How To Start A Business In India

Introduction

Considered as one of the most powerful economies and the largest democracy, India has fast grown to position itself as a superpower. Let’s look at a few figures:

• India is the 5th largest economy in terms of GDP.
• India has moved up to being #11 in retail sales worldwide.
• Out of the 17 Asian countries, India ranks #10 in the forecast period of 2023-27.

These facts and a consumer base of over 1.48 billion people make India an incredibly diverse and expanding market. It has transformed into an ideal ground for investment, innovation, and starting a business in India. 

From the bustling streets of the financial capital, Mumbai, to Bangalore, the Silicon Valley of India, and the calming backwaters of Kerala, the country’s culture and resources presents a canvas for business ventures that range from tech startups and manufacturing to sustainable enterprises and tourism. 

This article will give you a gist of India’s business environment, the process of starting a business, and its advantages.

Types of businesses to start in India

Starting a business in India is not only an exciting journey but a rewarding one. Whether you’re a seasoned businessman looking to expand your business or an entrepreneur who wants to tap into the Indian market, it’s essential to understand the types of businesses you can set up in India to thrive. 

The following business structures can help you enter the markets.

1. Sole Proprietorship 

A sole proprietorship is the most straightforward type of business you can opt for. A sole proprietorship is owned and operated by a single person. Here, personal assets and liabilities are not separated from the business, and any profits (or losses) directly accrue to the owner.

2. Partnership 

A business owned and operated by two or more people can fall into this category. They manage day-to-day work as per the partnership deed. Like sole proprietors, business partners bear complete responsibility for the company's actions, including personal liability for settling debts and taxes and fulfilling legal obligations arising from court decisions.

3. Limited Liability Partnership

A limited liability partnership combines a partnership firm and a corporation. Here, those involved need not pay for the company's debts or legal problems using their money. This way, you don’t risk your savings if things go wrong in the business.

4. One-Person Company (OPC)

A single person owns and manages a company with limited liability in a one-person company. It’s a recommended form of business for solo entrepreneurs who want to restrict their personal liability. 

5. Private Limited Company

A private limited company can have a single person or a group. It’s formed with limited liability. The business owners are responsible for the company’s debt only to the extent of their investment. This is a perfect option for those businesses that aspire to raise funds from investors in the future while keeping financial matters and ownership relatively private.  

6. Public Limited Company

Here, typically, the ownership is split into shares, which the public can buy and sell on a stock exchange. It’s a viable option for businesses that want to expand and gain access to substantial funding from the public. However, this comes with public disclosures and regulatory requirements compared to private companies. 

Advantages of Starting a Business in India

Businesses and entrepreneurs from all over the world are drawn to starting a business in India due to its many advantages and opportunities. Let’s dig deeper into India’s advantageous business landscape. 

1. Scope for Sustainable Business

For companies considering starting a business in India, the favorable conditions and business opportunities make it a compelling choice.

In the coming years, significant infrastructural development and economic growth will occur. Additionally, rural-to-urban migration is significant as people seek better living and business opportunities. This shift creates a market that will only grow as more people move. For example, Mumbai's economy will become a huge market worth $245 billion by 2030, per a McKinsey Global Institute report. From a business point of view, this opens up a more extensive customer base.      

2. Organized Employability 

For any business, employability is a primary deciding factor for starting operations in a new market. Of the 530 million people falling into the labor force, you will find a relatively younger age of individuals around 30.   

In fact, the median age in India is 28.2 years (2023) versus 38.9 years in the US. This shows that more years of service by most workers are available in the Indian market.

Further, the Indian youth are interested in working for upcoming startups and unique business ventures. Businesses can leverage this opportunity by generating employment and increasing productivity.

Read More: Indian Labor Law: How To Tackle Employee Misclassification

3. Economical Operational Costs

The Indian government is making it easier to do business in the country. Without special permission from the government, a Foreign Direct Investment (FDI) of 100% investment is allowed in a private or limited company. This vastly reduces the cost of starting a business in India. 

