Legal Aspect of Business
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Legal Aspects – Business Ownership Sales and Income Tax and Workman Compensation Act Clearances and permits required, formalities, licensing and registration procedures
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Legal Aspect of Business
- 1. Unit 3 Legal Aspects – Business Ownership Sales and Income Tax and Workman Compensation Act Clearances and permits required, formalities, licensing and registration procedures
- 2. The legal structure of your business Sole Proprietorship Private Limited Company Public limited company One Person Company Limited Liability Partnership
- 4. Licenses Trading license Sales tax permit Food & Safety License Public Performance License Liquor License Pharma License Music License
- 5. Zoning laws
- 6. Relevant health and safety laws
- 7. Insurance
- 8. Confidentiality and Non-Disclosure Agreements You will have access to business information that you may want to keep private and, as such, you should consider preparing these contracts. Make sure your partners and suppliers sign them as well.
- 9. Employee Contract Salary, holiday entitlement, benefits working hours and Designation Employee leaves Accident during working Hours
- 10. Intellectual property : COPYRIGHT, PATENTS & Trademark You can protect your own company name, logo and product designs under Trademark Patents: the rights in a unique invention Copyright: the right to copy, publish or perform a work (pictures, stories, music).
- 11. Eligibility to Apply for a Business License • Must be at least 18 years old. •There should be no criminal records on the candidate. •The company should be lawful to operate.
- 12. Workmen's Compensation In India, any organisation with more than 20 employees must mandatorily have Workmen's Compensation Insurance. This mandate by the Employees' State Insurance Act
- 13. Clearances and Permits • Provisional registration from the respective District Industrial Centers. • Environmental clearances from Government of India. • NOC from Pollution Control Board. • NOC from town planning department. • Approval of plant and machinery layout from department of Factories • Approval of power supply from State Electricity Board. • Approval of water supply from State Government authority. • Registration and license under Factories Act. • Registration from Central Excise Department. • Sales tax registration with commercial taxes department. • Provident fund registration. • Employee State Insurance Registration.
- 14. Registration Registration of small scale industrial units is compulsory; however all existing small scale units or intending entrepreneurs employing more than 10 workers should get themselves registered with director of industries in their state. (i) Provisional: Provisional registration is made before setting up of unit and permanent registration is done after the unit commences production. Generally it is for a year, but can be extended up additional 2 years. (ii) Permanent registration :registration: A potential entrepreneur can go in for provisional registration even when he is planning to set up his unit. In order to get registration an application in the prescribed form is to be submitted.
- 15. Registering SSI Unit: • The main purpose of registration is to maintain statistics and maintain a roll of such units for purpose of providing incentives and support services. • Uniform registration procedures as per guidelines adopted by States and they use same scheme for implementing their own policies. • Benefits of Registering • It has no statutory basis. • Units who registered will get some benefits, incentives and support by State or Central government.
- 16. De - Registration • In the case of violating the regulation: 1. It crosses the investment limits. 2. It starts manufacturing any new item or items that require industrial license or other kind of statutory license. 3. The unit remained closed continuously for more than one year. 4. Unit has mutualized the raw material allocated to it.
- 17. Registration for GST • GST Registration is necessary for all firms, annual revenue of more than Rs.20 lakhs • Rs.10 lakhs in Special Category Provinces. • Obtaining GST registration within one month of starting up a firm is important for all businessmen.
- 18. Shop and Establishment Act A License Under the The “Shop and Establishments Act” was adopted to control business practices such as working hours, child labor, salary payment, worker safety, and overall health.
