What are the legal requirements for starting a business in India? Launching a business in India presents a thrilling opportunity for entrepreneurs around the globe, including for overseas companies and foreign nationals as India offers a vibrant market teeming with potential due to its diverse consumer base and robust economic growth. However, entrepreneurs must navigate a comprehensive set of rules and procedures to legally establish their business presence.
The process begins with selecting the appropriate business structure, each with specific legal and fiscal implications. Critical steps include registering with the Ministry of Corporate Affairs (MCA), obtaining necessary tax registrations like the Permanent Account Number (PAN) and Goods and Services Tax (GST) identification and complying with the Foreign Exchange Management Act (FEMA) for transactions involving inflow or outflow of foreign exchange.
Other intricacies related to starting a business in India include navigating intellectual property laws, employment regulations and environmental guidelines.
Legal Requirements To Start A Business In India
In this article, we will discuss the various forms of entities available for starting a business in India.
1. Sole Proprietorship [1]
For starting a business in India, a Sole Proprietorship stands out as the simplest form of business ownership. It allows an individual to operate a business solely, providing full control and minimal regulatory burdens.
Documents Required | 1. PAN and Aadhar card of the proprietor 2. Address proof 3. Bank account in the name of the business |
Registration Process | Although sole proprietorships in India do not require any formal registration, it is important to consider acquiring relevant licenses or permits, depending on their business type to ensure smooth and compliant operations. 1. You can get yourself registered as a Micro, Small and Medium Enterprise (MSME) under the MSME Act. The application can be filed electronically. 2. You will need to get yourself registered under GST if your annual turnover is more than Rs. 40 lakh or Rs. 20 lakhs, as applicable. 3. Depending on your business location, register under your State’s Shops and Establishment Act to follow local labour regulations |
2. One-Person Company [2]
A One-Person Company (OPC) in India is a distinct legal entity where a single individual can establish a business with limited liability. It combines the benefits of a sole proprietorship and a private company, offering limited liability protection while allowing single ownership.
Documents Required | 1. Memorandum of Association (MoA) 2. Articles of Association (AoA) 3. The nominee’s consent, along with their PAN card and Aadhaar card, must be submitted via Form INC-3. 4. Proof of registered office 5. The proposed director should furnish a declaration in Form INC-9 and their consent in Form DIR-2. 6. A declaration by a qualified professional certifying that all necessary legal compliances have been adhered to. |
Registration Process | 1. Obtain a Digital Signature Certificate (DSC) 2. Obtain Director Identification Number (DIN) 3. Reserve a name for the company 4. Prepare MOA and AOA 5. Attach the relevant documents i.e., SPICe+ form, including MOA, AOA, declarations, proof of the registered office, nominee appointment and other documents as required by the MCA. 6. The Registrar of Company (ROC) will issue a certificate of incorporation, signifying the successful registration of One Person Company. |
3. Private Limited Company [3]
When starting a business in India, opting for a Private Limited Company structure is a strategic choice. This entity is recognized as a separate legal entity, offering limited liability protection to its shareholders. It is preferred by many entrepreneurs due to its credibility and easier access to funding.
Documents Required | 1. Self-attested PAN card copy, a passport-sized photo, Aadhaar card, proof of identity and address proof of Indian nationals for directorship. 2. Notarized documents, passport-sized photo, passport and address proof of foreign nationals. 3. Proof of business address, copy of the rent agreement (if applicable), and owner’s no objection certificate. |
Registration Process | 1. Acquire a Digital Signature Certificate (DSC) 2. Director Identification Number (DIN) 3. Name reservation for the company in form SPICe+ Part A 4. Submission of company details in form SPICe+ Part B 5. Preparation and submission of incorporation forms (SPICe+ MOA and AOA) 6. Upon successful document verification, the ROC will issue the Certificate of Incorporation |
4. Public Limited Company[4]
A Public Limited Company in India is a publicly traded entity with shares available for public investment. It offers significant access to capital through the stock market but has stricter compliance and reporting obligations.
Documents Required | 1. Proof of identity of all the shareholders and directors. 2. Proof of address of all the directors and the shareholders. 3. PAN number of all the shareholders and directors. 4. Utility bill of the proposed registered office for the company. 5. A NOC (No Objection Certificate) from the landlord where the office of the company will be situated. 6. Director Identification Number (DIN) of all the directors. 7. Digital Signature Certificate (DSC) of the directors. 8. Memorandum of Association (MOA). 9. Articles of Association (AOA) |
Registration Process | 1. Digital Signature Certificate (DSC) 2. Director Identification Number (DIN) 3. Registration on the MCA Portal 4. After the application is verified, the ROC will issue the certificate of incorporation of the Public Limited Company. |
5. Limited Liability Partnership (LLP) [5]
Limited Liability Partnership, represents a distinct business structure that amalgamates elements of both partnerships and corporations. Within an LLP, partners benefit from limited liability similar to shareholders in a corporation, while still enjoying the flexibility and simplicity inherent in a partnership.
Documents Required | 1. PAN Card/ID proof of partners 2. Residence proof of partners 3. Passport-size photograph of partners 4. Passport and proof of address by foreign partner 5. Proof of registered office address 6. Digital Signature Certificate (DSC) |
Registration Process | 1. Obtain a Digital Signature Certificate (DSC) 2. Obtain Director Identification Number (DIN) 3. Choose a name for the LLP 4. Form for incorporation of LLP (FiLLiP): It includes a declaration from partners consenting to act as designated partners and comply with LLP regulations. 5. Draft LLP agreement 6. Once forms and documents are filed and verified, the RoC will issue the certificate of incorporation 7. Apply for PAN and TAN |
6. Partnership Firm [6]
A Partnership Firm is a business structure where two or more individuals join forces to run a venture together. Partners share profits, losses, and responsibilities. It’s easy to set up and offers flexibility in decision-making. However, partners are personally liable for debts, making careful agreements and trust crucial for success in this collaborative business model.
