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Formalities for Starting a Business

Legal procedures, registrations, licenses, and compliance requirements for new business ventures.

Notes

Formalities for Starting a Business

Class 12 CBSE Entrepreneurship — Unit 2: Entrepreneurial Planning

PAN and Current Account

Permanent Account Number (PAN)
PAN is a ten-digit alphanumeric number issued by the Income Tax Department. It links all financial transactions with the department (tax payments, TDS/TCS credits, returns, specified transactions, correspondence). PAN acts as an identifier. It is mandatory to quote PAN in all financial transactions.

Who must have PAN:

  1. All existing assesses or taxpayers
  2. Any person carrying on business whose total sales/turnover likely exceed ₹5 lakh
  3. Any person intending to enter financial transactions where quoting PAN is mandatory
  4. The Assessing Officer may allot PAN to any person
Current Account
A bank account for business transactions. Who can open: (i) Any person competent to contract and satisfactorily introduced to the Bank. (ii) Sole proprietorships, partnerships, private/public limited companies, HUFs, trusts, clubs, associations. (iii) Minors 14+ years, able to read/write.

Basic common documentation:

  • Proof of Identity: PAN Card, Voter ID, Passport, Driving License
  • Proof of Address: Latest Telephone/Electricity Bill

Public/private limited companies — additional documents:

  • Certificate of incorporation and commencement of business
  • Memorandum and Articles of Association
  • Board resolution
  • PAN or GIR No. or Form 60
  • List of directors with addresses

Company Registration Steps

Step 1: Name of the Business Entity

1/10

Select and reserve a unique name for the company that complies with naming guidelines.

Tax Registrations

VAT / Sales Tax

VAT (Value Added Tax): A multi-point destination-based taxation system on value addition at each stage of production/distribution. 'Value addition' is the increase in value at each stage. VAT is a tax on final consumption, borne by the consumer. Tax Payer's Identification Number (TIN) — 11-digit numeral used for dealer identification. Sales Tax: Levied on the first sale of a commodity. Subsequent sales without further processing may be exempt. Sales tax ID number — a business version of PAN.

Other Registrations and Mumbai Procedure

Register for Profession Tax at the Profession Tax Office (State) — no cost, 2 days.

Additional Registrations

  • EPF: Required for establishments with 20+ employees in industry
  • ESI: Required for 10+ employees in factories, 20+ in shops/hotels/etc.
  • Filing Entrepreneurship Memorandum at DIC: Optional; useful for incentives and subsidies
  • TAN: 10-digit alphanumeric, required for deducting/collecting tax at source
Mumbai Company Registration Procedure
No.ProcedureTimeCost
1Obtain DIN online from MCA portal (National)1 dayINR 100
2Obtain DSC online from private agency (National)3 daysINR 1,500
3Reserve company name online with ROC (National)2 daysINR 500
4Stamp company documents at State Treasury / authorized bank1 dayINR 1,300
5Get Certificate of Incorporation from ROC, MCA (National)5 daysINR 14,133
6Make a seal (Private)1 dayINR 350
7Obtain PAN from NSDL / UTI agent (National)7 daysINR 67
8Obtain TAN from Income Tax Dept (National)7 daysINR 57
9Register with Shops and Establishment Act (State/Municipal)2 daysINR 6,500
10Register for VAT at Commercial Tax Office (State)12 daysINR 5,100
11Register for Profession Tax (State)2 daysNo cost
12Register with EPF Organization (National)12 daysNo cost
13Register for ESI medical insurance (National)9 daysNo cost

Construction and Post-Construction Permissions

Pre-construction

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Submit application to the industrial development authority (e.g., MIDC, GIDC, KIADB) for allotment of an industrial plot or shed in the relevant industrial area.
After application approval, the authority allots the plot/shed. The entrepreneur must pay the allotment charges within the stipulated time and take possession of the land.
Obtain No Objection Certificate from the local municipal body and optionally register as a Small Scale Industry (SSI) unit for benefits like tax exemptions and subsidies.
Sign the lease agreement with the industrial development authority. This legal document defines the terms, duration, rent, and conditions of land use.
Apply to the local water supply board or municipal corporation for a temporary water connection to be used during the construction phase of the factory building.
Apply to the state electricity board (e.g., MSEB, UPPCL) for a temporary power connection needed for construction equipment and site lighting.