Editor's Notes
- OPC is different from Sole Proprietorship in terms of law and workings. One person Company and Sole Proprietorship sounds similar to words. OPC is treated as a private company only having a separate legal entity and limited liability.“One Person Company” is a company which has only one person as a member. And it is treated like a private Company. Every one person company shall have to at least hold one meeting of the Board of Directors in each half of a calendar year and the gap between the two meetings is not less than ninety days. A sole proprietorship is not a legal entity like a partnership or a corporation. The advantage to sole proprietors kind of entrepreneurs need not enter into board meetings and annual meetings. Returns are signed under their name. They have flexible working hours. Income and losses are taxed on the individual’s personal income tax return. It simply refers to a person who owns the business and is personally responsible for its debts. Examples of sole proprietors include small businesses such as, a local grocery store, a local clothes store, an artist, freelance writer, IT consultant, freelance graphic designe Under “traditional partnership firm”, every partner is liable, jointly with all the other partners and also severally for all acts of the firm done while he is a partner. • Under LLP structure, liability of the partner is limited to his agreed contribution. Further, no partner is liable on account of the independent or un-authorized acts of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful acts or misconduct. Sole: Your own personal assets are on the line: personal savings, your house and car. If someone brings a claim against the business then they can sue you personally , it has the potential to be quite risky. Partnership If you own a business with someone else, you are in a legal partnership. Partners have unlimited personal liability, as with sole traders, so personal assets can be at risk. Each partner shares the liability and financial risks of the business. Any one of the partners can be sued by a third party and each partner is liable for the whole loss (although they could claim a contribution from other partners). So if one partner makes a mistake causing someone a financial loss, that person can sue a different partner for the whole amount (even if they were not involved). So if you have savings but your partner does not, it could be that you will face the claim. To address that risk, you can set up a limited liability partnership. Under an LLP, each individual partner’s liability is limited to the amount they invest. Limited company With a limited company, the liability of the owners of the company (the shareholders) is limited to the amount they invested in buying the shares. Someone who wants to sue the business has to sue the company: it has a separate legal personality from the owners and directors. So your personal assets such as your home and personal savings are protected. This protection comes at a cost, however: a limited company must file accounts and returns with Companies House. Certain decisions will require the approval of the board of directors or shareholders, and so you should keep a record of all decisions — even if you are a sole shareholder or director
- https://legodesk.com/legopedia/private-limited-company/
- You will need several types of licenses or permits before you open your business. The number of licenses your business will require will depend on the kind of establishment you want it to be. At the very least, you will need a business license, trading license, and sales tax permit. If you plan to open a restaurant, pub, or catering company, you will have to register with the local governing body for food standards and health and safety oversight. If you plan to provide entertainment in your establishment, you will also need to get the relevant permits for music and entertainment. It is best to do some additional research and contact relevant local government agencies to learn more about the specific licenses you will need to legally run your business Licensing: Section 11 of the Industries (Development and Regulation) Act provides that no industrial undertaking shall be established without a license and conform to the rules and regulations prescribed by state or local authorities. After obtaining the license, the undertaking has' to adhere to various rules as laid by the central government under section 30. According to Industrial Development Regulation Act, the industrial license would be required for: • Establishment of a new undertaking. • Substantial expansion. • Production of a new product. • Changing the location of an industrial undertaking. It is a part of clearance activity and all legal aspects to establish a business unit irrespective of size, have to be strictly followed. Some restrictions on setting up of small scale industrial units and that licenses from either Central or State governments have to be taken out before an entrepreneur start a small scale industrial unit. Industries employing less than 100 workers and having fixed assets of less than Rs.10 lakhs need not obtain any licence under the Industries (Development & Regulation)Act. Small scale units have, to confirm to rules & regulations prescribed by State or local authorities under Factories Act, Commercial Establishment Act, Town Planning Rules, made for issue of quotas for starting business
- If you are still looking for a good location for your shop, establishment or office, you have to make sure that the area you are eyeing is properly zoned for the type of business you plan to operate. Again, do some research or ask local government bodies to be certain that you can open your business in that area. Do not make the costly mistake of assuming that your zoning is appropriate just because your business is similar to the ones already located there. There will be instances wherein zoning may have changed while the other businesses were already operating, and these companies may have been given exemptions that won't be provided to new establishments such as yours.
- As a business owner, you will have to assume several important health and safety responsibilities. These include ensuring that your employees work in a safe, healthy environment. You also have the duty to look after the well-being of anyone including clients and visitors inside, outside, and near your business premises. It is highly recommended that you carry out a risk assessment to help identify the risks posed to individuals by your business activities. You then have to mitigate these risks or hazards as much as possible. This may include changing some standard operating procedures and removing some fixtures to ensure that employees and members of the public are safe.
- Most business zones require all businesses that employ a number of workers to get employer's liability insurance. But aside from being a legal requirement, when you have sufficient coverage, you will avoid incurring fines every day that you are uninsured. You also avoid leaving yourself vulnerable to compensation claims from employees and visitors who may get injured or sick while they are in your premises. Aside from an employer’s liability insurance, you may want to consider investing in public liability or professional indemnity as well. These types of coverage will help protect your business from compensation claims if something goes awry.
- Lastly, if you will be working with a bank or other partners for business financing or entering into contracts with suppliers, make sure you have the right confidentiality and non-disclosure agreements. Knowing which laws apply to your new business is something that is also important if you want to open a company overseas. If you want to expand globally, make it a priority to consult a trusted corporate law firm to guide you every legal step of the way.
