A BLOG BY
GAURAV RAJ BHAGAT
ADVOCATE
HIGH COURT M.P
Pertinent issues focusing on day to day legal
problems of small businesses in India and unavailability of specific expert
legal guidance is forcing the small entrepreneurs to seek expensive legal
assistance from different experts at different point of time.
However seeking one single experts advise may be
fruitful and beneficial in terms of financial liability as well as qualitative
assistance.
Burning legal issues requiring immediate attention
with reference to small business into prices are
1. Licensing is one of the most common legal issues small
businesses encounter. Ensuring that the
business is being performed in accordance with local government's requirements
for business licensing. Otherwise, it is most likely face exorbitant fees that
would easily be avoided. The cost of the license may vary depending on where
you operate, but the need to have one remains constant throughout the country. Kinds of licenses required may be as under
(a) Company or LLP Registration
It is advisable for Entrepreneurs who have plans for
operating a business with an annual turnover of more than Rs.20 lakhs to obtain
a LLP or Company registration. Once, a company or LLP is registered, the entity
would have a separate legal identity and the promoters would enjoy limited
liability protection. Further, the business would also become easily
transferable and the entity would have perpetual existence. Hence, before
starting a business, its best to consult and expert and register a company or
LLP.
(b) GST Registration
All
types of entities and individuals who have an aggregate annual turnover of more
than Rs.20 lakhs in most State and Rs.10 lakhs in Special Category States are
required to obtain GST Registration. Further, any person supplying goods
involved in intra-state supply is required to obtain GST Registration,
irrespective of turnover.
(c)Udyog Aadhar Registration
This
is a registration available for entrepreneurs who want to start and
operate a small business – micro, small and medium enterprises. 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. Once, Udyog Aadhaar registration is obtained for a business,
it can enjoy various subsidies and schemes specially provided by the Government
for helping small businesses in India.
(d) FSSAI License or Registration
Food
safety and standard authority of India”(FSSAI), is responsible to verify the
safety and standardization of food products nationwide. Retail stores,
restaurants, modern trade outlets, kiosks and consumers alike look for this
five letter word in their food packets or containers.
Under FSSAI, the license or
registration is divided into three categories namely:
·
FSSAI
Central License
·
FSSAI
State License
·
FSSAI
State Registration
(e) Import Export Code
Any
person involved in import or export of goods/services from India must
obtain Import Export Code. To obtain Import
Export Code, it is mandatory for the business to have a PAN and a Current
Account in a bank.
(f) Shop and Establishment Act License
“The
Shop and Establishments Act”, was created for regulating the conduct of
business like the hours of work, child labor, payment of wages, safety and
general health of the employees. Shop and Establishment Act license or
registration is issued by the State Governments and varies from States. Hence,
based on the State in which the business is situated, the concerned State
Government authority must be approached for obtaining Shop and Establishment
Act License.
(g) Gumastha licence
Gumasta
License is a registration required for doing any kind of
business in the state. It is governed by
the Municipal Corporation under the Shops and Establishment Act. This is a certificate which provides
you the authority to do your business at a particular place.
(h) Other Licenses and Registrations
Certain
types of business that involve aspects of dealing or providing insurance,
financial services, broadcasting services, defence related services, etc.,
would require approval from regulatory bodies like Reserve Bank of India,
IRDAI, etc.
Further,
a business may also have to obtain permits from the fire department, or the
pollution control board, or maybe the local healthcare system. It all depends
on the type of business you are willing to operate. Hence, prior to starting a
business, make sure you discuss your business with a Professional to determine
and understand the legal and regulatory requirements.
2. Handling Taxes
One of the key legal issues facing
small businesses is handling taxes. Besides the fact that not correctly paying
taxes could result in fines and even imprisonment, it can also crush your
business.
One of the key determinants regarding
how much tax you’ll pay is the kind of business structure you choose.
Each business structure comes under a
different tax bracket that affects how much tax you’ll pay and also what you
can claim on tax.
3.Employee Contracts
Every small business needs legally binding contracts They need contracts for
different types of employees including full time, part time, and casual.
Contracts are also necessary for any outside contractors. These contracts need
to stipulate payment, termination clauses, rights and responsibilities of the
employee, and anything else deemed important.
It should also define the kind of
behaviour you expect employees and even contractors to engage in. If employees
violate this and engage in behaviours that damage the business then you’ll be
within your legal rights to terminate their employment. It’s a safeguard every
small business needs.
4.
Intellectual Property Issues
Small businesses have issues with
intellectual property rights just like any other business. Trademarks are another surprisingly common
legal issue faced by small businesses. Be sure to do plenty of research ahead of
naming or renaming your business or launching any new products or services.
If you can think of it, there's always a chance someone else has as
well, and it's entirely possible that the other business already owns the
trademark. Infringing on someone’s trademark is not the kind of legal hot water
you want to find yourself in, even if that infringement was an honest mistake.
5.
Dissatisfied Customers
The bane of any small business. Dissatisfied
customers cause problems for many reasons. Obviously, there is the concern of
bad word of mouth spreading about the business, there is a loss of profits, but
then there are legal issues that can arise.
The big problem here is that if
they’re determined enough, or dissatisfied enough, they could take out a
lawsuit against your business. While this is completely impossible to
eradicate, one thing you must do is use disclaimers with all of your products.
This essentially limits any of your responsibility once they’ve purchased your
product and places the responsibility with the customer.
One must make
sure that we classify employees correctly as far as the government is
concerned. "The misclassification of employees as independent contractors
presents one of the most serious problems facing affected workers, employers
and the entire economy,
7 Shareholders' Agreement
If
our business has more than one shareholder, an agreement is strongly
encouraged. One day, the business may split up or be sold, and if no agreement
exists, legal battles can and likely will ensue. Even if current shareholders
are on the best of terms, things can always turn sour, and it's not a good idea
to leave any gray area when it comes to who gets what. The agreement should be
drafted, or at the very least, overseen by a lawyer with experience in such
matters.
8.
Inspection
9. Contract
Breach ( Supplier – vendor contractual breach)
10. Labour Compliance
