Legal Requirements for Starting an Online Business in India

By Diya Sharma (1st Year Student of Law, Bennett University, Noida)

Introduction

We all have our moments in childhood when we have made or put up some demands in front of our parents to buy us many products, such as ten school bags, barbie accessories, bay-blades, crystal pens, barbie makeover sets, cycles and so many more.  All were found in one particular place which is the market, it is not just a place where potential buyers and sellers meet to buy and sell products and services that satisfy the needs and wants of the person who is also the consumer. All of the products present in the market are made or processed by a firm who have targeted what kind of consumer they want to have. Firms are the ones that produce the goods and services and to produce them there are four essential factors that are needed – Land, Labor, Capital, and Entrepreneur. Land is the one which is rented or bought by the firms to have a particular space to make or produce goods and services, Labor is the working force due to which the making or process becomes smooth and successful, whereas Capital is the resource – every product need resource or capital through which their product enhances more than the others and the competition even becomes stronger. Capital is generally in the form of money but there is human capital as well in the form of investors who also put in their money, time, and brain to make the product even bigger than what it actually is and the last one is Entrepreneur the one who is the founder of the particular product or service and brings the product to life—taking on the financial risks in the hope of profit. Entrepreneurs are often seen as innovators who bring new ideas, products, services, or business models to market. They are characterized by their ability to identify opportunities, take calculated risks, and drive economic growth through their ventures. Key traits commonly associated with entrepreneurs include creativity, resilience, vision, and a willingness to embrace challenges and uncertainties.

 Now let us talk about business, what it is, and its importance. A business is an enterprise or organization which is engaged in commercial, industrial, or professional activities. The purpose of a business is to organize some activity that produces goods and services which later gives out an economic output. Businesses can be for-profit entities or non-profit organizations fulfilling a charitable mission or furthering a social cause^[1]. Businesses range in scale and scope from sole proprietorships to large, international corporations. The term business also refers to the efforts and activities undertaken by individuals to produce and sell goods and services for profit. The idea starts with a thought and a name, and broad statistical surveying might be expected to decide that transforming the thought into a business is so possible. Any business requires a business plan to operate a business. It is a comprehensive document that outlines the objectives, strategies, and operational plans of a business. It serves as a roadmap for how the business intends to achieve its goals.

Key components of a business plan typically include Executive Summary: A brief overview of the business, its mission, and key highlights. Company:- Description detailed- information about the business, including its history, structure, and what it does. Market Analysis: Insights into the industry, target market, and competitive landscape. Organization and Management: Information about the business’s organizational structure and the management team. Products or Services: Description of the products or services offered by the business. Marketing and Sales Strategy: Plans for how the business will attract and retain customers. Funding Request: If seeking financing, details of the funding requirements and how the funds will be used. Determining the legal structure of the business is an important factor to consider, since business owners may need to secure permits and licenses and follow registration requirements to begin legal operations.  Corporations are considered to be juridical persons in many countries, meaning that the business can own property, take on debt, can sue,and be sued in court.

Most of the existing businesses are profit-oriented or are operated to generate profits or certain desired outcomes. But there are other businesses as well that work for a certain cause, the welfare of society and to spread a certain message these can be charities, political groups, social organizations, and many more. Business activities often include the sale and purchase of goods and services, a business activity can take place at a physical store, online, or on a roadside. Even a person selling a normal cup of sweet corn or a plate of Momos is doing business in their own way. Getting money in exchange for the food or service prepared by them. Also, anyone who conducts a business activity and gets financial earnings has to report their business income to Indian Revenue Services. A company is often defined by the type of business it is, for example – real estate business, advertising business, and many more, basically the type of business is defined under different sectors of it. For example, Boat is an electronic brand that supplies us with – headphones, earphones, ear- dopes, charging cables and so much more.

