FAIRFIELD INSTITUTE OF MANAGEMENT & TECHNOLOGY

Legal Requirements Of Establishment Of A New Unit

Entrepreneurship Development

Sub code: 307

Submitted to: Submitted by:

Mr. Intsar Ali Name: Sugreev kumar

Enrollment no: 02190101719
Course: BBA (G)

Semester: Vth Semester

Section: A
Legal Requirements Of Establishment Of A New
Unit
 INDEX
S.NO TOPIC P.NO

2 Introduction- Establishment of a new unit 4

3 Legal requirement required for establishment of a new unit 4-8

4 OBJECTIVE 9

5 CONCLUSION 10

6 BIBLIOGRAPHY 11

8
Introduction

Establishing a new business unit is a complex and risky task. Entrepreneurs have to fulfil
various legal formalities for establishment of a new unit. Hence, the entrepreneur needs to be
aware of any regulation that may affect the establishment of his new unit.

For establishment and management of a new venture or setting up of a small scale enterprise,
entrepreneurs come across a number of situations to follow laws of the land. Right from the
conception stage in promoting the enterprise, entrepreneurs should be careful to obey the
legal formalities, procedures, policies and plans for the government so as to make themselves
free from any sort of legal hassles in future.

Legal formations may be necessary at different stages of the start up. These formalities differ
in relation to the form of enterprise adopted by the entrepreneur, such as sole proprietorship,
partnership firm and company. The legal requirements also differ in reference to the size of
the business unit, such as small scale, medium scale, or large scale enterprise. Moreover,
consumer product enterprise and industrial product enterprise may attract different legal
formalities.

Following legal requirements are should be fulfilled for the establishment of a new
business unit :

1. Incorporation and registration:

There are found various forms of business proprietorship in the private sector such
as sole-trader, partnership, Joint Hindu family and company etc. In case of sole-
proprietorship, partnership and Joint Hindu family, registration is not compulsory, while
in case of company, incorporation and registration is essential.

INCORPORATION OF A COMPANY
Company is established through legal procedure and has a separate legal entity from its
owners. Legal procedure of establishment a company is termed as incorporation. For
this purpose, registration of company has to be made with the Registrar of companies. An
entrepreneur is required to submit an application for registration following documents:
i. Application form duly filled in and signed by an authorised person
ii. Memorandum of Association : The Memorandum of Association, is the charter
of the company. This includes its objectives, its name, the address of its registered
 office, the capital which the company is authorised to raise, the nature of liability
of members as well as the names, addresses and agreement of people who agree to
form a company.
iii. Articles of Association : The other important document is the articles of
association which contains the rules and regulations relating to the internal
management of the company. However, it is not necessary for a public
company limited by shares to file the articles of association. If such public
company does not file Articles of Association, it is deemed to have adopted „Table
A‟ of schedule I of the Act.
iv. Written consent of the directors : Written consent of the directors who are
agreed to act in that capacity, duly signed by each director, along with a written
undertaking by them to take the necessary qualification shares, if any, as provided
in the articles.
v. A copy of agreement with any individual for appointment as a managing director,
or a whole-time director or manager.
vi. A statutory declaration stating that all the legal requirements of the Act precedent
to incorporation have been complied.
vii. A letter of intent under Industries (Development and Regulation) Act, 1951, if the
company s business comes with the purview of this Act.
viii. Address of registered office of the company. However a company may file
registered address within 30 days of its registration.
ix. At the time of registration, the prescribed registration fees and filing fee for each
document filed for registration are to be paid to the Registrar‟s office. After
receiving these documents, Registrar scrutinize these documents and if he is
satisfied that all the documents are in order, he shall enter the name of the
company in the register of companies and issue a certificate of incorporation.

CAPITAL SUBSCRIPTION

Next step in the registration of a company is to raise capital for the proposed company.
Company obtains the necessary capital by selling shares to the public. Following procedure is
adopted for this purpose:

i. Permission of public issue from „The Securities and Exchange Board of India
 ii. Agreements with the underwriters, brokers and share issue managers.
iii. Filing a copy of prospectus with the Registrar.
iv. Invite the public to purchase the shares of the company by putting the prospectus
in circulation.
v. Receiving applications for shares through the company‟s banker.
vi. Formal resolution of allotment, if the subscribed capital is at least equal to
minimum subscription of 90% of capital issue.
vii. In case, minimum subscription is not received, the entire amount with application
would have to be refunded at the end of 120 days from the circulation of
prospectus.
viii. Issue of allotment letters and share certificates.
ix. In case a company having a share capital, but not issuing a „prospectus‟, filing a
„Statement in lieu of Prospectus‟ with the Registrar at least three days before the
first allotment resolution.

