What is a business registration?
Any entrepreneur who wishes to start a business must register the business. Business registration is one process of starting up that you can’t ignore.
So what are your options? You have 1. Private Limited Company 2. Limited Liability Partnership 3. Partnership Firm 4. One Person Company and 5. Sole Proprietorship. Each one has its pros and cons, and you’ve to choose the best structure for you based on your needs, goals and available resources.
When entrepreneur Sameer Mehta started his own digital marketing agency, Exegy Consulting, two years ago there were a number of rudimentary roadblocks and plenty of red tape to cut through to get the business up and running. Here he shares his insights and 8 learnings of the legal aspects involved in starting a business and content strategy to grow the business to 9x organic traffic to help those building a new organisation.
- Determining the best legal structure for your business
- Private Limited Company
A Private limited company has a minimum of 2 members and a maximum of 200 members. Start-ups and growing businesses choose to register a company in India because it allows outside funding to be raised easily, limits the liabilities of its shareholders and enables them to offer employee stock options to attract top talent. As these entities must hold board meetings and file annual returns with the Ministry of Corporate Affairs (MCA), they also tend to be viewed with more credibility than a Limited Liability Partnership (LLP), One Person Company (OPC), or Partnership.
- Limited Liability Partnership
Limited Liability Partnership (LLP), introduced only in 2008, has quickly become a popular legal structure for businesses. Its main improvement over the General Partnership is that, as the name indicates, it limits the liabilities of its partners to their contributions to the business and also offers each partner protection from the negligence, misdeeds or incompetence of the other partners.
- Partnership Firm
A partnership is a business structure in which two or more individuals manage and operate a business under the terms and objectives set out in the partnership deed. This structure is thought to have lost its relevance since the introduction of the limited liability partnership because its partners have unlimited liability, which means they are personally liable for the debts of the business. Registration is optional for partnership. A partnership firm is best for small businesses that plan to remain small. Low costs, ease of setting up and minimal compliance requirements make it a sensible option to such firms.
So which one to go for?
Start-ups and growing businesses go for a Private Limited Company in India because it allows outside funding to be raised easily and even VCs prefer this structure, limits the liabilities of its shareholders and enables them to offer employee stock options to attract top talent. However, if you think you’ll grow slowly in the initial year or want to test the waters, then you can start with a partnership firm, and as and when the need arises, it can be converted into a private limited company.
- Select a business name
An entrepreneur has to give utmost care while selecting the business, especially if it’s also going to be the brand name. You need to check for the domain and trademark availability before you finalize on a name.
Because going forward, you’ll be investing a lot in differentiating your product through branding. Moreover, it will prove too costly to change your name at that stage.
- Free government resources for guiding startups
Indian government through the Startup India initiative is trying to grow the startup ecosystem in the country and has provided a resource page for helping startups in their Startup India website.
- Determine tax obligations
A business has to pay tax on its net profit. A company with a gross turnover of up to 250 cr. in the previous year has to pay a tax of 25% and a company with a gross turnover exceeding 250 cr. in the previous year has to pay a tax of 30% from the current financial year. Plus you have to pay surcharge and health and education cess.
Moreover, once your revenue exceeds Rs.20 lakhs, it’s mandatory to register for GST, also if you make inter-state outward supplies of goods have to register for GST too, and the tax rate varies from 5% to 28% depending on products or services you provide.
- Secure permits and license
One of the compulsory licenses you have to get irrespective of your business is Shops and Establishment Act and Trade license. Every shop and establishment is required to register itself under the Act within 30 days of commencement of work, whether or not it has employees.
Apart from the above, depending on the business you have to get additional licenses like food license and Import Export Code, etc.
- Don’t be in a hurry to get patent
It’s not prudent to spend a large sum of money on filing a patent when you’re still struggling to gain consumer traction and make the business sustainable. The better option will be to go for a provisional patent. As India follows the first-to-file system, this would ensure that the holder of the provisional patent would also be granted the permanent patent, but it has to be filed within 12 months or else the application would be abandoned entirely. This will give you enough to improve your cash flow or get outside funding.
- Hire a legal service
You’ll have so much on your plate when you’re starting your business, and also you may find the entire process complicated, draining away your time and cause stress. So it’s better to hire legal service provider to provide end-to-end guidance on choosing the right entity for your business and handle all the process and paperwork required to set up the business.
- Be updated with your legal permits and registration validity
It’s important to keep your license and registrations updated for the smooth functioning of your business. For example, a trademark has to be renewed every 10 years failing which you’ll lose your right on that trademark and food license is valid for up to 5 years.