves as an Editorial Assistant in IGI Global, United States of America. Daniyel also holds honorary positions in the Associate Member of Institute of Research Engineers and Doctors, International Association of Computer Science and Information Technology, International Association of Engineers, Society of Digital Information and Wireless Communications.

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