I started a private limited company recently but I tell you it was not a piece of cake. There were a lot of legal formalities to be maintained. For someone who is just starting out, it might seem like the end of the world too.
Fret not. I am here to help.
In this article, I am going to show you How to Register eCommerce Business in India.
Here are the steps involved in registering eCommerce business in India
- Step 1: Make a business plan
- Step 2: Legally register the ecommerce business
- Step 3: Open a bank account
- Step 4: Register for licences
- Step 5: Launch your online store
- Step 6: Setup a payment gateway
Note – This is also applicable if you are starting a dropshipping store.
But before starting, first things first. Registration of any business is not the first step.
You need to figure things out first. You need to research your niche, shortlist the in-demand (and low-competitive) products, checkout with your competitors, design a brand for yourself, and above all, build the right mindset, to begin with, your eCommerce entrepreneurial journey.
Once you are done with all this, you’re good to start. Let me begin by clarifying a very common question you must be having in your mind.
How Much Does it Cost to Register eCommerce Business in India?
The answer is – it depends! Whether you are registering a sole proprietorship or a Pvt. Ltd. company, doing it all by yourself or through an agent, opting for certain licenses, or staying away from some. But then, I don’t want to leave you in the mystery.
Following is the list of the (approximate) registration costs you may require to cover –
|Required Registration||Approx. Cost|
|1||Shop Act (10 or more employees)||< ₹1,000/-|
|2||LLP (minimum 2 partners)||> ₹10,000/-|
|3||Pvt. Ltd. Company||₹10,000/- to > ₹30,000/-|
|6||Bank Current Account (minimum deposit)||₹10,000/-|
Note – Above costs don’t include professional charges which may vary greatly.
Now that you have a rough idea about how much it is going to cost you, let’s move ahead & get on the floor.
Step 1: Make an Ecommerce Business Plan
Just like how other businesses require a plan to start, you need to work & prepare one for your eCommerce store as well. What should be included in the eCommerce business plan?
Here is the quick list:
- Executive Summary
- Business Model (dropshipping, private labelling, multi vendor marketplace, etc.)
- Market Research & Analysis
- Logistics & Operations Plan
- Human Resources (if any)
- Startup & Operational Cost
- Financial Resources
- Sales Forecast & Potential Revenue
- Marketing Plan
- Beta Testing Strategy
Now, it is not mandatory to create a business plan if you are going to register a sole proprietary firm (more about it later), but having one will always help you for your journey ahead.
So once you have your plan ready, you’re all set to step up to the most crucial part. Registering a legal entity.
Step 2: Legally Register an Entity
The legal registration of eCommerce business can be done basically in 3 ways –
- Sole Proprietorship
- Forming a LLP
- Forming a Pvt. Ltd. Company
Now which way you should go completely depends on how serious you are, what is your budget, are you starting as a ‘one-man band’ or having multiple partners, is anyone else going to invest in your business, etc.
In order to help you make the right decision, I will also list down the pros & cons of each type. Let’s look at them one by one.
This is the easiest & the most convenient way to start a business in India. This is great for beginners as the process is less demanding, has lesser legal compliance & is easy to handle.
If you have to start your business as a sole proprietor, you may not even need a separate registration for the business. But if you are serious about your eCommerce business & want to apply for a payment gateway later, at least getting a Shop & Establishment Act certificate is necessary.
In a sole proprietorship, there is no distinction between you and the company. In short, you are the company. You can have a name for your establishment, but you don’t require a separate PAN or Bank Account. All you will require is a current account.
While you are liable for the income taxes, there is no separate corporate or company tax to be filed.
If you want to register eCommerce business as a Sole Proprietary firm, all you need to do is, head to your state’s labor management system’s website or your local municipal corporation office –
- Submit the registration form
- Undertaking form
- Address proof
- Registration Fees
And you’re done! You will receive the registration certificate soon when it’s approved. Make sure you are registered under the ‘E-commerce’ category to make things simple for you afterward.
Note: If you have less than 10 employees, you will just get the intimation certificate which is enough for you to function as a sole proprietor. If you have more than 10 employees, then you will need to register under the Shop & Establishment Act.
Pros of Sole Proprietorship Registration
- Easy to register & establish
- Easy to operate
- No additional taxes or legal compliance
Cons of Sole Proprietorship Registration
- Complete liability on you
- Will be difficult to receive funds
- If the income is higher, the taxes will go higher (as per individual)
Limited Liability Partnership (LLP)
LLP is the best bait for someone who wants to start something serious, step up from the ‘sole proprietor’ zone. But in order to register eCommerce business as an LLP, you should at least have a partner with you and some startup capital to show. You cannot register an LLP company all alone without any funds.
If you register eCommerce business as an LLP, you need to do the incorporation. The process is slightly demanding as compared to that of a sole proprietorship, but it’s a stable way to set up things if you are dreaming big.
How to register eCommerce Business as an LLP Company?
- Apply for the Director’s Identification Number (DIN) from the official website of Ministry of Corporate Affairs
- Once you get the DIN, apply for the Registrar of Companies (ROC) in order to check the availability of your company name
- Once you get the confirmation of name availability, you can incorporate & form your company within next 6 months
- You also need to apply for Permanent Account Number (PAN) for your company’s name
You need to apply additionally for certain registrations about which I will be listing down in the Step 4 section.