Moreover, the basic amenities for businesses are much lower priced in India than in other countries like Singapore, the UK, or the US, whether it’s transportation, food, labor, infrastructure, or even taxes.  

4. Presence of a Startup Ecosystem

India has been a hub for financial services, e-commerce, and technology. But recently, numerous other industries have sprouted across the country. This plays a pivotal role in fostering innovation, providing support, and creating a conducive environment for new businesses. 

Further, with the presence of many startups, a new business has access to diverse funding sources, such as venture capital firms and angel investors. This enables businesses to secure the financial backing needed for growth.  

Apart from financial backing, experienced business people who have successfully navigated the entrepreneurial landscape are around for mentorship and guidance.   

5. Business-Friendly Laws 

India has made considerable advancements in creating a business-friendly environment. As a result, more developed-name companies are establishing new operations in India. Whether a unified tax system with Goods and Services Tax (GST) or liberalizing foreign direct investment (FDI) policies, such policies and bills introduce transparency and uniformity in the Indian economy. 

Also Read: New Labor Codes in India

Steps to Start a Business in India

Let’s quickly go over the essential steps that will help transform your business idea into a real success in India.  

1. Identify a Business Idea and Market Research  

One of the first steps is to decide the kind of business you want to establish. Maybe it’s something you’re interested in or passionate about. Either way, it’s essential to research and understand the market and competitors clearly. 

2. Create a Business Plan 

Once you have your idea, it’s time to create a business plan like a blueprint. All the details here will be like a guide you can use for your people and your business in the future. Some of the core elements of a business plan are: 

• Company description,
• Executive summary,
• Financial projections and plans,
• Team management,
• Implementation process and business strategy,
• Services and products available,
• Market analysis.

3. Business Name 

Decide what you will name your firm or company. In India, if your name is similar to an existing company name or trademark, the Registrar of Companies will reject your company registration application. Hence, it’s crucial to do thorough research and pick a name.

4. Source of Funds 

Every enterprise, small or large, relies on funding. Some businesses are self-funded, with income collected from friends, family, savings, etc. Others use alternative means to establish and run the business:

• Loans from banks,
• Loans from cooperative societies, 
• Raise capital via crowdfunding, 
• Approach an angel investor or venture capitalist. 

5. Business Office 

Your business needs an official address to register your business and for official communication. This can be your home if it’s an online business or a rented property. 

6. Business Registration 

Wondering how to register a company in India? Depending on the type of business you aim to establish, you need to file the paperwork and get licenses accordingly. Refer to the MCA website for better clarity on the company registration process. 

7. Open a Bank Account 

A bank account in your business’s name is essential. It’s where all business transactions will be carried out. It also helps keep personal and business accounts separate. 

8. Build a Website 

In a world driven by technology, it’s best to have a website that showcases your products and services and ensures customers easy access to information. A professional-looking website with an easy-to-use interface is what you need. 

9. Marketing Strategies 

After your registration, you must focus on acquiring customers. Create marketing strategies that promote your business. You can also use online social media platforms like Facebook, Instagram, and YouTube to reach a large audience and grow your business.

Processes Involved in Registering a Business in India

The answer to ‘how to register a business in India’ is not as straightforward. This process involves a series of structured processes and regulatory procedures. It’s essential to follow through with the process thoroughly, as it lays the foundation for success in the long term. Let’s review what you need to do and answer how to register a firm in India. 

1. Determine Your Company’s Structure

As mentioned earlier, determining your business structure is the most fundamental process when you ask how to register a business in India. This structure regulates how you manage and operate your business now and in the future.  

2. Getting a DSC (Digital Signature Certificate)

Having a Digital Signature Certificate (DSC) is crucial when registering a company online. The Information Technology Act of 2000 has rules about using digital signatures on electronic documents. This is done to ensure the electronic files are secure and genuine.

3. Obtain a DIN 

A Director Identification Number (DIN) is issued by the Ministry of Corporate Affairs (MCA), typically to current or new business directors. 

