CS Executive Programme – Setting Up of Business Entities and Closure
Various Initial Registrations and Licenses
Here, we discussed Various Initial Registrations and Licenses required for startups, Setting Up of Business Entities, and Closure from CS Executive Programme.
The term “Business” commonly defined as an organization or entity engaged in a commercial activity does have its own structure and mode of operation. Apparently, each structure and design requires quite of number registration and licenses as necessitated by the laws and statutes.
Now in this article, we touch upon a few important registration and licenses in connection with the business entity. Out of this registration and licenses, few are common to all types of entities and few are added to appropriate Authorities or Regulatory Bodies, as the case may be, which depends upon but not limited to the nature and type of business.
For instance, a business entity incorporated to carry on business as NBFC has two registrations where the entity will register itself as a company under the Companies Act, 2013 which is a common registration for becoming a company. Apparently for any business organization to hold a bank account and transacts shall obtain a Permanent Account Number (PAN), which shall be a mandatory registration. However, to carry on business as NBFC it has to obtain an additional license from the Reserve Bank of India to operate as NBFC.
Various Initial Registrations and Licenses
With this, we broadly classify the registrations into Mandatory and Additional Registrations and get to learn the applicability of these registrations.
As mentioned earlier, a few of the mandatory registrations are-
PAN – A Permanent Account Number (PAN) is an important requirement for any taxpayer. Any corporate body doing business in India requires a PAN card whether it is registered in India or abroad.
PAN serves as a reference number of its holder for the Income Tax Department to track the financial transactions carried out by them. Even if one is not required to pay income tax, it is mandatory for him to hold a PAN if he is earning money. The government of India under Section 206AA, as inserted in 2009 by the Finance Act, now mandates all foreign parties that provide or generate a payment to a counterpart in India to provide their PAN.
Application: The application for allotment of PAN or changes/ correction in PAN can be made through the internet. The online application can be made either through the portal of NSDL (https://tin.tin.nsdl.com/pan/index.html) or the online portal of UTITSL (https://www.utiitsl.com/UTIITSL_SITE/pan/index.html ).
Must read – Inter-Corporate Loans, Investments – Section 186
TAN – TAN or Tax Deduction and Collection Account Number to be obtained by all persons who are responsible for deducting or collecting tax. Under Section 203A of the Income Tax Act, 1961, it is mandatory to quote the Tax Deduction and Collection Account Number (TAN) allotted by the Income Tax Department (ITD) on all TDS returns
Application: A deductor may either make an online application through this website or submit a physical TAN Application to any TIN-Facilitation Center (TIN-FC) of NSDL.
GST – Registration under the GST Law implies obtaining a unique number from the concerned tax authorities for the purpose of collecting tax on behalf of the Government and to avail Input Tax Credit for the taxes on his inward supplies by any business entity. The registration under GST is Permanent Account Number (PAN) based and state-specific.
Section 22 of Central Goods & Services Tax Act, 2017 mandates that every person who has an aggregate turnover of more than Rs 20 Lacs in the relevant financial year, is liable to be registered under the Act with exception to Jammu & Kashmir and North-Eastern states, the threshold is Rs 10 Lacs.
Registration: Every person who is liable to register themselves under the CGST Act, 2017 must do so within thirty days from the date when he becomes first liable or five days prior to commencement of business in case of casual/non-resident taxable person as the case may be. If the proper officer doesn’t take any action within three days of submission of application along with necessary details and documents, or within seven days of receiving the clarifications so solicited, the application for grant of registration is deemed to be approved.
Registration must be taken state-wise. In case there are several branches within a single state, they can all operate under a single registration so long as one of the places are declared as Principle Place of Business (PPOB) and the remaining are Additional Places of Business (APOB).
Shops & Establishments – The Shops and Establishments Act is designed to regulate the payment of wages, hours of work, leave, holidays, terms of service, and other work conditions of people employed in shop and commercial establishments.
Establishments included in this Act are commercial establishments, residential hotels, restaurants, eating houses, theaters, or other places of public amusement or entertainment and any other establishment as the State Government may prescribe.
Shop means any premises, (a) Where goods are sold, either by retail, wholesale, or (b) Where services are rendered to the customer, (c) It includes an office a store-room, godown, warehouse or workplace, whether in the same premises or otherwise, used in connection with such trade/ business. However, it does not include a factory, a commercial establishment, residential hotel, restaurant, eating house, theater or another place of public amusement or entertainment.
