Thursday, November 06, 2008

Legalities of starting a business

I always wondered what it takes to start a business in India.

Turns out that it is quite simple - no big bureaucratic red tape which I always thought India was. There are 3 major types.

Sole Proprietorship:

This is what I opted for. Nothing to register with the government, lawyer or auditor. You are fully responsible for your business. Liability is solely yours. What it means is you incur a huge loss - you have to pay from your personal property. You wake up in the middle of night and decide - man let me start a business. There you go - your business is born. As simple as that.

Want to open a bank account. No problem - tell them your company name and give address proof and PAN card number. Done.

Till 2 Lakhs of income, you pay 20% tax. Beyond that it is 30%.


You need help from an auditor for this purpose. You and your partner(s) decide what is the percentage you own the company ( and hence the liabilities ) etc. Costs some 5000Rs I guess. I did not dig deep into this as this was not the option I was taking.

Even if your firm made only 100Rs as profit you have to pay 30% tax.

Private Company:

This is the most expensive and longer router ( but safer route ). You first give a proposal to the government entity with a bunch of company names. Then they will tell you which one is available. Then you might have to spend to the tune of 1Lakh Rupees to get all done and it is a long drawn out process.

So you have a great idea - just go ahead and start doing it. Have a friend helping you out - cough up the 5K and continue your march.

I know what you are thinking - even I went through the same phase. What if someone stakes claim to my brand name by doing the legal 1Lakh Rupees way while you were slogging to popularise brand.

Well first accept that you are screwed. Like it helps !!

You have your user base - just change the name to something better - call it formerly known as I am no expert in this - but when you are beginning do not worry about such things - if it did not cost a whopping 1Lakh I would have registered my company. But the 1Lakh can be spent in far better ways - getting a good UI designer, designing a fundoo logo, get a kickass server - so your pages load fast.

How about patenting? I still have not explored this area - might be doing it soon. Watch out for a post on that.

So have you started your business by now?


  1. Venkat,

    Where did you get this info from?


  2. Thanks. Would it be possible to share how did you go about finding a reliable auditor and the payment terms to them?