How To Start A Business In India

India is a nation with huge population and diversity. With current Population of India estimated to be 1.28 billion, second only to China, India has become a haven for business people, entrepreneurs, and investors. The first advantage that comes to mind when you think of starting a business in India is it’s population. Why not? Large
population with more than 350 million strong middle-class means a ready made market for any goods and services that meet the demands of the People.

Another great advantage is the Indian economy. With 1.28 billion people and the world’s fourth-largest economy, India’s recent growth and development has been one of the most significant achievements of our times. The Economy of India is the tenth-largest in the world by nominal GDP and the third-largest by purchasing power parity (PPP) according to the world bank.

Security is another big plus. Apart from cases of rapes here and there (which is not exactly peculiar to India alone) India is relatively secure, creating enabling environment for business to thrive. Terrorism and kidnapping are not serious issue in India while the political atmosphere is one of the calmest in the world.

So, if you are thinking of starting a business in India, you are in the right direction. Here are the process involved in
setting up small medium scale businesses in India. Make sure you read everything and ask questions utilizing the comment system below.


Decide on Business You Want to Start

This is an important decision and the most important aspect of starting a business in India because rest of the challenges of setting up a business are based on the type of the product you want to produce/sell or the kind of services you wants to offer. This decision can be taken through a comparative analysis of the several products or services that are in demand in India.

The analysis involves assessing the size and structure of the market for the products or services; determining the future demand pattern for each of them; comparing their competitive positions in the market; graphing the life cycle of each product and consistency in demand for the services; finding the shelf life of each product. The ease of availability of raw materials, technology for production as well as the manpower are other important determinants.

*On the table below are some of the hottest business opportunities in India by sectors. Narrow your choices down to these businesses and make your decision if you haven’t done that already.

Services   Agriculture  Commerce   Industry
Transportation Business Tomato Farming Fashion Sells and Accessories Foods and Beverages
Hotels and Restaurants Poultry Farming Electronic sells Pharmaceutical
Starting a Pre School in India Rice Farming Grocery Supermarkets Textiles
Health Care Services Mushroom Production eCommerce Furniture Making

In the case of manufacturing, Indian Government policies and regulations can also help you or any entrepreneur in taking the decision. Central Government and the State Governments in India provide incentives for manufacture of certain products by small scale units. The most important promotional measure being the reservation of several products for exclusive manufacture by small scale industries.

Items Reserved For Small Scale Industries in India

The following items are reserved for exclusive manufacture by small scale industries in India:

  • Food and Allied Industries: Pickles & Chutneys, Bread, Mustard Oil (except solvent extracted), Ground nut oil (except solvent extracted).
  • Wood and Wood Products: Wooden furniture and fixtures
  • Paper Products: Exercise books and registers
  • Injection Moulding Thermo Plastic Product: PVC Pipes, including conduits upto 110 mm dia, Fittings for PVC pipes
  • Other Chemicals & Chemical Products: Wax candles, Laundry soap, Safety matches, Fire works, Agarbatties
  • Glass & Ceramics: Glass Bangles
  • Mechanical Engg. Excluding Transport Equipment: Steel almirah, Rolling shutters, Steel chairs – all types, Steel tables – all other types, Steel furniture – all other types, Padlocks, Stainless steel utensils, Domestic utensils – Aluminum

Large/Medium units can, however, manufacture such reserved items provided they undertake to export 50% or more of their production. Also, there are some agencies and organizations which provide entrepreneurs with the necessary information required in making a product choice.

The Directorates of industries of different States in India provide guidance to you the entrepreneur with respect to the particular State you want to setup your business. An entrepreneur can also study the industry clusters of India to get an idea about the type of products best suited for production in particular areas.

All these put together will help you decide on product or services you want to offer. Having decided on a business you want to start in India, the next step is to register your business with the Ministry of Corporate Affairs, India.

Register With The Indian Ministry of Corporate Affairs

This is the next important process – to register your business in compliant to the Companies Act 1956. Registration of business in India is relatively simple and takes about 12 days to complete.

For registration and incorporation of a company, an application has to be filed with Registrar of companies.
Application for registration of a company accompanied by the selected names, Memorandum of Association and Articles of Association and other necessary documents is to be filed with the Registrar of companies of the State in which the company is proposed to be incorporated.

Under the Companies Act, you can form two types of companies, namely a private company or a public company.