Registration: A business owner of a shop or establishment is compulsorily required to get the same registered under the Shops and Establishment Act. Any shop or commercial establishment that commences operation must apply to the Chief Inspector for a Shop and Establishment Act License within the prescribed time.
The application for a license in the prescribed form must contain the name of the employer, address of the establishment, name of the establishment, category of the establishment, number of employees, and other relevant details as requested. On submission of the application and review by the Chief Inspector, the shop or commercial establishment will be registered and a registration certificate will be issued to the occupier.
SSI/MSME – The main purpose of Registration is to maintain statistics and maintain a roll of such units for the purposes of providing incentives and support services. States have generally adopted the uniform registration procedures as per the guidelines. However, there may be some modifications done by States. It must be noted that small industries is basically a state subject.
This registration scheme helps the units normally get registered to avail some benefits, incentives or support given either by the Central or State Govt. Benefits available under the MSMED Act Registration of Micro, Small and Medium (MSM) Enterprises under MSMED Act is a very powerful medium to enjoy the regime of incentives offered by the Centre
Registration: Small Scale and ancillary units should seek registration with the Director of Industries of the concerned State Government. Micro & Small Enterprises shall have to apply either online at the website of NSIC www.nsicspronline.com or on the prescribed application form (in duplicate) along-with requisite fee and documents to the Zonal/Branch/Sub Branch and Sub Office/Extension office of NSIC situated nearest to their location.
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ADDITIONAL REGISTRATION/ LICENCES
Apart from the above mandatory registration, there are several additional registrations/license that has to be obtained based on nature, type, and various other parameters. Basically, the applicability and trigger for the registration under the respective legislation are where the requirement arises. To list out most common-
ESI – Employee’s State Insurance (ESI) is a self-financing scheme for Indian workers, which covers health insurance and social security. ESI functions as an independent corporation and comes under the Ministry of Labor and Employment in India. The ESI Corporation thus manages the funds regulated by the guidelines and regulations of the ESI Act. 1948. This act monitors the provision of cash and medical benefits to employees and their families through their comprehensive network of hospitals and dispensaries throughout India.
Applicability & Registration: Any employer having more than 10 employees is mandatorily required to take up the ESI Registration. Within 15 days of submission of the Employer’s registration form (Form-01), the company or firm is expected to obtain an Identification number or Code Number from the Regional office.
For employees, on joining the Private Limited Company, an employee required to fill the Declaration form i.e. Form-1 along with a copy of the family photo which the employer will be submitting at the ESI branch office. Within 3 months a permanent photo ID is provided to the employee and will be provided an insurance number for identification purposes under the scheme.
PF – To provide financial stability and security to employees when they are temporarily or no longer fit to work, the Parliament enacted the Employee’s Provident Fund Scheme (EPFS) 1952. The central government trust manages these funds, and employees are required to contribute a part of their salary to it every month during their employment tenure.
Applicability & Registration: An establishment with less than 20 employees can voluntarily opt for PF registration to protect employee’s benefits. However, Companies with more than 20 employees compulsorily have to register under EPFS.
FCRA – Charitable Trusts, Societies, Section 8 Company that receive foreign contribution or donation from foreign sources are required to obtain registration under Section 6(1) of Foreign Contribution Regulation Act, 2010. Such a registration under the Foreign Contribution Regulation Act, 2010 is called an FCRA registration.
Applicability & Registration: Organizations seeking foreign contributions for definite cultural, social, economic, educational, or religious programs may obtain FCRA registration or receive foreign contribution through the “prior permission” route.
Pollution – Entrepreneurs are required to obtain Statutory clearances relating to Pollution Control and the Environment for setting up an industrial project, for 30 types of projects as listed, environmental clearance needs to be obtained from the Ministry of Environment, Government of India. This list includes industries like petrochemical complexes, petroleum refineries, cement, thermal power plants, bulk drugs, fertilizers, dyes, paper, etc. However, there are a few exceptions if the investment is less than Rs. 1000 million.
OTHER SECTORIAL REGISTRATIONs
IE Code – IEC registration is required by a person for exporting or importing goods. All businesses which are engaged in the Import and Export of goods require registering Import Export Code. IE code has lifetime validity. Importers are not allowed to proceed without this code and exporters can’t take benefit of exports from DGFT, customs, Export Promotion Council, if they don’t have this code.
