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What are the Legal Requirements & Compliances to Start Online Business?

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Last Updated on April 21, 2023 by Kanakkupillai

Introduction

It’s a perfect work world in which you can do any work that you love to do which are legally good. With high-speed internet and a proliferation of gadgets and applications, individuals’ attitudes about the nature of work have changed over the past decade and now made working at home possible for millions of people around the world.

Anyone with the right skills can get paid for it without stepping out of their home. As per the Freelancer Incomes Around the World Report 2018, about 15 million people in urban India are earning from their comfort of home. They are termed solopreneurs and self-employed individuals. They are the individuals who are running one-person businesses and they are a part of the grown folks that are increasing the standard of India’s gig economy.

As with any other business, a home-based online business also has to follow certain rules and regulations. There are legal compliances required for an individual who wanted to start an online business from home with minimum investment. Here are details of all the needed compliances and procedures.

Key Takeaways

  • It is good to start a home-based online business with an LLP or Private Limited Company registration
  • Registering your online business and obtaining VAT is a must, as it is required for any individual who is selling goods or products in India.
  • Opening a bank account is essential to start an online business, as it is required to obtain a payment gateway in the eCommerce marketplace.
  • Hence it is always best to start your online business with proper Legal documentation and contracts.
  • Maintain the age restrictions on some restricted goods as well.
  • If you have a sizable inventory, remind yourself to verify your lease, deed, or zoning regulations.

Legal Requirements & Compliances for Online Business in India

The popularity of online businesses is growing every day. Online businesses now employ millions of people, and new members are constantly entering. The technology-based world of today has a fantastic opportunity to expand its company market through e-commerce. Every type of company has some requirements. For this reason, there are a number of legal requirements that must be met before starting an online business.

1) Company or LLP Registration

Whenever an individual is planning to start a home-based online venture, it is good to register the venture as a private company or LLP to acquire limited liability protection and to improve the comfort of doing online business. Once registering a company or LLP, it is next to open a bank account in the name of the business and then to get a VAT/Service tax registration. However, in all marketplaces, the registration of Proprietorships and Partnership firms is allowed but there would be no limited liability protection if any litigation takes place. Therefore, it is good to start a home-based online business with an LLP or Private Limited Company registration

2) VAT Registration

Registering your online business and obtaining VAT is a must, as it is required for any individual who is selling goods or products in India. This VAT Registration can be obtained from the State’s Sales Tax Department.

3) Bank Account

Once the LLP or Company registration process is completed, the next step is to open a bank account in the name of the business and it can be done by contacting any bank in which you want to open. Opening a bank account is essential to start a home-based online business, as it is required to obtain a payment gateway in the eCommerce marketplace.

4) Payment Gateway

A payment gateway is a must and it is needed to process customer payments for your online business. A payment gateway allows your online business or website to accept all types of payment such as credit card, net banking, debit card, and internet banking payments from multiple credit card companies and banks.

Hence, one payment gateway is sufficient for an online business to accept many types of online payments. For instance, If a payment is received from the customer, the money paid is sent to your business bank account through the payment gateway in a couple of working days.

In the case if you have an online business that is selling products through online marketplaces, then the marketplace would take the payment from the customers and credit the payment to the bank account of the seller directly through their payment gateway and in this case, payment gateway is not required for you and only a bank account is needed.

5) Legal Documents

Legal documents are important for any business whether it is online or offline, to protect the business and the promoters of the business from any issues. Hence it is always best to start your online business with proper Legal documentation and contracts.  Draft clear terms and conditions, disclaimers,s, and privacy policies for your online business depending on the nature of its products sold and activities online.

If your home-based online business sells through any eCommerce marketplaces, then the legal document or seller’s agreement will be provided by the marketplace and the seller must bear the seller’s agreement. And, any online business needs to go through the seller’s agreements thoroughly before agreeing to the business agreement.

6) GST Registration

GST registration is essential for the effective launch of an online business. Under the Central Goods & Service Tax (CGST) Act, all online retailers must be listed regardless of their annual revenue.

7) Adherence to Cyber Law Crimes

All home-based or non-home-based online businesses must assure cyber law due diligence in India. All e-commerce websites or online businesses in India must ensure privacy protection,  data security, data protection, cybersecurity, confidentiality maintenance, and so on. The such attachment also requires to be noticed with respect to payment gateways that online businesses opt for.

8) Patents, Trademarks, and Copyright

It is very essential to avoid copyrights, trademarks, or patents. Every author’s or owner’s creations are protected by copyright. It must therefore be avoided. Trademarks must also be avoided because they include a word or symbol that is essential to a company’s identity. Several businesses should each have their copyright concerns and brands. As a result, it is also required by law.

9) Age Restrictions

The Children’s Online Privacy Protection Act (COPPA) must be adhered to on your website. The most significant of the COPPA’s few regulations is that information about anyone under the age of 13 should not be collected. Maintain the age restrictions on some restricted goods as well.

10) Inventory

If you have a sizable inventory, remind yourself to verify your lease, deed, or zoning regulations. Operating a company may occasionally be subject to some limitations or prohibitions. Therefore, planning regulations are important.

11) Shipping Restrictions

All shipping companies keep applying some shipping limitations. In most businesses, restricted goods are uniform. Just take a glance at the trade commission’s manual before sending anything overseas. The common internationally restricted products are:
  • Aerosols
  • Airbags
  • Illicit drinks
  • Guns 
  • Cigarettes
  • CBD-based goods
  • Explosives using dry ice
  • Hazardous substances
  • Nails polished
  • Perfumes
  • Perishables
  • Poison

12) Business Insurance

To protect your company, you must have business insurance. There are many choices, including home-based insurance, general liability, professional liability, product liability, and commercial liability. Find the one that best fits you by analyzing those.

13) Taxes

Taxes are an additional legal requirement that an online business should be aware of. You must keep in mind that each nation or jurisdiction has its tax regulations.

14) Compliance with other laws

The legal requirements for starting an E-commerce business in India also demand compliance with other laws such as the Indian penal code, contract law, and so on. In addition, online shopping in India also requires compliance with the banking and financial norms applicable in India. In some cases, compliance with labor laws is also needed. It is recommended that all online business entrepreneurs must hold proper techno legal due diligence before opening it.

Conclusion

If you’re running an online business in India, it’s important to ensure that you’re meeting all the necessary legal requirements and compliance regulations.

Don’t wait until it’s too late, take action now and ensure that your online business in India is fully compliant with all legal requirements and regulations. Contact Kanakkupillai today to get started.

Kanakkupillai

Kanakkupillai is your reliable partner for every step of your business journey in India. We offer reasonable and expert assistance to ensure legal compliance, covering business registration, tax compliance, accounting and bookkeeping, and intellectual property protection. Let us help you navigate the complex legal and regulatory requirements so you can focus on growing your business. Contact us today to learn more.