Introduction

Establishing a business in India involves navigating through several steps and documentation, varying based on the chosen business entity and industry. This write-up highlights the essential legal requirements for setting up different forms of business in India. However, staying updated with the ever-evolving legal landscape is crucial for entrepreneurs and investors alike. Taxation books play a pivotal role in this aspect, providing comprehensive insights into the latest tax laws, regulations, and compliance requirements. As an essential resource for professionals and businesses, taxation books ensure that individuals remain informed and equipped to navigate the complexities of taxation effectively. Let’s delve into the legal requirements of setting up a business in India.

Basic Requirements of setting up business in India

Setting up a business in India involves several steps and requires various documents. The specific requirements may vary based on the type of business entity one plans to establish (sole proprietorship, partnership, private limited company, limited liability partnership etc.) and the industry. However, certain common legal requirements are often needed. The basic legal requirements for setting up any form of business in India are as follows:

1.1 Choosing of the form of business

The initial and foremost decision in starting a business involves selecting the business structure (i.e. Company, firm, LLP etc.). The first and foremost step is to choose the form of the business. When it comes to business structure, individuals should wisely choose their business structure as it allows the venture to operate efficiently and reach the desired targets and profitability. The list of forms of business is as under

Sole Proprietorship	§ A form of business wherein one person owns all the business assets.§ No legal formalities are required to create a sole proprietorship other than an appropriate licensing to conduct a business and registration of a business name if it differs from that sole proprietorship.§ The owner reports income/loss from this business along with is personal income tax return.
Partnership Firm	§ Partnership firms in India are governed by the Indian Partnership Act, 1932.§ Partnership firms are created by drafting a partnership deed among the partners. The partnership deed is registered to make a firm.§ Section 464 of the Companies Act, 2013 empowers the Central Government to prescribe maximum number of partners in a firm but the number of partners so prescribed cannot be more than 100. The Central Government has prescribed a maximum number of partners in a firm to be 50 vide Rule 10 of the Companies (Miscellaneous) Rules, 2014. Thus, in effect, a partnership firm cannot have more than 50 members.
Hindu Undivided Family (HUF)	§ HUF is taxed separately from its members.§ One can save taxes by creating a family unit and pooling in assets to form a HUF.§ HUF has its own PAN and files tax returns independently of its members.

Limited Liability Partnership (LLP)	§ LLP is an alternate corporate business entity that provides the benefits of limited liability of a company but allows its members the flexibility of organizing their internal management based on a mutually-arrived agreement as is the case in a partnership firm introduced in India by way of Limited Liability Partnership Act, 2008.
Co-operative Society	§ A cooperative organization is an association of persons (usually of limited means) who have voluntarily joined together to achieve a common economic end through the formation of a democratically controlled organization making equitable distributions to the capital required and accepting a fair share of risk and benefits of the undertaking.
Section 8 Company	§ Section 8 company is a company established for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment or any such other object provided the profits (if any) or other income is applied for promoting only the objects of the company.§ No dividend is paid to its members Section 8 Companies are registered under the Companies Act, 2013.
One Person Company	An OPC means a company with:§ only 1 person as a member§ Shareholder can make only 1 nominee who shall become a shareholder in case of death/incapacity of original stakeholder.
Private Company	Private company is a company which has the following characteristics:§ Shareholders right to transfer shares is restricted.§ Minimum number of 2 members in company.§ Number of shareholders is limited to 200.§ An invitation to the public to subscribe to any shares or debentures or any type of security is prohibited.
Public Company	A public company is a company which has the following characteristics:§ Shareholders’ right to transfer shares; is not restricted.§ Minimum 7 members.§ An invitation to the public to subscribe to any shares or debentures or any type of security is permitted.

1.2. Choosing a business name

After determining the business structure that aligns with your objectives, the next crucial step is selecting a business name that signifies your business’s ideology or Trademark. It is important to ensure that any other entity does not already claim the chosen name.

1.3. KYC and Address Proof

Before setting up any form of business one needs to arrange the identification and address proof of the individuals/Corporates who want to set up a business. Generally, the following proofs are required:

(a) Individuals’ Passport,

(b) Aadhar card,

(c) Voter ID, or

(d) driver’s license

(e) Certificate of Incorporation, (in the case of a company)

(f) Memorandum of Association (MoA), and Articles of Association (AoA), (in case of a company)

1.4. Applying for various Licenses and Permits

Industry-specific licenses and permits may be required depending on the nature of the business (e.g., FSSAI license for food business, trade license, etc.)

1.5. Apply for Trademark Registration

Trademark registration is a crucial legal step for businesses seeking to safeguard their brand identity and intellectual property. The process involves registering a unique symbol, logo, word, or combination of these elements that distinguish a company’s goods or services from those of others.