- TAKING ON EMPLOYEES There are some essentials to consider when you start hiring employees. Contracts It is important to have proper employment contracts. This gives certainty to the arrangement between you and the employee. If you don’t have this certainty, then you open yourself up to disputes with your employee about what their rights and obligations are. The contract will set out an employee’s employment conditions and rights (salary, holiday entitlement, benefits), and their responsibilities and duties (working hours and role). It can also help when an employee leaves (either voluntarily or if you dismiss them): you can follow the terms of the contract regarding the process to follow. If you buy another business and take on its staff, you will usually need to keep their existing terms and conditions of employment. Staff handbook As your team of employees grows, you could consider having a ‘staff handbook’. These do not form part of the employment contract, but set out what is expected of staff, as well as what they are entitled to as an employee of the business. The handbook should include any disciplinary/dismissal process. Employee checks As well as obtaining references for potential employees, it is important to carry out appropriate checks on them. There is a severe penalty for employers who employ someone who does not have the right to work in the UK. You might be surprised: you could be fined up to £20,000 or even sent to prison. Insurance and pensions If you employ staff – even just one person - it is a legal requirement to take out employer’s liability insurance. This covers you if you are sued by an employee, for instance if they are injured while at work. You should also check of you need to arrange a pension for your staff: if they are older than 21 and earn above a certain minimum, then you will probably be obliged to do so.
- Intellectual property refers to copyright, business names, patents and inventions. You can protect your own company name and logo, along with any inventions, product designs or copyrights. This means you can stop other people using and profiting from them. So no-one can set up a shop in their local High Street with the name and branding of the Harrods store in Knightsbridge: the company behind Harrods (Harrods Ltd) owns the copyright in the logo, styling, etc. The way to protect your intellectual property is to register it, where possible. This gives you the exclusive right to make, use or sell the invention, design, etc. Once you have your protection it will be much easier to stop someone else using your invention or design – you can take them to court on the basis that it is registered to you. • Patents: the rights in a unique invention. These are registered at the Patent Office. • Trade marks: the rights in the name of an invention, the name of your company, or the name of a product. These are registered at the Intellectual Property Office. Copyright: the right to copy, publish or perform a work (pictures, stories, music). You get copyright protection automatically, as soon as you have created it. There is no register of copyright works (in the UK). You can protect yourself and prove copyright by sending it to yourself, e.g. by email, which proves you had it on a certain date. https://www.smallbusinessrainmaker.com/small-business-marketing-blog/7-legal-considerations-to-prioritize-when-starting-a-business
- Several types of clearances and permissions have to be obtained from different agencies. The following types of industries have to obtain Provisional Registration from the respective District Industrial Centers (DICs) – a) SSIs (Investment in plant below Rs.1 crore). b)Ancillary industries whose investment in plant and equipment below Rs.1 crore). C)Tiny industries (investment below Rs.25 lakhs in plant and machinery). d)Women entrepreneurs where one or more women have not less than 51% financial holding. Other Clearances: 1. Land / Location: Following clearance are to be taken – i) Environmental clearances from Government of India. ii) No objection Certificate (NOC) from pollution Control Board of respective state. iii) Change of land use from District Collector / Government in Municipal Administration and urban development through Director / Town and Country Planning / Urban development authority. iv) Exemption from Urban Land ceiling Building: i) Permission for building layout need to be taken from Gram Panchayat / Municipality / Town and Country planning department / Urban development authority. 3. Plant and Machinery: i) Approval of layout needs to be taken from Department of Factories / Boilers (single winds clearance is available in states). 4. Raw material: i) Nee d to get permit for scarce raw materials like coal, Alcohol, Paraffin wax,etc., if requires from Industries Department Power: i. Need to get Power feasibility from concerned state electricity Board ii. To obtain approval captive generation, if need. iii. Agreement with private sector producer to purchase power fro private generating stations. . Water: i) Own captive source. ii) Public supply (local bodies). iii) Supply from state government authority in case of industrial parks/industrial development areas. iv) supply from state irrigation department from bulk consumption
- The facilities obtaining of assistance from the government benefits like concessions, subsidies, and quota for scarce or controlled raw materials. The registration of small scale units is done in two stages ie: Provisional certificate is issued within a week of applying except in the case where proposed unit is one which needs raw-materials which the government has declared non-available due to shortage of the same. The validity of provisional certificate in the first instance is for one year which can be extended for two more years on the condition of submission of certificate by the entrepreneur that he has taken steps for setting up of unit and he required more time for the completion of the project. (ii) Permanent Registration: provisional registration facilitates the process of setting up of unit by the entrepreneur. After construction of factory building, taking of power connection, purchasing and installing of machinery and pollution control equipments, obtaining of license from Municipal Corporation or other local authorities etc., the entrepreneur can proceed ahead and apply for permanent registration of his unit. Permanent registration is life time registration granted to SSI which has commenced production. It is given after physical inspection of the enterprise. Provisional Registration Certificate (PRC): This is given for pre – operative period and enables units to obtain term and loans and working capital from financial institutions or banks. Obtain facilities for accommodation, land, other approvals, etc. Obtain various necessary NOCs clearances from regulatory bodies like Pollution control board, labour Registration etc. Permanent Registration Certificate: The following incentives are – Income tax exemption and Sales tax exemption. Incentives and concessions in power tariff, etc. Price and Purchase preferences for goods produced. Availability of raw materials depending on existing policy.