How to start a business in India step by step?
Various types of business entities can be established in India. We will try to explain the process step by step.
One first needs to decide on the type of business entity. Then register it accordingly as per the corresponding provisions. The details are explained as follows.
Types of business entities
- Proprietorship is one of the simplest forms of business entity to register and maintain in India. There is no formal proprietorship registration. To start a proprietorship only a PAN number for the Proprietor is required and a bank account in the name of the proprietorship.
- Partnership: The objective of a partnership firm is to pull together people so that more capital, skills, etc. can be brought together. At least two members are required to start a partnership business. To register the partnership deed can be prepared through the notary.
- Limited Liability Partnership (LLP) is a body corporate and a separate legal entity from its partners. One partner is not responsible or liable for another partner’s misconduct or negligence. LLP is governed by the provisions of the LLP Act 2008
- Limited Company similar to LLP is a body corporate and a separate legal entity from its directors. The difference between an LLP and a limited company lies in that the internal governance structure is governed by different statutes. Limited Company is governed by the provisions of the Companies Act 2013
- OPC is similar to a Limited Company. Only 1 person is required who can be a shareholder as well as the Director of the company. A new concept in India which has been introduced by the Companies act 2013
- A registered society is managed by a governing body answerable to each other. The donors and the Registrar of Societies are informed on decisions made by the governing body. It is registered under Societies Registration Act 1860.
- Trust enables the transfer of ownership from the first person to a second person for the benefit of a third person. It is governed by a board of Trustees. Private trusts are registered under the Indian Trusts Act 1882. Charitable public Trusts do not have a national law and are governed by state enactments
- Hindu Undivided Family (HUF) consists of persons lineally descendant from a common ancestor. HUF is governed by the provisions of Hindu Law. A business entity can be registered as a HUF as well.
One needs to identify what nature of the business the firm registered in step 1 would conduct. Broadly speaking one can be either of the following:
A manufacturer has a unit that takes in raw materials and processes them to create finished goods. As per the Foreign Trade Policy “Manufacture” includes processes such as refrigeration, re-packing, polishing, labeling, re-conditioning, repair, remaking, refurbishing, testing, calibration, re-engineering.
For manufacturers, the moment your turnover crosses a given threshold, you have to pay Excise tax before the goods can leave the factory gate. For the sake of paying excise duty, a Central Excise Registration Certificate has to be obtained.
Merchants do not have their own manufacturing, unlike a manufacturer. Rather a merchant buys goods from one person and sells it to another in India or abroad. An entity can export a good irrespective of whether it is a merchant or manufacturer.
Services provider provides intangibles like IT, BPO service, etc. The moment the turnover for providing services goes above a given threshold it is taxable. For the sake of paying service tax, a service tax registration certificate has to be obtained.
Value Added Tax (VAT) Registration is a tax registration required for businesses trading or manufacturing goods in India. VAT is collected and governed by the State Government. VAT Registration is mandatory if turnover is above 5/10 lakhs depending on the state.
To summarize, one first has to get the business entity registered under the specific rules. Thereafter, depending on the type of business & turnover, one has to check whether they are required to get their excise, service tax, and VAT registration is done. Typically, small entrants would not require Excise and Service tax registration, while VAT registration would depend on the state laws.
The following information is for educational purposes only. For detailed procedure, you should refer to the Foreign Trade policy and the Handbook of Procedures available on dgft.gov.in