Types Of Businesses

There are many ways to organize a business and there are various tax and legal structure that corresponds with each other. Businesses are generally classified as:-

Sole proprietorship– The business is owned and operated by a single person. There  is no separation of legal ownership of the business due to which the tax liabilities and all the legal liabilities are on the person who owns the business.

Partnership – The division between the legal ownership of a business between two or more people. Each partner contributes some money and other resources to the business and they all share the profit and loss gained from it.

Corporation – A type of business where a group of people acts as a single person or entity, owners are known as shareholders who exchange considerations for the company’s common stock. This also helps them off financial liabilities and more business obligations. A corporation comes with unfavorable taxation rules for the business and there is no bias.

Now, how do you start a business? To start with something good and new we all need an idea or a reason, be it revenge, a good cause, or something that is affecting society at large. Then the main question hits, how do we tackle the situation or the problem which has arisen? We go through some steps for this, which include conducting market research, developing a business plan accordingly, seeking capital or other forms of funding, choosing a location and business structure, picking the right name, submitting registration paperwork, obtaining tax documents (employer and taxpayer IDs), and pulling permits and licenses.

History

India is a country that has struggled to gain independence from British colonization. But after decades of struggles and losing lives finally, on 15^th August 1947 we, our land all of us got free. Freedom came with many issues, partition and integrating the country was one but we cannot forget that at that time most of the population of India was dependent on agriculture which was also commercialized, and were only growing crops like indigo. Local artisans were rarely found as the Britishers took raw materials from here at a very low price and developed ready-made goods there and sold it at a cheap price in our country which also forced the local artisans to shift from handmade goods to farming as they were not able to compete with the ready-made easily available good with good quality selling at low prices. There were also very minimal amounts of businesses present at that time one of them being Tata Groups, at that time popularly known as Tata Iron and Steel Plant which is also still existing. The unemployment was on its peak at that time and depending on foreign goods again was definitely not an option that was the time India declared itself and became a closed economy restricting taking any kind of help from the entities present outside the country and even not take any sort of help from any country as being self-reliant was highly necessary. Hence five- year plans were introduced, which are strategic frameworks used by businesses, governments, and other organizations to outline their goals, objectives, and actions for a five-year period. These plans provide a clear direction for future growth, development, and resource allocation. They key aspects of the plan must include and have – Vision and Mission Statements: Clarifies the long-term vision and mission of the organization, setting the overall direction and purpose. Goals and Objectives: Specific, measurable targets the organization aims to achieve within the five-year period. Strategic Initiatives: Major projects or initiatives that will be undertaken to achieve the goals and objectives. Action Plans: Detailed steps and timelines for implementing the strategic initiatives. Resource Allocation: Plans for the distribution of financial, human, and physical resources necessary to support the initiatives and actions. Performance Metrics: Key performance indicators (KPIs) and benchmarks to measure progress and success over the five year. Risk Management: Identification of potential risks and challenges, along with strategies to mitigate them. Review and Adjustments: Mechanisms for periodic review and adjustment of the plan to respond to changes in the internal and external environment. Now the main purpose of the Five Year Plan was to make sure that the country was developed in the most righteous direction, The  first five-year plan was introduced in 1951 by Prime Minister Jawaharlal Nehru, and targets and objectives were more or less achieved. With an active role of the state in all economic sectors. Five Indian Institutes of Technology (IITs) were started as major technical institutions. Its objective was the Rehabilitation of refugees, rapid agricultural development to achieve food self-sufficiency in the shortest possible time, and control of inflation. Then the second five-year plan was introduced in 1956- 1961 the Nehru-Mahalanobis model was adopted. Rapid industrialization with particular emphasis on the development of basic and heavy industries. The Industrial Policy of 1956 accepted the establishment of a socialistic pattern of society as the goal of economic policy. Throughout the period many Five Year plans were introduced and finally, in the year 2017 the trail of this ended. In 1991, the economic policies of India needed reforms. Due  to both external and internal forces, there were trading barriers due to which the entrepreneurs and new businesses were not able to go global and there was also less to almost no competition in some of the cases, Competition is good and healthy as it makes sure that the people are provided with the best and feasible product for them. Then globally the demand for Indian products and goods was going down, and most importantly India had a rising external debt was there as well which was one of the conditions when Prime Minister Manmohan Singh went to ask for a loan and some help from International Monetary Fund their Condition was to make sure that India now becomes an open economy.

