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Essentials

Legal Requirements for setting up a new business

Legal Requirements that a businessman must follow before he sets up a new business

Setting up a new business is often considered  as a legal minefield. The  Business groups are constantly pressing the government  to reduce the burden of ‘red tape’ that has a major impact  on the entrepreneurs, suggesting that many entrepreneurs are discouraged from starting their own firms by the numerous legal hurdles that they have to face .

In reality,  there are certain important legal obligations that every new small business owner must fulfill, and they are far from insurmountable. As long as a businessman is aware of his responsibilities and he takes sufficient precautions to ensure that that he is always on the right side of the law, he will have  nothing to worry about.

Thus , the article below describes the main legal considerations that the entrepreneurs must contend with when they intend to set up a new business.

Legal structure

The first concern that the businessman will have to address is that of the structure. The legal structure which an owner chooses causes a significant long-term implication for the running of  business, so it is important that the owner must think his decision through carefully.

There are three main legal structures from which a businessman can  choose. He can operate as a sole proprietor, private limited company registration, or he can establish a partnership. While a sole proprietorship arrangement is the easiest to establish, as it does not require any formal registration, but the owner  should note that sole proprietors assume significant personal risk.

Does an owner need a licence?

Depending upon the sector in which the businessman are operates, and the nature of his  business, the businessman is needed to apply for a licence. This is particularly common in those industries where the owner’s actions could result in risk to members of the public, or where he is dealing with hazardous materials.

Entrepreneurs who wish to establish catering or a hospitality business, like a pub or a restaurant, will almost certainly require a FSSAI licence. A businessman  will obviously need to be licensed if he intends to serve alcohol, but he  may also need to register with the local authority for food standards and health and safety oversight. There are also various licence that are required for music and entertainment..

If the owner’s business relies on a licence for its income, then he may even intent to to take out business insurance that covers the owner in the event when he loses it. Loss of licence cover can be included in the business man’s insurance policy.

Health and safety

Business owners are required to assume a range of important health and safety responsibilities. The owner will have a duty of care for anyone that might be affected by his business. This might include the  members of the public (both inside and outside the  premises), employees, and visitors.

The businessman is required to carry out a risk assessment which helps him to identify the risks posed to these individuals by his business activities. Risks arise from hazards; for example, the risk of bodily injury is higher if your business requires heavy lifting tasks. The owner may have a responsibility to mitigate these risks as far as it is reasonably practicable. This might even involve changing the businessman’s working practice to ensure that employees and members of the public are safe.

Business insurance

If the businessman  intends to take on staff, employer’s liability insurance becomes a legal requirement. He runs the risk of a significant fine for every day that he is uninsured, as well as he is leaving himself vulnerable to compensation claims from the employees who suffer injury or illness as a result of their work.

Do you need to be VAT registered?

A business owner has a number of legal obligations to the taxman and these vary depending on the legal structure of his business, but he can expect to have to file at least one annual return – and if he takes on staff the paperwork burden increases significantly.

But a frequently overlooked requirement among the new business owners is that of VAT registration. If the businessman’s annual turnover exceeds the registration threshold, then he is legally obliged to become VAT registered. There are the significant penalties for those that fail to register in time. It is always wise to find a professional who will advise the businessman on tax and the finance issues when he is starting out.

New business owners are faced with a significant legal burden and this can however be seen as overwhelming, particularly for the first-time entrepreneurs. While there is often some leeway that is given to new businesses when it comes to enforcement, it is vital that that the businessman is aware of his responsibilities. If he is unsure as to  where the businessman stands, he must make sure that he seeks independent advice quickly.

This article has been contributed by Simmi Setia, Content Manager at TaxRaahi, an online portal for ITR Filing, TDS Filing in India.

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