Start a Business in India

Starting any business, even at early stage start up, carries with it various obligations and risks, including legal and tax risk.

How to Start a Business in India

Starting any business, even at an early stage startup needs a lot of courage and carries with it various obligations and risks, including legal and tax risk. How to start a business in India is the dilemma of many entrepreneurs out there. There is many aspects of starting a business in India as such-

  1. Idea and Market Research
  2. Financial Planning and Funding
  3. Legal Formalities and Business Registration
  4. Marketing and Branding

We assume that you have that one big idea, explored opportunity in the market, and have funds to start a business in India, therefore in this article, we will discuss only legal formalities and business registration aspect on how to start a business in India.

 Starting a business in India - Legal Aspect

As an entrepreneur, there are some risks that you may be prepared to take on board as a matter of business risk. However many founder are do away with legal and tax compliance at an early stage. It is very important to acknowledge that in the long-term, no business will want to work with us if we aren’t compliant. Nobody will want to invest in us if we don’t abide by the macro- and micro-regulations that control our industry. Compliance and its importance are often overlooked by many start-ups new to the business ecosystem simply because they are not aware of the existing laws. Ignorance may not be bliss in such cases as it affects a start-up's viability and attractiveness to a potential investor.

Business registration is the first step to meeting legislative guidelines for starting a business in India, followed by other requirements that have to be complied with to avoid any scrutiny from regulatory bodies after the incorporation.

Start a business in India - Business Registration

Govt of India has specified various types of business registration to start a business in India. You can consider registering among any type depending on the need and long term goals of your company.

There are different types of entity and business structure for Business registration in India. We will discuss briefly the different structures of a business entity.

  1. Private Limited Company: Private Limited Company is the most commonly used form to start a business in India. In this form of business, business assets and liability are that of Company and founders (shareholders) personal assets and liabilities are separate. This protects founders from any loss and liability arising out of business failure etc, thus most suitable for starting a business.
  2. Partnership Firm: Partnership firm is one of the oldest form of starting a business and not commonly used nowadays. In this type of entity business assets and liabilities of partnership firm and founders (partners) are the same. Registering a Partnership firm is easy and carries low compliance in comparison to a Private limited company. This is a type of business entity that is mainly used earlier when registration of private limited is very cumbersome and costly. In our view, this is not a recommended form of a business entity if you are aiming for a scaleable business.
  3. Limited Liability Partnership: As the name suggests, govt introduced this type of entity in 2008 to cover the shortcoming of Partnership firm. In this type of business entity, the liability of founders (partners) is not unlimited and limited to certain aspects.
  4. Sole Proprietorship: This is the most common form of business entity in India by small business owners. This type of entity is very quick to start and mainly used in unorganized sectors by solo founders. In this form business registration, you can start your business in your name. In this type, you (founder) and your business in same, thus business loss and liability are that you. Instead of a sole proprietorship, one should consider opting One person company.
  5. One Person Company: As the name suggested, this type of company is most suitable for solo founders. It covers founder from business loss and risk and eliminates shortcomings of a sole proprietorship.

In nutshell, it is recommended to register for a Private limited company if there is more than 1 founder and One person company in the case of a solo founder. Even if you are not sure what kind of entity you should register, you may leave a comment below this article.

Start a Business - Accounting and Book Keeping

At the start of business, many a time founder considering not to hire full-time accountant, but matter what size of your business, you should not consider putting off accounting for your income and expenses for a later date. Accounting is very important for a legal and taxation point of view as well as it is essential that you are aware of your business's financial health on a real-time basis. For more details on this read our this article.

Many new businesses or start-ups do not have the capital outlay required for buying accounting software and accountant, therefore ending up maintaining their accounting in an unorganized manner. Take note that no matter what circumstances you are going through but keeping your accounting records in a true and fair manner will help you gain confidence in your investors.

Although doing your own bookkeeping can save you money, you need to consider whether you are capable of and confident doing your own accounting. The most important part when it comes to doing your own bookkeeping is being organized and cover all transaction, expense or revenue item. Set aside a small amount of time every day to make sure your accounts are recorded.

You should consider buying a dedicated accounting package for your business. Quick Books Online, is one such software that is easy to learn and quick to operate.

Start a Business in India - Tax and Compliance

If you start counting, there are innumerable compliance needed, but to make it easier, here is a compact list of mandatory compliances with which every business need to comply.

You need to be sure that you have obtained applicable tax registration and that you understand what filings and other compliance are required. Below appended is Relevant tax compliance every business need to understand - 

Good and Service Tax : GST registration is mandatory as per relevant rules. In GST, there is monthly, Quarterly, and Annual Compliance for return filing and tax deposition. We have a dedicated section for understanding relevant GST rules for business in India.

Income Tax : Every business needs to pay income tax on business profits at applicable rates. Income tax is payable on a quarterly basis as advance Tax and followed by year-end audit and annual return.

TDS compliance : TDS on salaries of employees and other payments to vendors/suppliers is needed to comply with day one. Every company needs to deduct TDS from salaries and shall deposit TDS to Govt by the 7th of next month. 

A broad discussion of compliance is beyond the scope of this blog. Also, start-ups' compliance needs will vary based on the nature of their businesses and where they are located. We try to cover selective legal aspects and business registration to start a business in India. 

If you have any questions or comments, feel free to contact.

 Educate yourself, and make sure that you obtain appropriate advice.

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