COMMENCEMENT OF BUSINESS

A public company cannot commence business immediately after incorporation unless it has
obtained a certificate of commencement of business from the Registrar. Following documents
have to be filed for this purpose:

i. Shares payable in cash have been allotted to the extent of the minimum subscription;
ii. Every director has paid in cash the application and allotment money on the shares
taken by him;
iii. No money is liable to be refundable to the applicants for failure to apply or obtain
permission for the shares or debentures to be dealt in on any recognised stock
exchange.
iv. A statutory declaration duly verified by one of the directors or the secretary in the
proscribed form that the above conditions have been complied with has been filed
with the Registrar.

The Registrar will scrutinize those documents and if he is satisfied, he shall issue a
“certificate of commencement of Business, This certificate is conclusive evidence that the
company can commence its business and use its borrowing powers
2. Small Unit Registration Certificate:
The entrepreneur of a small scale unit should seek registration of his selected project unit
with the Directorate of industries. This will make the entrepreneur and his unit eligible
for availing Government assistance. A unit is normally registered provisionally first and
accorded permanent registration later.
3. Registration under the Factories Act:
An entrepreneur must registered his enterprise under the „Factories Act, 1948‟, before
starting the manufacturing unit. Factories Act contains provisions regarding licencing
and registration of factories, working hours, health, safety and welfare measures,
employment of women and young persons, annual leaves, dangerous operations etc. The
Act fixes the minimum age of persons who can enter a factory for work at 14 years. The
Act, lays down the provisions regarding cleanliness, ventilation, overcrowding, lichting,
explosive gases, dust, fume, fencing of machinery etc.
4. Import License:
If imported raw-material and other equipments are necessary for the new business
enterprise, then he should obtain the import license from the export-import controller.
5. Permission of Finance Ministry:
For the agreement Of foreign collaboration, an entrepreneur must obtain the
permission of finance ministry.
6. No Objection Certificate (NOC):
The unit must obtained all necessary clearances. For example, NOC from Pollution
Control Board is obtained if required.
7. Industries (Development and Regulation) Act, 1951:
The licencing policy for industries is determined under this Act. The Act states that the
Central Government may specify the requirements which shall be complied by small
scale industrial undertakings to be regarded as a small scale or an ancillary industry. This
may be done by the Central Government with a view ascertaining which small scale or
ancillary industrial undertaking needs supportive measures, exemptions or
other favourable treatment under this Act to enable them to maintain their viability and
strength.
8. Foreign Exchange Regulation Act:
 All foreign collaborations required the approval of the government and are subject to the
regulations under the Foreign Exchange Regulation Act. All investment by foreign
companies in India is permitted only with the approval of the Reserve Bank of India. The
Reserve Bank of India‟s approval is again based on the approval of the
investment proposal by the government.
9. Registration of Trademark:
According to Trade and Merchandise Marks Act, 1958 (India) the mark‟ “includes a
device, brand, heading, label ticket, name signature, word, letter or numeral or any
combination thereof.” The purpose of registration of trademark is that the consumer may
distinguish the product of manufacturer/service provider from others and
therefore „deceptively similar‟ trademarks are not allowed to be used because they can
cause confusion to users. Once a trademark is registered as per provisions of Trade and
Merchandise Marks Act, 1958 and Trademarks Act, 1999 no one else can use similar
trademark on any of its packing. The trademarks are registered for unlimited period and
helps in the promotion of sales.
10. Registration under the Sales-tax Authority :
An entrepreneur should get registered his enterprise in the sales-tax department of the
state government and obtain certificate for this purpose. Besides above mentioned legal
formalities, an entrepreneur have to fulfil some other formalities also depending on the
nature of product produced by the new business unit. For example he has to get registered
his unit under the Service Tax Act, Food and Drugs Control Act etc.
 OBJECTIVE

• To develop a practice of learning new aspects of the subject and Develop a habit of
research related to the subject.

• To develop further understanding of the theories and concepts covered in the course.
 CONCLUSION
Starting a business in India can be daunting, especially with all the legal requirements that
you are required to follow. Adhering to legal formalities is very important for any business;
knowledge and compliance to applicable laws is the initial step to ensure smooth business
operations.

The best ways to ensure that your company is always safe and does not face legal
complications and consequences is by hiring professional legal counsel to provide advice,
oversee and maintain legal records.
 BIBLIOGRAPHY

BOOKS : Fundamentals of Entrepreneurship by Sangram Keshari Mohanty

WEBSITES : www.Wikipedia.com