Due to this many factors changed, and our Country did not have a closed economy anymore, the country was free from barriers and now foreign firms could enter easily, the employment rate got higher than before, and globalization hit hard due to this E-Commerce started to exist as well. Brands, hospitals, companies, arms, and what not did it come with? There were no trading barriers imports and exports could happen easily now.

The Trend

After looking at the history a bit, now let us come towards the trend, be it Youtube, Instagram or facebook we all have seen some person one or the other promoting a brand, advertising it and we have seen also some profiles on Instagram or facebook where some people own a particular business and are doing something creative which they love to do. Most of them do not have a physical store and sell their items online. Basically businesses will need the basic credentials of their client to deliver the product. An online business is a company or enterprise that conducts its commercial activities primarily over the Internet, this also helps their business grow globally and make a name for themselves.

Now, how to start an online business? Beginning a web-based business includes a portion of similar strides as a conventional business, with a couple of exemptions. You actually need to do your statistical surveying and foster a marketable strategy prior to anything else. Whenever that is finished, pick a name and design for your business, then, at that point, record any desk work to enroll your association. Instead of tracking down an actual area, pick a stage and plan your site. Prior to sending off your business, you ought to figure out how to develop your objective market, whether that is through conventional showcasing means or more inventive ways like online entertainment. We need to make a website target your market and move forward accordingly now let us now come towards the legal part.

What Guidelines Has The Government Issued For The Start Of An Online Business

The most common structures available to startups are partnership firms, sole proprietorships, LLP, OPC, etc. Each of these business structures has its pros and cons; hence, select them accordingly by taking the following parameters into account- tax liabilities you want to address Scope of your operation, Management structure, and Degree of Compliance. Also how much taxes you will pay will also be dependent on the type of business you are working on and what kind of business structure you have chosen. The level of hazard to your own resources (your home, your own savings) and even your capacity to get assets from adventure capitalists[1] or private supporters. So the business structure you select is an exceptionally basic choice that should be taken under the oversight of the field specialists. To start a company, it should have a legal name of its own and not be copied from anywhere, office addresses should also be registered, and relevant workers should be there with minimum capital. At the point when all such imperatives are satisfied, the organization can work as a sanctioned legal organization.  The clients are ordinarily inclined toward managing organizations having a substantial business structure. Hence, it is the most esteemed legitimate essential to begin an organization that proposes to have an internet-based impression.

Registering Under GST And Open Current Account Is A Necessity

Goods and Service Tax registration is a necessity itself to start an online business specially. In the instance of product selling, you need to keep up with the standards of the GST tax collection system. Another fundamental legitimate prerequisite is the kick-off of a financial balance. At the point when an LLP or privately owned business is laid out, it is less drawn-out to open a financial balance for the sake of the enlisted firm. A financial balance is expected in the online commercial center for installment doors and other significant endeavors.

Avail Business Insurance

You will likewise have to benefit complete insurance contract to defend your business against unforeseen occasions. A few choices are proficient responsibility, general obligation, business risk, item responsibility, and locally situated protection. Look at those and character the one that offers the best fit for your business.

Integrate Payment Gateway Portal

A payment gateway is a digital doorway for conducting secure payment transactions with customers against the services or products offered to them. The payment gateway acts as a secure payment framework that allows end-users to pay through several different modes such as net banking, debit cards, credit cards, etc. A payment gateway is essential for conducting online business regardless of the marketplace you wish to target.

