Starting a new business is an exciting venture, but it also involves careful planning and legal formalities, especially in a diverse and complex market like India. From choosing the right business structure to ensuring compliance with regulatory requirements, there are several steps you need to take to build a strong foundation for your business. Here are five crucial things to do when starting a new business in India.
1. Choose the Right Business Structure
The first and most critical decision is selecting the appropriate business structure, as it will determine your legal obligations, taxation, and liability. The main options in India are:
• Sole Proprietorship: Best for individuals wanting full control with minimal compliance.
• Partnership Firm: Suitable for businesses with two or more owners.
• Limited Liability Partnership (LLP): Offers limited liability protection and is ideal for professional services firms.
• Private Limited Company: Perfect for startups looking to scale and attract investors, with limited liability and tax benefits.
Choosing the right structure will affect how your business grows, so evaluate your long-term goals before making this decision.
2. Register Your Business
Once you’ve decided on the business structure, the next step is to register it with the relevant authorities. Here’s a quick guide:
• Sole Proprietorship: No formal registration is needed; however, obtaining a GST registration or a trade license may be necessary based on your business type.
• Partnership/LLP: Register your partnership firm or LLP with the Registrar of Firms.
• Private Limited Company: Register your company with the Ministry of Corporate Affairs (MCA) and acquire a Corporate Identification Number (CIN).
Ensure that you have your Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) as part of the registration process.
3. Obtain Mandatory Licenses and Permits
Depending on the industry and location of your business, you may need specific licenses and permits to operate legally in India. Some common licenses include:
• Goods and Services Tax (GST) Registration: Mandatory if your business’s turnover exceeds ₹40 lakhs (₹20 lakhs for certain states).
• Shop and Establishment Act License: Required if you’re setting up a shop or office.
• FSSAI License: Necessary if you are involved in food-related businesses.
• Import Export Code (IEC): Essential for businesses engaged in international trade.
It’s important to identify the industry-specific permits and comply with both central and state regulations to avoid legal issues.
4. Open a Business Bank Account
Opening a business bank account is crucial for separating your personal and business finances. It helps in better accounting and gives your business a professional image. Most banks in India offer business accounts tailored to different types of businesses, whether you’re a startup, sole proprietor, or a company. To open a business account, you will need:
• Proof of business registration
• Identity and address proof of the owner(s)
• PAN and TAN of the business
• Relevant business licenses
Having a dedicated business account also simplifies tax filing and ensures transparency in your financial dealings.
5. Set Up Accounting and Compliance Systems
Managing finances effectively is key to running a successful business. Set up an accounting system that tracks expenses, income, and cash flow right from the start. You can either hire an accountant or use accounting software that is GST-compliant and suited for Indian regulations.
Apart from financial management, you also need to stay compliant with legal obligations. This includes:
• Filing GST returns (if applicable)
• Annual ROC filings (for companies)
• Income tax returns
• ESI and PF contributions for employee benefits (if applicable)
Failure to comply with these obligations can lead to hefty fines, so consider working with a legal or financial advisor to manage these aspects smoothly.
Starting a new business in India requires careful planning and strict adherence to legal and financial regulations. By choosing the right business structure, registering your business, obtaining the necessary licenses, opening a business bank account, and setting up accounting systems, you’ll lay a strong foundation for your venture. Each step ensures that you’re prepared for growth while staying compliant with India’s business laws. With these essential steps in place, you’re ready to embark on your entrepreneurial journey with confidence!