Documents Required | 1. PAN and Aadhar card of designated partners and address proof 2. Partnership deed |
Registration Process | 1. Obtain a Digital Signature Certificate (DSC) 2. Obtain a Designated Partner Identification Number (DPIN) 3. Choose a name for the partnership firm 4. Draft the partnership deed 5. If the Registrar is satisfied with the application, a Certificate of Registration will be issued to confirm the partnership firm’s registration. 6. Apply for PAN and TAN |
7. Section 8 Company or Non-profit Company [7]
A Section 8 Company, under the Companies Act, is a non-profit organization formed to promote social welfare, charity, or other noble causes. It doesn’t distribute dividends to members and enjoys tax benefits. Its primary objective is social betterment, making it a preferred choice for NGOs, foundations and charitable entities in India.
Documents Required | 1. Articles of Association (AOA) and Memorandum of Association (MOA) 2. Declaration by the first director(s) and subscriber(s), (no need for an affidavit) 3. Proof of office address, such as utility bills (e.g., electricity, water, gas) 4. Copy of the certificate of incorporation (COI) for overseas corporate bodies, if applicable 5. The resolution passed by the promoter company 6. Consent of Nominee (INC-3) 7. Residential and identity proof of nominees and subscribers 8. Applicant’s identity and residential proof 9. Digital Signature Certificate (DSC) 10. Declaration of unregistered companies |
Registration Process | 1. Obtain a Digital Signature Certificate (DSC) 2. Obtain the Director Identification Number (DIN) 3. Reserve the company name in form INC-1 4. After the company name is approved, the next step is to apply for Section 8 Company incorporation in form INC-32 5. Once the application for incorporation is approved, the next step is to obtain a license for the Section 8 Company in form INC-12 6. After obtaining the license, the MCA issues a Certificate of Incorporation in Form INC-16. |
Final Thoughts
Legal requirements for setting up a business in India involve navigating through various legal steps and requirements, each crucial for establishing a compliant and successful enterprise. From selecting the appropriate business structure to obtaining necessary licenses and registrations, entrepreneurs must meticulously adhere to legal requirements for setting up a business in India. By prioritizing compliance, entrepreneurs can establish a solid foundation for their ventures, mitigating legal risks and paving the way for long-term success.
Secure Your Business’s Future in India with Expert Legal Guidance
Legal requirements for establishing a business often be complex, but with Burgeon Law’s expertise, entrepreneurs can navigate these challenges with confidence. Our team of seasoned legal professionals specializes in guiding businesses through every step of the setup process, from entity selection to registration, licensing and ongoing compliance. Visit our “Setting up in India” service page for more information and to schedule a consultation with our experienced team. Let us help turn your business aspirations into reality while ensuring legal requirements for establishing a business and success in the vibrant Indian business landscape.
FAQs
1. What is the first legal step in starting a business in India?
The first legal step in starting a business in India is typically the registration of the company or entity. This involves deciding on the appropriate legal structure for the business, such as a sole proprietorship, partnership, limited liability partnership (LLP) or private or public limited company. Once the legal structure is determined, the business needs to be registered with the relevant government authorities according to the legal requirements for starting a business in India.
2. How important is choosing the right business structure in India?
Choosing the right business structure in India is crucial due to its impact on legal compliance, liability protection, tax implications, growth opportunities and operational flexibility. Each structure comes with its own set of advantages and considerations, making it essential to select one that aligns with the business’s goals and requirements. Professional advice can help navigate these complexities and ensure the legal requirements for starting a business in India
3. What licenses are essential for a startup in India?
Licenses are essential for a startup in India but it depends upon the type of business entity, it varies on the type of business you are going to establish.
Business Registration: Registering the business entity with the appropriate government authorities, such as the Ministry of Corporate Affairs (for companies) or state-specific authorities.
GST Registration: Goods and Services Tax (GST) registration is mandatory for businesses involved in the sale of goods or services with a turnover above the prescribed threshold.
Shop and Establishment Act License: The Shops and Establishment Act License is required to be obtained according to the local laws only if necessary. It is issued on the basis of the business and the number of employees.
Registering as SME: Sole proprietors can get themselves registered as a Micro, Small and Medium Enterprise (MSME) under the MSME Act.
4. Can Burgeon Law assist with industry-specific licenses?
Yes, Burgeon Law can assist with industry-specific licenses. Our firm specializes in providing comprehensive legal services tailored to the specific needs of businesses across various industries. We understand that different sectors have unique regulatory requirements and licensing obligations.
Our team of legal experts is well-versed in navigating the intricacies of industry-specific regulations and can assist businesses in identifying the licenses and permits required for their operations. Whether it’s obtaining licenses related to healthcare, manufacturing or any other sector, we provide guidance and support throughout the licensing process.
5. What common legal pitfalls should startups in India avoid?
Startups in India should be aware of several common legal pitfalls to avoid potential setbacks and legal complications. Here are some key ones:
- Intellectual Property Infringement
- Improper Business Structuring
- Contractual Disputes
- Employment Law Compliance
- Data Privacy and Security
- Regulatory Compliance
- Investor Agreements
- Failure to Protect Confidential Information
