What is an E-commerce Business?
An E-commerce business refers to a platform where buyers and sellers buy and sell products or services online. It takes transactions that take place through digital platforms. This business can take place in various modes like Business to business (B2B), business to consumers (B2C), consumer to business (C2B), and consumers to consumers (C2C).
Real-World Example of E-Commerce Business Registration in India
Flipkart – India’s Leading Online Marketplace-
Flipkart is one of India's top online shopping platforms, known for offering a wide range of products and focusing on customer satisfaction. It was founded in 2007 by Sachin Bansal and Binny Bansal and has become a popular choice for millions of people.
Flipkart operates as a B2C marketplace under the name Flipkart Internet Pvt. Ltd. It is legally registered as a private limited company and follows all necessary rules, including GST registration and trademark protection. After Walmart bought a 77% stake in 2018, Flipkart also follows FDI rules. Additionally, Flipkart ensures the safety of online transactions by following the IT Act for cybersecurity.
Procedure to Start an E-commerce Business
1. Choosing the Right Business Entity for E-Commerce
Choosing the right entity is essential when starting an e-commerce business-
- Sole-Proprietorship- A sole proprietorship is easy to set up but offers no liability protection.
- Private Limited Company- A private limited company provides limited liability and flexible tax options.
- Limited Liability Partnership- A limited liability partnership (LLP) also offers liability protection for partners.
- Partnership Firm- A partnership is ideal for businesses with multiple owners but requires clear agreements to avoid disputes.
2. Register Your E-Commerce Business in India (Documents)
To register an e-commerce business in India, you'll need the PAN and Aadhar cards of the owners or directors, proof of business address, and bank account details. For an LLP or private limited company registration, additional documents such as the LLP agreement, incorporation certificate, and digital signatures are required. GST registration may also require documents like business proofs and identity verification.
3. Bank Account Opening
Opening a bank account in the business's name is highly convenient. The initial step in opening a bank account for a company, LLP, or proprietorship firm is to obtain a GST registration in the business's name. An essential prerequisite for listing a company on an e-commerce marketplace or receiving a payment gateway for a proprietary e-commerce website is an active bank account.
4. Obtain GST Registration
GST Registration is essential for the successful operation of an e-commerce enterprise. Compulsory Registration under the Central Goods & Service Tax (CGST) Act is mandatory for all e-commerce businesses, regardless of turnover.
5. Trademark Registration (Logo & Brand Name)
Trademarking your logo and brand name protects your e-commerce business from misuse and helps establish brand identity. The process involves filing an application with the Trademark Registry, providing documents like identity and address proof, and selecting the relevant trademark class. Once registered, it gives you exclusive rights and legal protection against infringement, enhancing your brand's credibility and expansion potential.
6. Creating Your E-Commerce Website
To create your e-commerce website, pick a simple, catchy domain name and choose a platform like Shopify or WooCommerce. Design a clean, easy-to-use website, add your products with clear details, and set up secure payment options. Make sure the site is secure and easy to find on Google and test it before launching to ensure everything works smoothly.
7. Best Payment Gateways for E-Commerce
To set up a payment gateway, pick a provider like Razorpay or Stripe, create an account, and connect it to your website. Allow different payment methods, make sure the site is secure with SSL Certification, and test everything before going live.
Licenses and Registration Required for an E-commerce Business
1. MSME Registration
The MSMED Act, 2006, provides various benefits to MSMEs, including collateral-free loans, tax exemptions, and subsidies for equipment and patent registration. Though not mandatory, registering as an MSME offers access to government benefits and initiatives for growth.
2. FSSAI License
The FSSAI mandates all e-commerce food companies in India, regardless of turnover, to obtain an FSSAI license to ensure hygiene and quality standards across the supply chain. This applies to manufacturers, suppliers, delivery agents, and vendors. Additionally, an Import-Export Code (IEC) is required for businesses looking to expand internationally and facilitate global trade.
3. Import Export Code (IEC)
An Import-Export Code (IEC) is a 10-digit identification number necessary for businesses that intend to expand internationally. An IEC assists e-commerce enterprises in the expansion of the digital marketplace and the facilitation of international trade.
4. Shop and Establishment License
Under the Shops and Establishment Act, e-commerce businesses in India must obtain a license within 30 days of starting operations. This ensures compliance with state labor laws regarding working hours, wages, employee records, and leave. The registration process varies by state.
Essential Laws and Regulations Every E-Commerce Businesses Must Follow
There are various essential laws and regulations for E-commerce Businesses in India. They are:
The Information Technologies Act of 2000
E-commerce sellers work like physical sellers but without a physical store, handling tasks like billing, returns, and record-keeping online. The Information Technology Act of 2000 (IT Act) governs online activities, including cybercrime and digital businesses in India. It also makes electronic contracts and digital signatures legal for e-commerce.
The Payment and Settlements Systems Act of 2007
For an e-commerce business to work well with payments, it must follow the rules set by the Reserve Bank of India (RBI) for online transactions. Also, any platform that handles digital payments must have a Nodal Account to settle payments to merchants.
Consumer Protection Act for Online Businesses
The Consumer Protection Act also supervises the e-commerce sector, as it is dedicated to safeguarding the interests of consumers. The Ministry of Consumer Affairs, Food, and Public Distribution notified the Consumer Protection (E-Commerce) Rules, 2021, on May 17, 2021, to protect consumers from unjust trade practices and address and resolve their issues.
FDI Rules for E-commerce in India
Foreign Direct Investment (FDI) is when foreign companies invest in Indian businesses, either by setting up an affiliate, buying a majority stake, or joining a venture. The Indian government has two ways for FDI: the "approval route" needs government permission, while the "automated route" allows direct investment. In e-commerce, FDI can be up to 100% through the automated route.
Conclusion
The e-commerce industry has become an essential part of daily life, with concerns about product quality, fraud, and delivery now largely resolved. For expert advice on legal compliance in India, contact JustStart. Our experienced legal team ensures full compliance, helping you avoid penalties and build customer trust.
FAQs
Which ministry regulates e-commerce in India?
The Ministry of Electronics & Information Technology established the Information Technology Rule, 2000, which governs the use of reasonable security practices and procedures regarding sensitive personal data or information.
Can I sell online without a GST Number?
Every vendor who sells through e-commerce operators is required to register under GST, regardless of their turnover, as per Section 24 of the CGST Act. Therefore, it is impossible to sell on e-commerce without possessing a GSTIN.
Can I run an online business without registering?
Although it is possible to establish a business without registration, registering your business can provide a variety of advantages, including legal protection, access to funding, and increased credibility with customers, suppliers, and partners.
Do I need a shop and establishment license for my e-commerce business?
Yes, if you have an office, warehouse, or employees, you must get a Shop and Establishment License under state labor laws.
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