Pros of Forming a LLP
- Multiple people can own the business
- Business is a separate entity than you (thus the limited liability)
- There can be tax advantages depending on the income
Cons of Forming a LLP
- There are penalties for non compliance
- If a partner chooses to move out, the company dissolves
- Creditworthiness in the eyes of banks is lower
Pvt. Ltd. Company
As the name suggests, Private Limited companies are held by private stakeholders.
Now if you are reading this article & thinking about starting out an eCommerce business, either registering as a sole proprietor or forming a Limited Liability Partnership will just do the work for you. Forming a Private Limited Company might not be required in the beginning.
But as I thought that you shouldn’t miss out on the information, I decided to include this in this list.
If you have a larger team and are looking to seek investment in your eCommerce startup, then having a Pvt. Ltd. will not only help but will also be mandatory.
It is the most demanding legal entity compared to the other two, taking into consideration all the processes & compliance it requires.
How to register a Private Limited Company for eCommerce?
- Apply for Digital Signature Certificate (DSC)
- Apply for Director Identification Number (DIN)
- Apply for the name availability
- File the EMOA and EAOA to register a company
- Apply for the PAN & TAN of the company
- Certificate of incorporation will be issued by RoC
Pros of forming a Pvt. Ltd. company
- Separate legal entity
- No individual liabilities
- Can raise funds for your ecommerce business
Cons of forming a Pvt. Ltd. company
- Limited number of shareholders
- Greater legal compliance
- Expensive to form
Step 3: Open A Current Bank Account
None of the above company registration processes will be completed without this step.
If you registered your company as Sole Proprietor – then you don’t have to worry much. All you have to do is open a current bank account with your name connected to your own PAN and you’re good to go.
If you register your business as an LLP, you will have to open a new bank account with your company’s name connected with the company’s PAN.
The same is the case with Private Limited Companies. You have to create a new current bank account with your company’s name & connect it with your company’s PAN.
This step is very much important not only to figure out all the taxation & financial things later but also to get your payment gateway for online payment collection.
Once you are done with these steps, let’s take a look at what are the licenses required to start an eCommerce business in India?
Step 4: Licence Registration
Following licenses are (or maybe) required to legally run an eCommerce business in India
- GST Registration
If you are looking to sell things online & are serious about running an eCommerce business, then applying & getting a GST is a no-brainer.
Though you will only be liable to pay the tax when your annual income exceeds 20 lacs, you will require it for various other purposes. But don’t take my word for it & consult your CA before registering as you will be liable to file the returns every quarter once you register & missing it will result in penalties.
- MSME Registration
If you want to get the benefits of Government schemes, subsidies & other such facilities, registering your eCommerce business under Micro Small Medium Enterprises & having its certificate will definitely be of help to you.
- Shop & Establishment Act
Now, this is important if you are running a physical store or an office, but if you want to have a payment gateway ahead (which of course you will) having a Shop & Establishment Act certificate will help.
- Professional Tax
If you have at least one or more employees working for you, filing a professional tax is mandatory.
- Apply for PFO & ESIC (only if you have employees)
If you are registered as a Pvt. Ltd. company, you need to apply for the Provident Fund Organization & Employee’s State Insurance Corporation to give the PF & health insurance benefits to your employees.
Step 5: Launch Your Online Store
This shouldn’t require any further explanation. You just have to book your domain & hosting, build an eCommerce website on it, upload the contents, upload the product catalog, and BOOM! Your store is launched.
If you are not hosting your own store & building a store on popular marketplaces like Amazon, Flipkart, Etsy, etc. you need to study their terms & policies first & then proceed.
Step 6: Setup a Payment Gateway
Here is where you arrive at the final stage. In this stage, you set up a payment gateway for yourself so that you can collect the payment from customers online. If you have done and acquired all the necessary registrations & certificates, this step will go smoothly for you.
While all existing marketplaces already have their own payment gateways, having one for yourself is a necessity if you are launching your own eCommerce store. The payment gateway will not only help you in receiving the payments, but the inbuilt tools will be of great help to manage your finances & taxes.
Register Your Ecommerce Business Today
A $5.4 trillion economy & an industry booming with a 35% growth rate every year is not a thing to be taken lightly (Source). Yes, I am talking about the global eCommerce industry.
With the rapid digitization of almost everything and the change in buying habits of consumers, one thing is for sure. Ecommerce is not only the present but also the future!
While such a great opportunity is available for entrepreneurs in the world of eCommerce, it is also necessary to understand a few things.
Starting an eCommerce store or a brand is not a hobby. It is a serious business. And just like how in the case of other businesses – with great business plans comes legal responsibilities.
The same is the case with eCommerce.
And once all the registrations are done, licenses are acquired, the store is launched & the payment gateway is connected, you can finally take a sigh of relief. But, it is only now that the real game begins.
Let me know in the comment section below what you think regarding the registration process and how things can be made so that it becomes easy to start an eCommerce business in India.
Note: This article should not be considered as legal advice & is written just for informational purposes. You should seek appropriate counsel for your own situation.