Shops and Establishment

Benefits of Shops and Establishments License for MSMEs

In India, 90-94 % of the workforce belongs to the unorganised sector- unlicensed, unregistered, and not subject to any statutory rules or regulations. Income and tax return calculations are unreported, and employees are not protected. The businesses lack legal status, limiting their expansion opportunities and resulting in sluggish growth. As a result, the government passed the Shops and Establishments Act of 1953, granting them a license to operate.

Benefits of Shops and Establishments License for MSMEs : Micro, small, and medium enterprises are collectively abbreviated as ‘MSMEs’. Currently, almost 6 crore of such small economic engines are operational in India contributing to 30% of our GDP, 45% of manufacturing output, and approximately 48% of the country’s exports. More than 11 crore people are employed in the MSME sector. They’re rightly referred to as the ‘Backbone of the country.’

The central government has lately taken key interest in development of the MSME sector, enacting many schemes, policies to make them self-reliant. The MSMED Act of 2006 is an initiative. However, the small shop owners often find themselves at a dilemma regarding the kind of benefit a shop license might offer them. This blog gives a brief idea of the benefits of such licenses on growth of MSMEs.

Objective of Shop and Establishments Act

An establishment is a commercial entity doing trade or business such as a shop, hotel, newspaper printing, cinema theatre, amusement parks, stock brokering, etc. In order to operate and regulate these, Government provides Shop Establishment Licenses under The Shop and Establishment License Act, 1953.

Main objectives of this license:

  • Empowering states to impose rules based on local culture: 
  • To convert unorganised sector into organised
  • To increase mandatory Registration of small businesses
  • To Regulate Wages, work hours and labour rights of unorganised sector Employees
  • Stop Child labour
  • Grant special benefits to women employees

Benefits of Shops and Establishments License for MSMEs, Startups

Legal Right to Conduct Business: The business owner obtains the legal right to conduct business within the Act’s authority by obtaining a shops and establishments license and providing evidence of business, such as a partnership or proprietorship. He/she cannot be bothered and harassed by law enforcement officials.

Business Banking Account: According to RBI regulations, every business must have a separate business account to manage its money. This business account may only be created with a certificate issued under the Shops and Establishments Act.

Hassle-free Inspections: Local municipality authorities and other statutory entities such as the FCCAI, among others, have the authority to perform inspections and checks. If you don’t have a shop and establishment act license, such audits and inspections can quickly escalate into a major problem, causing you to close your business. The best course of action is to obtain a shop license and run your business legally.

Availing Government Benefits: A Shops and Establishments Act license enables accessibility to a variety of government schemes and offers designed to promote small shops and commercial enterprises. There are also low-interest bank loans, financial plans, and programmes available to enterprises that are registered under the shop and establishment legislation

Encourage Expansion: A company owner who is 100 percent committed to following the Shop Act’s compliances will be able to reinforce the entity’s root in the market by giving it legal status, which will help the business owner to attract exposure to newer segments of consumers and client base over time.


To conclude, the license strengthens MSME business by serving as proof of legal entity and right to conduct business . However, this act has some unique features. It varies from state to state on structure, features, eligibility, fees, terms and conditions, etc. This license must be obtained within 30 days of the start of commercial operation. Before creating a business current account, banks require this license as a legal document and lastly public sector-run business entities are exempted from the license

Still wondering why you should apply for a shop establishment license for your MSME and how to get one?  We at Vakilsearch can provide you with the right help.

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