Secure Your IPR Assets

Firstly, what is IPR? It stands for Intellectual Property rights. Now, Intellectual Property Rights (IPR) are legal rights granted to creators and owners of intellectual property, which includes inventions, literary and artistic works, designs, symbols, names, and images used in commerce. These rights provide creators and owners with protection and exclusive control over the use of their creations for a certain period of time, allowing them to benefit from their work. It includes patents, Trade Mark, copyrights, Trade Secrets, and industrial designs.

It is crucial to get your IPR resources, (for example, business name, logo, plan, slogans, and so on) assuming you have a goal to maintain a web-based business in longer run. The IPR resources likewise assume a crucial part in setting your market presence extra amounts of time. Once split the difference, it is absolutely impossible that you can resuscitate them assuming they need reasonable assurance. In this manner, register your resources under significant IPR regulations when you step into a business space.

Incorporate Age Restriction Norm into relevant Products Category

It expects you to stick to the Children’s Online Privacy Protection  Act (COPPA) on your web-based customer-facing site or a website. The COPPA has supported a not insignificant rundown of standards, among them; the most crucial isn’t to gather data from a singular mature under 13. Additionally, integrate age limitation standards into a few confined things.

Jot Down the List Of Prohibitive Items As Per FTP

All shipping businesses abide by some shipping restrictions. Generally, restricted items have a wider market reach. Just have a glance over the Foreign Trade Policy (FTP) before shipping commodities abroad, some of them are- airbags, aerosols, alcoholic beverages, gasoline, nail polish, cigarettes, perfumes that contain alcohol, dry ice, inventory, and many more.

Significance Of Proper Documentation For Online Businesses In India

This is another vital element in for any online business in India, the lawful agreements and documentation of your business. It will empower you to protect the business and allow you to embrace exercises without lawful issues. The record part might involve a few arrangements and protection strategy and so forth. It will likewise allow your business successfully to fight back the outsider questions that are unjustifiable. Any managing in the business scene is ridiculous without legitimate documentation, whether it involves selling out an organization or securing another one.

Conclusion

For any sort of business to grow in the right direction to earn profit later on, they have to make sure that their product is unique, their name is unique, and that their brand is unique. Otherwise, their whole business can get sued even for copying an idea, name, design, and many more. No one would want someone to point out if they are and have been doing wrong in their business and getting pointed out later by getting sued which not only affects your reputation and mental health but at the same time makes you financially unstable as well causes many times for making your business stand on its own people spend loads of money taking investments when necessary and let us be practical, many are emotionally attached to the business they have created and due to which at some point people or business owners even spend their whole savings of years to make something out of it and if in the end something goes down then you cannot blame anyone but yourself. The basic thing that we will have to do is conduct simple research and see if there are similar products available in the market we are trying to target and in that market are there anyone with the same packaging or slogan or even design? This could prevent not only from getting sued by the other business but also will make sure the essential time, money, and hard work of the workers and helping hands are not getting wasted in any sense.

Navigating the legal landscape of an online business is crucial for its success and sustainability. Adhering to legal guidelines ensures compliance, protects the business from potential legal issues, and builds trust with customers. Key areas of focus include choosing the appropriate business structure, meeting tax obligations, ensuring website compliance, protecting intellectual property, following consumer protection laws, and understanding e-commerce regulations. Additionally, businesses must prioritize data protection and cybersecurity, adhere to employment laws, and consider international regulations if they operate globally. It is not only this but we have to consider everything and have to be government-approved as well, these guidelines also help us get differentiated from other brands, labels, and products as well. Similarly in an online business, implementing these legal guidelines helps create a solid foundation for the business, fostering growth and minimizing risks. Consulting with legal professionals specializing in e-commerce can provide valuable guidance tailored to the specific needs of your business. By staying informed and proactive, online businesses can navigate the complex legal environment effectively, paving the way for long-term success and innovation.

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^[1]Adam Hayes “ What is a Business? And understanding Different types of Business” Investopedia 29^th February 2024.