E-Commerce is hot right now. So hot that everyone wants in. Nearly every day we are asked across social media the legal requirements to start such a business. So here’s a shot at answering all the queries we’ve seen in the simplest format possible. You’ll find out the legal requirements of starting your own e-Commerce site as well as registering with Flipkart, Amazon, PayTM or Snapdeal. Let’s get on with understanding what’s required and also what’s recommended, but not necessary:
VAT Registration (aka TIN Number)
Replacing sales tax a few years ago, value-added tax (VAT) is applied at every stage of the value chain and ultimately charged to the end-user. This applies to all businesses selling tangible goods intra-state of a value over Rs. 5 lakh per annum (Rs. 10 lakh in a few states); central sales tax (CST) applies to inter-state trade. Getting this registration is easy, but you do need to have a commercial establishment to apply for one. If you’re running your own e-Commerce shop, you don’t need it at the very beginning, given how small your turnover may be, but it would be hard to convince a payment gateway to approve of your request without it. For registering on Flipkart, Amazon and the like, you need one no matter what your sales numbers are.
This isn’t necessary, but without registering your business as a private limited company, limited liability partnership (LLP) or one-person company (OPC), you’re constantly exposed to risk. Let’s say your goods get caught by customs for some reason; if a fine applies and the business doesn’t have the money to pay for it, it would come out of your pocket if you’re a sole proprietor. With a registered entity, however, the buck stops at the entity; you’re money can’t be touched. Therefore, through registration, you create a separate entity, which limits your liability to just the investment in the business. This above applies to both those starting their own sites as well as those registering on other portals.
All e-commerce marketplaces must agreements with their vendors. So if you’re starting a site of your own, you need to have a vendor agreement with those you sign on. On the other hand, if you’re listing yourself on Snapdeal or PayTM, you will be asked to sign their standard agreement. This agreement will define the expectations of both parties, including the roles and responsibilities of the parties, how default will be dealth with, payment, if any, etc.
Intellectual Property Protection
All businesses should ensure that they aren’t infringing anyone else’s IP, while protecting their own. While we’ll leave the former to you, the latter would require filing with the Trademarks Registry, particularly once your brand gains traction. Also, if you’re running your own portal, do ensure the authenticity of brands being sold. IP violations have led to the shutting down of portals in the past.
Opening a bank account in a business name is possible with a VAT registration, or one you have a private limited company or LLP incorporated. You may also need a Shops & Establishments License, but this apply to all businesses in India. To get registered with Flipkart of Amazon, a bank account is essential.