A Private Company is one, the articles whereof contains the following restrictions:-

    • Restricts the minimum paid up share
      capital to such an amount as may be prescribed but which shall not be
      less than rupees one lakh;
      • Restricts the rights of members to transfer its shares, if any;
        • Limits
          the number of its members to fifty excluding the past or present
          employees of the company who are members of the company;
          • Prohibits any invitation to the public to subscribe for any shares or debentures of the company;
          • Does not invite or accept any deposits from persons other than its members, directors or their relatives
          Also, the minimum number of members in a private company is two and such a company must have the words ‘Pvt Ltd’ as the last part of its name. A Public Company, as defined in the Companies Act, has the following features:-
            • Its shares are freely transferable;
              • There is no ceiling on its membership;
                • It can invite general public to subscribe to its shares;
                  • It has a minimum paid up capital of Rs. 5 lakhs or such higher paid up capital as may be prescribed;
                  • It is a private company which is a subsidiary of a public company.
                  Also, the minimum number of members in a public company is seven and such a company must have the
                  word ‘Ltd’ as last part of its name. Detailed procedures for registration of business in India can be found here.

                  Create a Robust Business Plan

                  Every new venture should have a business plan. A business plan is the formal written expression of the entrepreneurial vision, describing the strategy and operations of the proposed venture. The business plan also goes by other names, depending on its intended audience. Presented to a banker, it may be called a “loan proposal.” A venture capital group might call it the “venture plan” or “investment prospectus.”
                  The advantages of writing a business plan far outweigh the costs. The purpose of the plan is to enable the top executives of the firm to think about their business in a comprehensive way, to communicate their objectives to individuals who may have a stake in the firm’s future, to have a basis for making decisions, and to facilitate the planning process.
                  Entrepreneurs should undertake the task of preparing the business plan personally. Although outsiders – consultants, accountants, and lawyers – should be tapped for their advice and expertise, the promoter or the initial top management team should be responsible for the writing. Personally drafting the plan will enable the entrepreneurs to think through all aspects of the proposed business and ensure that they are familiar with all the details, for they will have to make decisions about the new venture and be responsible for those decisions. Moreover,
                  investors expect the founders to be involved in and knowledgeable about the proposed enterprise.

                  The Benefits of Business Planning

                  The business plan can personally benefit the entrepreneurial team. Founding a new business can be enormously fulfilling and exhilarating, but it is also an anxiety-ridden and tense experience. Usually a great deal of money is at
                  stake, and the consequences of poor decisions can affect many people for a long time. In developing and writing a business plan, the entrepreneurial team reduces these anxieties and tensions by confronting them in advance.
                  By projecting the risks of the new venture into the future, the team comes to grips with potential negative outcomes and the possibility of failure. The knowledge that comes from this experience can reduce the fear of being taken by
                  surprise by problems that could have been foreseen and provided for at the very outset.

                  Setting Up Your Business Infrastructure

                  After the location for the setting up of your business is finalized – having decided on a city where you would like to setup your business in India, the next step is to approach the concerned authority (Municipality, Public Works Department) for acquisition of the plot of land. Before construction of the factory or industry, whether small, medium or large, approval of plant layout and machinery drawings has to be obtained from the concerned authorities. It is only after these approvals are obtained that the structures may be raised according to the plan.
                  Once a suitable industrial plot for the unit is secured, the next task is construction of the building. It involves :-
                    • Architectural design of the building : that of finding a suitable architect to design the outlay of area and factory.
                      • Design of factory building has to be in consonance with the type of industry.
                        • Have an appropriate plant layout. If you are setting business at home, plan the area, which is to be used as your production center or office, judiciously. You may like to take help of a professional to ensure that the area is utilized optimally.
                          • An architect’s estimate of building construction is essential for loan applications. Further, architect’s certificate for money spent on building is needed for disbursement of loans.
                            • Appointment of engineers and contractors
                            • Supervision of the construction work
                            The State Government offers incentives like land and building tax concessions to new and existing entrepreneurs.

                            Indian Regulatory Requirements

                            After you have taken all the important decisions relating to starting a business in India, you have to take into account the basic regulatory requirements which are to be followed for setting up your business in any part of India. The most important regulation is the Companies Act,1956, which regulates all the affairs of a company.It contains provisions relating to the formation of a company, powers and responsibilities of the directors and managers, raising of capital, holding company meetings, maintenance and audit of company accounts, powers of inspection and investigation of company affairs, reconstruction and amalgamation of a company and even winding up of a company.

                            The Ministry of Corporate Affairs, earlier known as Department of Corporate Affairs under Ministry of Finance, is primarily concerned with administration of this Act as well as other allied Acts and rules & regulations framed there-under.

                            The next important regulation relates to environment. The environmental regulatory requirements envisage a wide legislative framework covering every aspect of environment protection like air, water, noise, forest conservation, wildlife protection, etc.

                            Also, separate set of laws and rules for emission of hazardous wastes have been enacted. The Ministry of Environment and Forests (MoEF), is the nodal agency for regulating all such environmental aspects. It undertakes conservation & survey of flora, fauna, forests and wildlife; prevention & control of pollution; afforestation & regeneration of degraded areas. Every industry has to abide by all such guidelines and parameters for environmental protection because only this will ensure its sustainable progress and growth.

                            Credit to the Government of India through the National Portal of India for the business knowledge resources

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