For years there have been at least 900 of my clients asking this same question –
Why do I need an MSME registration certificate?
The answer is simple. BENEFITS from the Government.
All the benefits are detailed later on. Just read through the important stuff before you get there.
In this online business world, it’s so important to have yourself legally registered.
I’m putting up a summary of your actions to register a business:
Step 1 – Register a legal entity (ex: Sole proprietorship or Partnership Firm)
Step 2 – Get MSME certificate
Step 3 – Get GST registrations
Step 4 – Get monthly compliances/returns completed by a CA or a consultant (don’t do these yourself – it’s not worth your energy and time)
Step 5 – Get US tax forms – 8-Ben-E and 8233 submitted with all the providers of systems such as Clickfunnels, Getresponse, Teachable, etc. (to avoid double taxation for yourself)
Now, the question is “Why can’t one simply run a business in an individual’s name without registering a business”?
Here are some important reasons, why?
- Without business registered, your personal property, personal bank balance & every other personal asset will be at stake.. in case of business losses.
- Banks & Lending institutions grants & disburses ‘business’ loans to registered entities only.
- After lots of transactions in your Savings account, your bank will start charging you hefty fees or even block your account since you ideally must be running these transactions under a Current account (not Savings account).
- Banks will open a current account only in the name of a registered business entity, by the way!
- Unregistered entities do not have much protection on pending payments. Whereas the Registered entities have good legal protection & coverage.
- It builds an authentic relationship & credibility. – Without a registered business, folks might still like your posts and comment on them but the real business starts when you have an entity set up correctly.
Next: If you have this question “Which type of business registration should I go in for?”, then read on…
Broadly speaking, these are the different type of legally accepted business registrations (limiting to what works for online business):
- Sole Proprietorship Firm
- Partnership Firm
- Private Limited Company
Depending on the type of business/authority you come under, here are VivG’s quick recommendations (works, 100%)
If you are a Trainer / Coach / Consultant –
a) You can register as a Sole proprietorship firm as a start.
b) You can register as a Private Limited Company or Partnership Firm later on – when you need funding (for ~ 10x growth & above)
If you are an E-commerce operator –
Almost all marketplaces allow Sole Proprietorships and Partnership firms to sell on their website. However, there would be no limited liability protection in case of litigation. Hence, it is best to start selling with an LLP or Private Limited Company.
If you are a Manufacturer –
Go in for an LLP or a Private Limited Company
If you have a dual working model –
(working as an employee as well as want to run an online business)
a. Start a Proprietorship firm in your own name – If your employment agreement permits you to do so.
b. Start a Proprietorship firm in the name of your spouse or siblings or parents and run the business under their name. Don’t worry much about you coming on Videos Or worry if your boss or some of your colleagues might get to know about you also running a business and hence your job at risk.
If you are already running a business apart from the online business –
Well, you can include the online business under the existing business set up if things permit.
If you would like to separate these businesses (which I recommend), then have a separate sole proprietorship or a Partnership for the online business.
We have covered what type of business type you need to register as (also, known as a legal entity).
Simply go in for a Sole Proprietorship.
It is good enough for you to start with.
t’s easy, doesn’t require capital, no profits sharing, no Government level approvals & fewer compliances (before and after registration).
Below, VivG explains registration formality only for Sole proprietorship. For other types of registrations, please reach out to your CA/consultants.
There is no legal Act in India to register a sole proprietorship. So, there are 7 ways of registering a Sole proprietorship:
- Via MSME certificate
- Via Shops & Establishments certificate
- Via GST certificate
- Via Trademark registration
- Via FSSAI license (if one is into the Food business)
- Via Import & Export Code (applies to the business of Import & Export of Goods)
- Via Copyright certificate (In Case You Want To Work Of Writing, Artistic, Literature)
VivG’s recommendation – MSME route. MSME stands for Micro, Small & Medium enterprises.
Why MSME route?
- You can register within just one day!
- Everything is done online
- No need to file any returns under MSME (like Director’s report in case of a Private limited company)
- MSME certificate is issued by the Government of India – so, it is valid to showcase on any global platform.
DID YOU KNOW? – MSME registration can be done even by a Partnership, a Private Limited Company & other legal entity types.
Benefits of obtaining an MSME registration certificate: (I’m sure you will have face after reading the below benefits):
- Loans without collaterals:
The Government has introduced various initiatives for MSME/SSI that allow them to avail credit without collateral. Loan amount varying between INR 50k to INR 2 crores (conditions apply, of course).
One of the best MSME registration benefits, the initiative to provide a collateral-free loan is undertaken by GOI (Government of India), SIDBI (Small Industries Development Bank of India), and the Ministry of Micro, Small and Medium Enterprise under the name “The Credit Guarantee Trust Fund Scheme”.
This is by far the best MSME registration benefits for small business owners.
- Subsidy on Patent Registration:
Business enterprises registered under the MSME Act are given a hefty subsidy of 50 percent for patent registration. This can be availed by sending an application to the respective ministry.
Fees for patent registration for MSMEs has been reduced to Rs 1,600 or Rs 1,750 from Rs 4,000 or Rs 4,400 respectively. For expedited examination, it is reduced to Rs 8,000 from Rs 25,000 earlier.
Similarly, for the renewal of patents, the fees have been reduced. For design applications filing, fees for MSMEs and startups have been reduced to Rs 1,000 from Rs 2,000.
- Overdraft facility along with Interest Rate Exemption:
Businesses or enterprises registered as MSME/SSI under the MSME Act are eligible to avail a benefit of 1% on the overdraft as part of the Credit Guarantee Trust Fund Scheme. Although this can vary from bank to bank.
- Concession on Electricity:
One of the simplest MSME registration benefits, businesses registered under the MSME Act can avail of a concession on electricity bills. All they have to do is submit the bills along with an application and a copy of the registered certificate by MSME.
- Protection against Delayed Payments:
Understanding the ambiguity lying with business revenues, the Government has extended a helping hand by providing a layer of protection against payments.
As of now, the Ministry of Micro, Small, and Medium Enterprise has given business owners and enterprises to collect interest on payments delayed by the buyer.
Under the MSME registration benefits, a buyer is expected to make a payment for the goods/services within 15 days of the purchase. If the buyer delays, the payment for more than 45 days, the enterprise is eligible to charge compound interest which is 3 times the rate notified by RBI.
- ISO Certification Charges Reimbursement:
A registered small or medium enterprise can claim the expenses for reimbursement that were spent on ISO certification.
- Partnering with Government works: MSME registration helps to acquire government tenders easily as Udyam Registration Portal (where we register for MSME) is integrated with Government e-Marketplace and various other State Government portals which give easy access to their marketplace and e-tenders.
- Tax Benefits:
Currently, businesses having a turnover of more than Rs one crore are required to get their books of accounts audited by an accountant.
From current FY 2020-21 this has been raised by five times I.e, the turnover threshold for audit from the existing Rs 1 crore to Rs 5 crore.
However, this increased limit shall apply only to those businesses which carry out less than 5% of their business transactions in cash…
I’m hoping that with this article, you are clear on how to proceed with your business registrations. Go ahead and take benefits of such easy ways of doing business that the Government of India has provided us with!
Kudos to the GOI for making it easy for its citizens, kudos to you – The entrepreneur who is providing such knowledge and value to fellow citizens.
Together, let’s leave a legacy for generations to come.