Learn how to become a small business owner - understand all the legalities


Setting up a small business in India is easier than never before. Find out the general steps involved in setting up your business, and use them as a springboard to make sure that the process is as quick as possible for you.

The economic climate in India at present is very welcoming for startups and small businesses. If you have a great business idea, there is no better time to explore its possibilities than right now. With the Government encouraging entrepreneurship you have only one way to head – and that is ahead.

So, if the prospect interests you this guide will walk you through some of the commonest questions on 'how to do and what to do'. The preliminaries include creating a business plan that works, doing your market research, obtaining funding and generally getting your business model together. Next, come in the legal formalities of setting up your business.



Here is the lowdown on the legalities of starting your own small business in India.

Types of Business Structures in India


Your business may have one of the following structures -

Partnership

A partnership is a business that is run by two or more people, with shared revenue and responsibilities

Sole proprietorship

A business that is run by the business owner is a proprietorship. Most sole proprietorships do not need registration.

LLP (Limited Liability Partnership)

This new corporate structure is an addition to the Companies Act since 2008. It combines the advantages of a partnership with that of sole proprietorship – it is a business run by more than two people with limited individual responsibilities but no liability for the decisions of others.

Private Limited Company

This is a privately owned business by individuals or partners with no more than 50 shareholders. Such a company also cannot have publicly traded shares. This type of business structure has been around for much longer than LLPs and has great recognition in India and around the world.

Public Limited Company

A business under the Companies Act of 1980 that allows public share trading and has the necessary capital is a Public Limited Company.

When you have decided on your business structure, you will need to take the following steps -

Step 1: Obtain a DSC & Incorporate Company


You will need to file for a DSC (Digital Signature Certificate) with any agency that is authorized by the Ministry of Corporate Affairs (MCA).

Next, you will obtain a DIN (Director Identification Number) from the online portal of the MCA. File a company name with the Registrar of Companies. You will need to submit the main objectives of the company for approval as well. You will also need to finalise documents including -

  • An Article of Association describing company conduct rules and procedures
  • Memorandum of association, listing all the parts of the company, the names of first directors and authorised share capital etc.

Register the office address along with letters of declaration and appointments of the board of directors.

Step 2: Pay Fees


The fees and stamp duties involved in the process will depend on the capital investment. This will range from INR 750 to INR 5000.

Step 3: Get the Certificate of Incorporation


In order to get the Certificate of Incorporation from the Registrar of Companies, and you will also have to submit the following -

  • All of the following forms: e-form 1, e-form 18 and e-form 32. These are to be filed electronically
  • Stamped and signed forms of the Articles of Association and Memorandum
  • Letter approving company name, in the original
  • Initial consent of directors
  • Stamped documents of Power of Attorney

Step 4: Income Tax Registration


After incorporation, you have to register with the Income Tax Department. For this, you will need a PAN number and a Tax Account Number (TAN). You can obtain a PAN number with Form 49A and a TAN number with Form 49B. Make sure to also register for VAT number and any other taxes such as service tax or professional tax.

Step 5: Labour Law Procedures


Make sure that the due diligence for labour law compliance are also carried out adequately at your offices. For this, you may need to register with the following -

  • Office of Inspector, Shops and Establishment Act
  • Employees Provident Fund Organization (for businesses with over 20 employees)
  • Employees State Insurance Corporation for employee social security



These are the general steps that apply to setting up a small business in India. However, remember that procedures can vary by state as well.

If you have any questions, leave them in the comment section. Good luck!

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Article by Juana
Juana is a freelance writer, with years of experience, creating content for varied online portals. She holds a degree in English Literature and has worked as a teacher and as a soft skill trainer. An avid reader, she writes on a variety of topics ranging from health, travel, education and personality development.

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