Registration and Licenses Required for Starting an E-commerce Business

Ashish M. Shaji

13 Sep, 2022

Before getting into legal formalities of registration and licenses required for an E-Commerce business, there are a few questions we must answer.

What is e-commerce?

E-commerce or electronic commerce is a term used for transactions done through electronic media. e-Commerce is the transaction of buying and selling of goods, providing services, or transferring funds through an electronic network i.e. through the internet.

Why e-commerce?

E-Commerce is a business model, which enables the buying and selling of goods and services through the internet. You don’t need to set up a shop, get it furnished and arrange a lot more things to start a business. Through e-commerce, you just need to apply for online company registration, Obtain GST registration and you are good to sell your products and services online. It saves cost and reaches many more customers in comparison to offline businesses.

People in India are becoming more and more tech-savvy. Rather than going to shop at a local store, everyone prefers to shop online. As there are a lot of options available online to compare with and prices are also lower than the local offline stores due to competition and low maintenance cost.

For starting a business, starting an E-Commerce business is the best option as it is the fastest way of buying and selling of goods and services. It has very low operational costs. There is no geographical boundary^[1] for E-Commerce business. It simplifies the business process and makes the business process fast and efficient. Recent research states that E-Commerce in India is supposed to grow by 40% every year.

Although e-commerce has many benefits, it has a few disadvantages as well. There is a lack of transparency as there is no physical verification of the product. Making a payment online is also a bit risky due to cyber crimes and hacking of websites.

Legal processes of starting an e-commerce business

Before starting any business you must know how you want to start your business, what is going to be the structure of the business, and what are the products or services that you want to buy or sell, etc.

So, first of all, we need to know how to register our business. Below are the few options to structure your business. You can structure your business as per your convenience:

• Proprietorship:

This type of enterprise is owned and managed by one natural person. The proprietor is the single owner of the business and is personally liable for all the debts and liability of the business. This is the most common structure opted to start a business, as it has minimum compliance and low cost of registration.

• Partnership Firm:

It requires a minimum of two people to start a business. It has unlimited liability and the partners are personally and severally liable to meet the liabilities.

• Private Limited Company registration:

It is a privately held small business entity. It can have a minimum of two members and a maximum of 200 members. It has limited liability, members, directors or any other person are not personally liable for any liability that arises during the course of the business.

• One Person Company:

OPC Registration procedure, very similar to Private Limited Company, but it can have only one member & Director.

• Limited Liability Partnership:

Limited Liability Partnership is a combination of Pvt. Ltd. Company and Partnership. It enjoys many benefits. As the name suggests, it has limited liability.

After deciding the legal structure of your business, the next thing you need to do is register your organization. And this name should be in conformity with the trademarks act, intellectual properties rights, etc. and other relevant laws. The company name should be approved and protected by an appropriate registering authority.

The next step is to get a well-drafted privacy policy for the e-commerce portal to protect oneself from being sued, and well-drafted website terms and conditions to limit the liability of the e-Commerce website.

You also need to make Vendors Agreement to deal with problems like the default in products, payment issues, quality issues, delivery issues, and many more provisions keeping the business model in mind. You need to get a Payment Gateway as well.

User Agreement and data security are also important from the point of view of cyber security. You also need to put the benefits provided to the users in the User Agreements.

Licenses required for e-commerce business

Business licenses required for e-Commerce business varies depending upon the nature of the business i.e. products being sold on the website. Given below are the few licenses required for an e-Commerce business:

• Goods & Service Tax: Every e-Commerce business in India, apart from the North East States, having annual turnover Rs.20 Lacs will be required applying for GST Registration. GST is PAN based registration.
• Shops and Establishment Act: You need to get a license under this Act if you wish to have a Payment Gateway. Also, if you wish to set up a physical shop and employ some people, it is mandatory to get a license under this Act.

Conclusion

E-commerce is the fastest and most convenient way to grow a business. It is the easiest way to reach the global market. It reduces inventory cost, needs less manpower, and reduces labour cost. It is the most convenient option for the customer to get products and services at their finger tips and at their doorsteps.

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