Post-construction

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Obtain a certificate from the industrial authority confirming that the building is constructed as per the approved plan, drainage is properly laid, and mandatory tree plantation is completed on the premises.
If the plot/shed was financed through a bank loan, obtain permission from the industrial authority to mortgage the property to the lending bank as collateral.
Apply to the State Pollution Control Board (e.g., MPCB, KSPCB) for a No Objection Certificate confirming the industrial activity meets environmental norms for air, water, and noise pollution.
Get the fire department to inspect the premises and issue a Fire NOC confirming fire safety equipment (extinguishers, hydrants, alarms, exits) is installed as per norms.
Obtain environmental clearance from the Ministry of Environment, Forest and Climate Change (MoEFCC) or State Environment Impact Assessment Authority (SEIAA) if the project falls under scheduled categories.
Apply for a safety permit from the Directorate of Industrial Safety and Health (DISH) ensuring the factory complies with the Factories Act, 1948 regarding worker safety and health conditions.
Apply for a permanent electricity connection from the state electricity board. This includes load assessment, transformer installation if needed, and meter installation for ongoing operations.
Apply to the local water supply and sewerage board for permanent water connection (for production and domestic use) and sewerage connection for waste discharge as per approved norms.

Real-World Walkthrough — Starting a Business in India

Step-by-Step Walkthrough — "ChaiCo India Pvt. Ltd." — Follow the journey of a fictional entrepreneur incorporating a chai brand as a private limited company in Mumbai.
1

Get PAN

Instant • ₹0

The founder already has a PAN Card. No additional cost needed to start.

2

Open Current Account

1 day • ₹2,500 min. balance

Visits HDFC Bank with PAN, Aadhaar, and electricity bill. Opens a current account in the proprietor name.

3

Reserve Company Name

2 days • ₹500

Logs into MCA portal, proposes CHAI CO INDIA PRIVATE LIMITED. Name gets approved as unique.

4

Apply for DIN

1 day • ₹100

Files Form DIR-3 online for Director Identification Number.

5

Obtain DSC

3 days • ₹1,500

Gets Digital Signature Certificate from a certified agency for signing electronic documents.

6

Draft MOA & AOA

2 days • ₹5,000 (CA fee)

Prepares Memorandum of Association (business scope) and Articles of Association (internal rules) with a CA's help.

7

File SPICe+ Form

5 days • ₹14,133

Submits the integrated incorporation form along with MOA, AOA, and address proof to Registrar of Companies.

8

Get Certificate of Incorporation

Auto • Included

Receives CIN (Corporate Identity Number), PAN, and TAN — all through SPICe+. Company is now legally born.

9

Open Company Bank Account

1 day • ₹5,000 min.

With Certificate of Incorporation, PAN, and Board Resolution, opens a current account in company name.

10

GST Registration

3-7 days • ₹0

Registers on GST portal with PAN, incorporation certificate, and business address proof. Gets GSTIN.

11

Shops & Est. License

2 days • ₹6,500

Registers with local Municipal Corporation under the Shops and Establishments Act.

12

Begin Operations!

Day 1 • —

With PAN, GSTIN, bank account, and incorporation certificate — ChaiCo India Pvt. Ltd. is ready to sell chai!

Total time: ~22-25 days | Total cost: ~₹30,000 (excluding CA and bank balance). This is the realistic journey of incorporating a private limited company in India from scratch to being legally operational.

Key Takeaways

Key Takeaways

  • PAN (Permanent Account Number) is a ten-digit alphanumeric number issued by the Income Tax Department linking all financial transactions. It is mandatory in all financial transactions.
  • A Current Account is a bank account designed for business transactions. Public/private limited companies must submit additional documents like Certificate of Incorporation, MOA, AOA, and Board Resolution.
  • Company registration involves 10 sequential steps: Name reservation, MCA portal registration, DIN application, DSC procurement, name approval, MOA formulation, AOA formulation, stamping and signing of AOA, and submission of incorporation forms.
  • Four major tax registrations: Service Tax (on services), VAT/Sales Tax (on goods), Excise Duty (on manufacture), and Customs Duty (on imports/exports). Each has distinct registration requirements and authorities.
  • Additional mandatory registrations include EPF (20+ employees in industry), ESI (10+ for factories), Profession Tax, and TAN for tax deduction/collection at source.
  • The Mumbai registration procedure comprises 13 steps spanning approximately 64 days with a total cost of about INR 29,157, covering DIN, DSC, company name reservation, incorporation, PAN, TAN, and various state/municipal registrations.
  • Pre-construction permissions (6 items: plot application, allotment, NOC, lease, water/power connections) and post-construction permissions (8 items: building completion, fire clearance, pollution NOC, permanent utilities) are essential for industrial setup.