Legal Aspects When Starting A Business

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Legal Aspects When Starting A Business

‘Never start a business just to make money; but to make a difference’.

Do you want to be your own boss? Are you a leader who can manage people as well as chase your dreams?Starting a business must be on your priority list for quite sometime then. It is almost like building a ship from scratch and preparing to sail. You should own the skills of building as well as sailing a ship. Its an ocean so competitive out there, with unpredictable storms and hurricanes.

So, how do you kickoff your business ?

The first step for starting a new business is to set up a legal entity. In India Legal entities can be registered either with the local city authorities or with the Ministry of Corporate Affairs. The latter is more formal and regulated.

Company Structure

There are several forms of business ownership :

  • Sole Proprietorship or a One Person Company : A one-person business where the owner and business are the same and he pays tax on the entire business income.
  • Partnership : A shared business owned by two or more people and each pays taxes on his share of the business income. Here, the partners would have unlimited liability of the business.
  • LLP : A shared business owned by two or more people but with limited liability ( unlike a partnership firm where liability is unlimited ). All the other conditions remain the same as in partnership.
  • Co-operatives or a society : An organisation owned and operated democratically by its members.
  • Private Limited : A company with shares and can have upto 200 shareholders with limited liability. A shareholder’s personal assets are protected if the company is insolvent.
  • Public Limited : A company with shares and can have unlimited shareholders. The ownership is distributed among the public as well. Typically at later stages, after IPO, Public limited companies can be listed on stock exchanges, a privilege not available in any of the previous company structure.
  • Pay attention to choose the structure that suits you best.

Regulatory Approvals

Depending on your business type and structure, location, business activity, staff employment there are licenses, permits and regulatory requirements. For instance,

  • Non Banking Financial Companies need to be approved by the RBI.
  • Manufacturers/Traders or importers of Defence Equipment businesses need to be approved by the Ministry of Defence.
  • To setup a business in an SEZ Zone, approval of The Regional STPI Office is required.
  • To setup an Educational Institution, clearance from State’s Education Department & the Affiliating university is required.
  • Foreign Investments type of companies need to be approved by FIPB.
  • Some real estate projects require clearance from the National Green Tribunal.
  • Restaurants, Food Chains & the like require Local Body Approval & FSSAI clearance.

Capital and Funds

Funding is the lifeline of all businesses. A startup can seek initial capital or a small business can hunt for opportunities from money-lenders. Either way, Capital and Funds keep the business alive and going.

Here are some funding options :

  • Boot-Strapping
  • Loan from Friends and Family
  • Bank Loans, Advances, Overdraft Facility from Banking Institutions
  • MSME Loans
  • Working Capital / Machinery Loans from institutions such as SIBDI, etc.
  • Funding from Angles, Seed Funds
  • Venture Capital Funding
  • Private Equity Funding
  • Grants from Technical Research Institutions, Ministries, SPV Programs, etc.

The above are just a few examples. So make sure you also get the right licences and registrations for your business to avoid non-compliance or other regulatory hurdles.

We venture into the field of business with dreams, aspirations and fears right?…..There may be good times and bad days. Whatever, each day has to be productive, both for you and the business. The path is bumpy but the ride is definitely worthwhile when cushioned comfortably. So steer your ship sensibly and the shore of success is not far away.

Have your heart in your business and your business in your heart :)

Article Categories:
Accounting · Entrepreneur · Finance