4. File for Name Approval

Following the incorporation of your company, you have two options for requesting name approval. You can use the RUN (Reserve Unique Name) e-form or the SPICe+ (Simplified Performa for Incorporating Companies Digitally) forms. SPICe+ stands for “Simplified Performa for Incorporating Companies Digitally.”

5. Apply for PAN, TAN, and GST.

For tax, you must obtain a Tax Deduction and Collection Account Number (TAN) and Permanent Account Number (PAN) from the Income Tax Department. 

If your business turnover exceeds the threshold, you need a Goods and Services Tax Network (GSTN) number. 

6. Obtain Licenses and Permits

Based on the nature, location, and type of business, you might need additional permits and licenses from government departments or local authorities. This includes specific licenses or approvals from regulatory authorities. 

While the above steps are essential, the actual requirements will different based on where your business is located in India and the nature of your business. It’s advisable to consult with a local body to ensure a smooth business registration process.

Document Requirements in Registering a Business in India

Like in the registration process, the documents you need vary based on the type of business entity you're establishing. However, here are the general documents you need: 

1. Sole Proprietorship

• ID and address proof - Proprietor’s Aadhar, PAN card, passport or voter’s ID
• Bank account details - Cancelled cheque and copy of bank statement 

2. Partnership 

• ID and address proof - All partners' Aadhar, PAN card, passport, or voter’s ID
• Partnership deed - A written agreement specifying the terms and conditions of the partnership.
• Registration certificate - If the partnership firm is registered with the Registrar of Firms

3. Limited Liability Partnership (LLP)

• ID and address proof - All partners' Aadhar, PAN card, passport or voter’s ID
• DSC for partners 
• DPIN for partners 
• LLP agreement 
• Proof of registered office 

4. Private Limited Company

• ID and address proof - All partners' Aadhar, PAN card, passport or voter’s ID
• DSC for directors 
• DIN for directors 
• Memorandum of Association (MOA) and Articles of Association (AOA)
• Proof of registered office
• Declaration of director

5. Public Limited Company 

• Similar to private limited company requirements, but with additional share capital and prospectus requirements.

6. One Person Company (OPC)

• Similar to private limited company requirements, but with a single director/shareholder.

Setting up a Company vs. Partnering with an Employer of Record in India

Partnering with an Employer of Record (EOR) and starting a business in India are very different approaches. Each of them has its considerations and benefits. You can choose based on your goals, long-term strategy, and resources. Here are some aspects to give you a clearer picture: 

Read More: Background Check in India

Hire Talent in India Compliantly 

Clearly, India has a thriving business environment. However, setting up a company anywhere, even in India, is challenging, requiring attention to detail and complying with rules and regulations.  

Skuad is an EOR platform that helps organizations expand their operations globally without setting up local legal entities. By partnering with Skuad, you can easily hire, onboard, and pay employees in India and over 160 other countries compliantly.

Book a demo today to get started. 

FAQs

1. Can a foreigner start a business in India?

Yes, foreign nationals can start a business in India. Certain rules and regulations must be followed depending on the type of business. It’s best to consult with legal experts or India's Ministry of Corporate Affairs for detailed guidance based on your specific circumstances.

2. How much does it cost to open a business in India?

The costs of starting a business in India differ based on industry, location, structure, etc. The typical costs include registration fees, initial working capital, office rental space, compliance costs, legal fees, and more. Estimating specific costs is easier once you chalk out a detailed business plan.   

3. Can a US citizen start a business in India?

Yes, US citizens are allowed to start a business in India. You need to remember that there may be specific rules and regulations you must adhere to, like complying with legal and tax requirements or obtaining the necessary approvals.   

4. How much tax do business owners pay in India?

The amount of tax payable depends on many factors, like the applicable tax laws, the turnover, and the type of business. As a business, a few common taxes you will have to bear are local taxes, corporate income tax, and GST.   

5. Which business has no income tax in India?

No business is completely exempt from income tax, but the rate varies based on several factors. Tax is a complex subject, so it’s best to seek professional advice.