1.6. Obtaining various Tax Registration

Businesses in India must comply with various tax registration requirements. Generally following tax registrations are to be obtained:

(a) Goods and Services Tax (GST) registration for entities exceeding a specified turnover

(b) Obtaining the unique Income Tax Permanent Account Number (PAN)

(c) Securing the Tax Deduction and Collection Account Number (TAN) for those deducting or collecting tax at the source

(d) State-mandated Professional Tax registration

1.7. Other Misc. Registrations & Licences

(a) Importers/exporters need an Importer-Exporter Code (IEC)

(b) Employee Provident Fund (EPF)

(c) Employee State Insurance (ESI) registrations

(d) Shop & Establishment

(e) FSSAI Licence ( in a case where business relates to foods and beverages)

(f) Licences for Sale of Drugs (if case of manufacture & sale of Drugs & Cosmetics)

(g) Environmental clearance (necessary for the industries that may have an environmental impact

(h) Fire Department Clearance (to ensure safety compliance with fire safety norms)

(i) Factory License

(j) Contract Labour license

(k) MSME UDHYAM Registration

1.8. Opening of a Bank Account

Having a business bank account is imperative for conducting all financial transactions associated with your business. This practice helps maintain a clear separation between personal and business transactions. Before selecting a bank for account opening, it is crucial to assess specific details, including the availability of a bank overdraft facility, the limit on free cheques, loan options, and letter of credit facilities, among other factors.

2. Legal Requirements depending on the form of business

The legal requirement also varies depending on the form of business one chooses to set up. The most popular forms of business are as under

(a) Company (Private or Public)

(b) Limited Liability Partnership Firm (LLP)

(c) Partnership Firm

(d) Sole Proprietorship

(e) HUF

3. Legal Requirement for Setting up of a Company

Setting up of business in the form of a company (Public or Private) is governed by the provisions of the Companies Act, 2013. The following factors are to be considered while setting up the business in the form of a Company:

S.No.	Legal Requirements	Description
1.	Choosing a Distinctive Company Name	Selecting an appropriate and unique name for the company is crucial for success. Factors like distinctiveness, legal considerations, and branding issues must be carefully weighed. Additionally, Private Company names must end with “Private Limited,” and Public Company names must end with the word “Limited.”
2.	Choosing a Legal Business Activity	The selection of a business activity demands careful consideration of legal implications. Alignment with legal requirements is essential for both success and compliance in the chosen industry.
3.	Minimum Number of Directors Required	A Private Company requires a minimum of two directors, with at least one being a resident in India. For a Public Company, a minimum of three directors is necessary, with at least one being a resident in India.
4.	Minimum Number of Members Required	A Private Company formation necessitates a minimum of two members, while a Public Company requires a minimum of seven members.
5.	Obtaining DSC and applying for DIN	Obtaining Digital Signature Certificates (DSC) for proposed directors and subscribers is essential. Additionally, applying for Director Identification Numbers (DIN) is mandatory for individuals aspiring to hold directorial positions. A person, who already has a DIN, is not required to obtain any new DIN as the DIN is individual-specific.
6.	Choosing the Registered Office Address	Establishing a registered office within 30 days of incorporation is a legal requirement. This involves arranging evidence of the registered office address, including a No Objection Certificate (NOC), Conveyance/Lease deed/Rent Agreement with rent receipts, proof of ownership (if applicable), and a utility bill not older than two months. This designated address is crucial for official communication and legal processes.
7.	Identity & Address Proof of Directors/Subscribers	Submission of identity proofs (Driving License, Aadhar Card, Passport, Voter-ID) and address proofs (Mobile Bill, Telephone Bill, Electricity Bill, Bank Statement not older than two months) for proposed directors and subscribers is a prerequisite for company registration. This ensures transparency and compliance with regulatory standards.
8.	Drafting of Company’s charter documents	The drafting of the Memorandum of Association (MOA) and Articles of Association (AOA) is a vital step in company incorporation. The MOA outlines the company’s objectives, Subscribers details, authorized capital etc. while the AOA details internal rules and regulations.
8.	Registration of Company on MCA’s Portal	To incorporate a company, an application is to be made to Central Registry Centre (CRC) through the electronic form SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus: INC-32) is necessary. This includes e-Memorandum of Association (e-MOA) in Form INC-33 and e-Articles of Association (e-AOA) in Form INC-34. This process streamlines the registration on the Ministry of Corporate Affairs (MCA) portal.

4. Legal Requirement for Setting up of a Limited Liability Partnership (LLP)

Setting up of business in the form of a Limited Liability Partnership (LLP) is governed by the provisions of the Limited Liability Partnership Act, 2008. The following factors are to be considered while setting up the business in the form of a LLP:

S.No.	Topic	Description
1	Choosing a Distinctive Name	Selecting an appropriate and unique name for your Limited Liability Partnership (LLP) is a critical decision with a significant impact on success. The process involves careful consideration of distinctiveness, legal implications, and branding issues.
2	Choosing a Legal Business Activity	The decision to choose a business activity requires thorough consideration of legal implications. Ensuring alignment with legal requirements is crucial for the success and compliance of the Limited Liability Partnership (LLP).
3.	Minimum Number of Designated Partners (DPs) Required	For the formation of a Limited Liability Partnership (LLP), a minimum of two Designated Partners (DPs) is required. Additionally, at least one designated partner must be a resident in India. If all partners in an LLP are body corporates, then at least two individual nominees of such body corporates should act as designated partners.
4.	Obtaining DSC and applying for DPIN	One has to procure Digital Signature Certificate (DSC) and Designated Partner’s Identification Number (DPIN) for the individuals acting as Designated Partners of LLP.A person, who already has a DIN, is not required to obtain any new DPIN.
5.	Choosing the Registered Office Address	Establishing a registered office within 30 days of incorporation is a legal requirement. This involves arranging evidence of the registered office address, including a No Objection Certificate (NOC), Conveyance/Lease deed/Rent Agreement with rent receipts, proof of ownership (if applicable), and a utility bill not older than two months. This designated address is crucial for official communication and legal processes.
6.	Identity & Address Proof of Designated Partners	Submission of identity proofs (Driving License, Aadhar Card, Passport, Voter-ID) and address proofs (Mobile Bill, Telephone Bill, Electricity Bill, Bank Statement not older than two months) for proposed designated partners is a prerequisite for LLP registration.
7.	Drafting of the LLP Agreement	LLP agreement defines the roles, responsibilities, rights, and powers of the partners to LLP and to each other. LLP agreement clarifies the managerial, operational, and administrative responsibilities and sets clear decision-making methodologies, adding a new partner and disassociating an existing partner. Hence, it creates the foundation for the smooth running of LLP.
8.	Registration of LLP on MCA’s Portal	To incorporate an LLP, an application is to be made to Central Registry Centre (CRC) through the electronic form FiLLip (Form for Incorporation of Limited Liability Partnership).

5. Legal Requirement for Setting up of a Partnership Firm

A partnership firm is governed under the Partnership Act 1932. Registration of a partnership firm is not mandatory under the law but there are added advantages of registering a firm as it serves as a legal proof of the firm’s existence. It is always advisable to keep/decide a few things in advance before registering the partnership firm, such as:

(a) Decide the Name of Firm,

(b) Number of partners (Minimum 2 and Maximum-50 partners are allowed),

(c) Partners must be competent (Partner should not be a minor)

(d) Decide Place of business, business activity

(e) Drafting of the Partnership Agreement

(f) Application for registration of partnership (Form 1), in case you want to get it registered.

All other basic requirements as discussed above like applying of PAN, opening of bank account in the name of firm would be applicable.

6. Legal Requirement for Setting up of a Sole Proprietorship

Sole Proprietorship is the easiest form of business in India since any specific law does not govern it, and has minimal procedures to establish. There are very basic documents required for setting up the proprietorship firm. The following documents are required for the sole proprietorship firm:

(a) Aadhar Card

(b) PAN Card

(c) Bank Account and

(d) Registered Office Proof

(e) GST registration

7. Legal Requirement for Setting up of HUF

Establishing a Hindu Undivided Family (HUF) in India presents several advantages, particularly concerning taxation. Section 2(31) of the Income-tax Act, 1961 provides an inclusive definition of ‘person’. As per this definition, a person includes a HUF. Thus, a HUF is considered a separate and legal entity for taxation purposes. This allows the family to split income and reduces the overall tax burden. Additionally, remuneration paid by the HUF to any member, including Karta, for services rendered by him in conducting the business of HUF is allowable as a deduction if such payment is justified on the grounds of commercial expediency. This further aids in minimising taxable income.

A HUF comes into existence from the date when the first child of an Individual is born. However, it is recognised as a person only from the date it applies for a Permanent Account Number (PAN). A Karta can apply for HUF’s PAN. For this purpose, he needs to submit his proof of identity and address. Further, proof of HUF’s existence, i.e., HUF’s deed, shall also be required for this purpose. Once the PAN is obtained, the HUF can open a bank account, facilitating its operational and financial activities.

Conclusion

In the complex landscape of establishing a business in India, understanding and fulfilling legal requirements are paramount. This blog has outlined the fundamental steps and documentation necessary for setting up various forms of businesses, from sole proprietorships to partnerships and companies. However, merely knowing these legal obligations isn’t sufficient; staying updated with evolving legal norms and tax regulations is equally critical. Taxation books serve as indispensable guides in this endeavor, providing comprehensive insights into the latest tax laws, compliance requirements, and strategic planning tips. For entrepreneurs and investors alike, leveraging updated taxation books ensures informed decision-making and effective navigation of taxation complexities. In this pursuit, Taxmann stands out as a reliable source for accessing updated taxation books that offer a deeper legal perspective.

By integrating knowledge from taxation books with the legal requirements outlined in this blog, individuals embarking on the journey of setting up a business in India can enhance their preparedness and compliance, thus laying a robust foundation for success. Here’s to leveraging the combined wisdom of legal requirements and taxation insights for a thriving entrepreneurial journey in India’s dynamic business landscape.