Starting your own business in India

So you want to start your own business. Well that's excellent, but instead of having to learn the hard way, what route is best, here are some pointers:

1. Proprietorship. If you are starting a one-person, self-employment kind of thing, then you're better of starting a proprietorship firm. This is usually for enterprises like digital artists, consultants, trainers, etc. Even if you're a work-from-home Mom, it's always a good idea to run your enterprise under a proprietorship account. My Mom does. :) That way, you can put in a lot of your daily expenses and reduce your tax burden. I started out this way, and eventually converted the proprietorship into a private limited company. If you run your proprietorship firm from a location other than your home, you'll also need clearances from the Municipality and local authorities. Also, you can't run a full-fledged commercial establishment from out of your residence. So if you start to grow well, move into a reasonably good commercial area.

2. Private Limited company. This is a more complicated option, but has a number of advantages. The complications arise from the need to comply with various regulations and laws. For instance, I got trumped once, when we realised we had to not only file our income tax returns with the IT department, but also with the Registrar of Companies (RoC). The fines for not doing this are pretty steep. So for the moment, we've decided to simply go ahead and continue not filing returns with the RoC, and hope they come up with some sort of an amnesty scheme. For a Private Limited company, you need:
a. Startup capital - I think the minimum is Rs. 2 lakhs, and that's what I started off with
b. Registered office - I had given my home address, although our office was elsewhere
c. Name of the company - you need to fill up the form with suggested names and go to the RoC. Avoid generic names, or you'll have to end up adding words like (India) or (Mumbai) to your name. Makes it kludgy. You also need justifications for why you chose that name.
d. Directors - I think you need at least 3 directors. I have my Dad and sibling registered as directors, and they have an equity holding in the company as well. When your company becomes successful, you can pay them a salary, thus increasing your expenses, reducing tax, and getting the money back into your own account. Needless to say, paying them a salary means increasing their tax liability, so you need to balance it all out.

For all this, you'll need to hire the services of a good Company Secretary, who will fill up the necessary forms for you, prepare the Articles of Association and Memoranda of Association, and do the rounds of the necessary departments to register your firm. Remember, keep this as generic as possible. More information on this is available at the ICSI site.

3. Partnership firm: I think this option is open to lawyers, CA's and such-like. I never explored this option, and can't provide much inputs. But you'll probably know someone else who's in a partnership firm, and can advise you on the legalities and advantages of it.

In any of these situations, a good Chartered Accountant is a must. When you're starting out, the fees you pay to the CA might seem very high, but a good CA will save you tons of money in the long run by reducing your taxes, and showing you the best way to increase your expenses.

Don't forget to register for service tax. A very wide range of services now come under the ST net.