The IE Code must be quoted by importers while clearing customs. Also, banks require the importer’s IE Code while sending money abroad. For exporters, IE Code must be quoted while sending shipments. And banks require the exporter’s IE Code while receiving money from abroad.
IEC Certificate is issued by the Directorate General of Foreign Trade (DGFT) which comes under the Ministry of Commerce and Industry, Government of India
Drug License – To start a pharmacy business, a drug license is required. The Central Drugs Standard Control Organization and State Drugs Standard Control Organization control the issue of drug licenses in India. Drug license for setting up a pharmacy business is usually under the purview of the State Drugs Standard Control Organization.
FSSAI – Food Safety and Standards Authority of India (FSSAI) license is mandatory before starting any food business. All the manufacturers, traders, restaurants who are involved in the food business must obtain a 14-digit registration or a license number which must be printed on food packages.
This step is taken by the government’s food licensing & registration system to ensure that food products undergo certain quality checks, thereby reducing the instances of adulteration, substandard products and improve accountability of manufacturers by issuing food service license.
FSSAI Online Registration is done through the official website of FSSAI for basic and central level. For state, the FSSAI registration is also done through offline mode. The registration and licensing of food business in India is governed by the Food Safety and Standards (Licensing and Registration of Food businesses) Regulation, 2011.
- Trademark – The Trade Marks Registry was established in India in, 1940 and presently, it administers the Trade Marks Act, 1999 and the rules framed thereunder. The objective of the Trade Marks Act, 1999 is to register trademarks applied for in the country and to provide for better protection of the trademark for goods and services, and also to prevent fraudulent use of the mark. The main function of the Registry is to register trademarks that qualify for registration under the Act and Rules.
- Copyright – The Copyright Act, 1957 came into effect in January 1958. The main reasons for amendments to the Copyright Act, 1957 include bringing the Act in conformity with WCT and WPPT; to protect the Music and Film Industry and address its concerns; to address the concerns of the physically disabled, and to protect the interests of the author of any work; Incidental changes; to remove operational facilities; and enforcement of rights.
- Patent – Patent filing has become increasingly popular in India due to the rising intellectual property rights awareness. In the Startup India Action Plan, eligible startups would receive an 80% rebate in patent filing fees to provide a boost to patents registered by Indian companies. Hence, there is tremendous interest amongst startups in obtaining patent registration.
- Design – The objective of The Designs Rules, 2001 is to enable the protection of newly created designs applying to particular articles manufactured by the industrial process. An application for the registration of design should be submitted along with four specimen copies of the design. A statement of novelty should too be submitted which refers to a statement of how the design is unique
- NBFC – A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act that is engaged in the business of loans and advances, receiving deposits (some NBFC’s only), acquisition of stocks or shares, leasing, hire-purchase, insurance business, chit business. Therefore, NBFCs lend and take deposits similar to banks; however there are a few differences a) NBFC cannot accept demand deposits, NBFCs cannot issue cheques drawn on itself and NBFC depositors are not covered by the Deposit Insurance and Credit Guarantee Corporation.
- Telecom – In India, the telecom market and business thereunder are governed and regulated by the Telecom Regulatory Authority of India (TRAI), which is a statutory body set up for regulating the Telecom and Broadcasting Sectors. As per the New Telecom Policy (NTP) 1999, service providers in India involved in providing services like telebanking, telemedicine, tele-education, tele-trading, e-commerce, call center, network operation center, and other IT Enabled Services, using telecom resources are termed as “Other Service Providers” (OSP).
- Udyog Aadhaar – MSME registration or Udyog Aadhaar can be obtained by any type of business entity. Proprietorships, Hindu Undivided Family, Partnership Firm, One Person Company, Limited Liability Partnership, Private Limited Company, Limited Company, Producer Company, any association of persons, co-operative societies or any other undertaking can obtain MSME registration in India.
The eligibility criteria for obtaining Udyog Aadhaar registration is based on the investment in plant & machinery made by a manufacturing concern or investment in equipment made by a service provider.
- Industrial Entrepreneurs Memorandum (IEM) – Industrial Entrepreneurs Memorandum (IEM) is an application for acknowledgment of unit. All industrial undertakings exempt from the requirements of industrial licensing, including existing units undertaking substantial expansion, are required to file information in the prescribed form for Industrial Entrepreneurs Memorandum (IEM), i.e. “Form IEM”, with the Secretariat of Industrial Assistance (SIA), Department of Industrial Policy and Promotion (DIPP), Government of India, and obtain an acknowledgment. No further approval is required.
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