Key Legal Compliances for Small Businesses Legal compliance ensures that the business runs smoothly, avoids legal actions that may hamper operations and ensures built-up of customer confidence

By Himanshu Gupta

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Being a small business owner has its own share of challenges. Recognition and familiarity of legal compliances, which forms the foundations of any business, are one of the major challenges.

Legal compliances are an integral part of any business. It ensures that the business runs smoothly, avoids unnecessary penalties or legal actions that hamper operations and ensures the unceasing built-up of customer confidence.

To begin with, the very basic compliances for any business are:

  • Shops and Establishment Act,
  • Obtaining a Pan Card,
  • Opening a Current Bank Account or
  • Obtaining a Sale/Lease Deed of the business premises.

To delve deep, legal requisites for a business can be broadly classified into: Entity Specific Compliances, Trade Specific Compliances and Human Resource Compliances.

Entity Specific Compliances for a Small Business

  • In a sole proprietorship, the necessary compliances to be in place prior to the commencement of business would be a Shops and Establishment Act or NOC from Gram Panchayat along with recurring compliances like preparing financial statements, filing of income tax (IT) returns and GST returns.
  • In the case of a Partnership Firm, a Partnership Deed along with the registration at a local Registrar of Firm, regularisation of IT Returns filing along with GST Returns (if applicable) and preparation of financial statements.
  • For a Limited Liability Partnership (LLP), the pre-requisites would be an LLP Deed, filing of incorporation forms with the Ministry of Corporate Affairs (MCA), along with a Common Seal of the LLP. Make conform of regular filing of financial statements along with the annual returns, event-based forms and IT Returns with the MCA.
  • A Private Limited Company registration would entail filing of incorporation forms with the MCA, Memorandum of Articles of Association and a common seal of the company. Periodic filing of financial statements with the annual returns and event-based forms with the MCA. Filing of IT Returns and also GST Returns (if applicable). A mandatory practice would be Quarterly Board Meetings and Annual General Meetings.

A recurrent renewal of Shop Act wherever applicable is obligatory.

Trade Specific Compliances

  • For specific trades like Food, an applicable compliance would be FSSAI (Food Safety and Standards Authority of India) Registration or license.
  • Manufacturing Business entities would require a Manufacturing License compulsorily.
  • An Export or Import Business would require an Import Export Code (IEC).

Human Resource (HR) Compliances

A Statutory compliance in Human Resource (HR) Policies refers to the legal framework in which a business entity adheres to the various Labor Regulations laid down by the Government of India. A lot of time and money is invested in forming everything from payroll to attendance along with being compliant to the payment of minimum wages to provident Funds and Maternity benefits.

  • In cases where the number of employees is less than 10 numbers a very basic applicable compliance would be the Shop Act Intimation.
  • Employees ranging between 10 to 20 numbers a business owner might have to follow certain guidelines on the basis of Shop Act Registration, enabling Employees State Insurance Corporation (ESIC) to the manufacturing sector wherein the monthly salary is upto INR 21,000, there is a Gratuity payable on successful completion of tenure and also enabling Provident Fund (PF). Filing of Monthly and Annual returns with Employees Provident Fund (EPF) Office along with maintenance of all records pertaining to salary and PF paid to employees.
  • An employee number exceeding 20 numbers within a Business Establishment needs to have a payout of ESIC – Other than the manufacturing sector wherein the monthly salary is upto INR 21,000.

Of MSME Registration and GST

Udyog Aadhaar is a government registration provided along with a recognition certificate and a unique number in order to certify small/medium businesses or enterprises.Goods and Services Tax (GST) is an Indirect Tax (or Consumption Tax) imposed in India on the supply of goods and services. As a registered business identity, each business unit registered as MSMEs working in format of proprietorship, partnership or company have to apply for a GSTN Number. The GSTN number as provided would be used in each any every business transaction specifying the flow of goods and services, GST collected and paid etc.

Himanshu Gupta

Co-founder & CEO – Lawyered

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