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Let us discuss the key steps and strategies to set up and start a micro business in India. As per the Udyam portal, there are 1.4+ crore micro businesses registered on the platform as of March 2023 (Source: Udyam portal). Simply put, the number of micro businesses is growing in India. And there is a process to register your micro business to leverage the benefits that the government extends.
Though there are several benefits of registering businesses on MMSE Udyam portal, there are many businesses that haven’t done it yet. In this article, we will talk about the process and steps to set up and start a micro business, documents required, and more.
Note: Though MSMEs and start-ups share many similarities, they are not the same. To be recognised as an MSME, i.e., micro or small business, registration on the Udyam portal is required. To be recognised as a start-up, businesses need to be recognised by the DPIIT and register on the Startup India portal. As of August 2022, with 77,000+ DPIIT-recognised start-ups, India was the world’s third-largest start-up ecosystem (Source: The Times of India, Dec’22).
What is a micro business?
A micro business or micro enterprise is one which sells (and may optionally also manufacture) goods and services in a specific geographic market. It usually has a small workforce of 10-12 people, has limited capital and investment in infrastructure and often depend on external credit options for financing (unless self-financed). Growing economies like India, are known to have many micro enterprises, start-ups, and emerging businesses. Local kirana/grocery stores, furniture stores, apparel boutiques, paint dealers, are all examples of micro businesses.
The MSMED Act, 2006 outlines the features, classifications and more about the micro, small, and medium enterprises (MSME) in India. Over the years, there has been several updates to the definition of MSMEs, to match business requirements. Currently, as per the new classification of MSMEs, based on turnover and investment, micro businesses are defined as:
Investment in plant and machinery/equipment
|Micro enterprises||Not more than ₹5 crore||Not more than ₹1 crore|
|Small enterprises||Not more than ₹50 crore||Not more than ₹10 crore|
|Medium enterprises||Not more than ₹250 crore||Not more than ₹50 crore|
To learn more about MSMEs, please visit the official website: msme.gov.in
Now that we understand the definition of a micro business, let us look at how to start a small micro business in India.
How to start a micro business in India
Being an entrepreneur is the ambition of many. While it’s a noble pursuit, having a great micro business idea is not enough. You need to back your idea with understanding and adherence to the formal process of registering your micro business.
Let us first look at the pre-requisites to start a small business in India, online and/or offline. (Note: This is also relevant if you want to start a start-up business in India)
Step 1: Prepare to start a small business
Start by identifying what you aim to sell. It can be any product or service, but evaluate its current and future potential, compare competition, calculate revenue and profit possibility, identify customers and market, build a growth marketing strategy for your product.
In brief, work on a micro business plan. This is a rough framework for your small business idea. Keep updating this with key inputs until you have a comprehensive plan and strategy for your small business start-up.
- Have a great idea (think of business ideas under ₹10 lakh to start with)
- Decide on the product/service you will sell
- Design a first-draft micro business plan
Step 2: Define key business requirements
The next step for your micro/small business strategy is to define some basic requirements. For example:
- Decide on a business name:
Think of a business name that’s aligned to your line of work, easy to remember, and available. For example, if you are starting a florist or nursery business, a business name like ‘World of flora’* is more suitable than a random name. You will however have to check if the name is already registered and the domain name is available. In which case, you will have to find an alternative. (*The suggested name is hypothetical and for reference only.)
As a solution, create a list of 5-10 suitable business names. When you finalise a name, block the domain. Prices to buy a domain usually starts as low as ₹499/year.
- Evaluate if you want to go online, offline or a combination of both:
This is a critical decision. If you plan to start a small business online, then you need to register your eCommerce business. Alternatively, you can register your business on existing eCommerce marketplaces like Amazon, Flipkart etc. and sell. You can also consider selling through social media platforms like Facebook, Instagram, or WhatsApp.
If, however, you want to start a micro business offline then there are additional investments (with regards to rent and/or lease). You will also have to find a suitable space that is strategically located and has the potential for high sales.
Step 3: Get your business registered and look for required funding
This is the challenging part – which to do first. Should you register your small business and get the necessary business licences and permits? Or should you approach a lender and seek a small business loan for your business?
Getting a business loan or availing government financial schemes are comparatively easier today. Banks and financial institutions have realised the potential of small businesses and have policies and funding schemes for new and emerging business.
However, availing a business loan funding for your business is optional – getting your business registered is mandatory.
As such, once you have a profitable business idea, a plan, a business name and domain, take the real big step of registering your business. In the next section we will take a look at how to register your micro business in India.
Note: Registering your business with the MCA – Ministry of Corporate Affairs (ref. Companies Act, 2013 or Limited Liability Partnership Act, 2008) is required for certain businesses only.
How to register a micro business in India
Before you register your business as a micro entity, there are three steps you need to follow:
- Identify the right company type/structure for your business i.e., sole proprietorship/one person company, partnership, private limited company, limited liability partnership etc.
- Understand the compliance, investment, and turnover requirements and ensure you are meeting the same
- Define your business as a manufacturing or service delivering entity (or even wholesalers and retailers) to avail MSME benefits
Sole Proprietorship, One Person Company (OPC), and Limited Liability Partnership (LLP) are the most common company types that micro businesses are started as. Before we understand the registration process of micro businesses, let us take a look at the key features of each of them.
One Person Company (OPC)
Limited Liability Partnership (LLP)
|Meaning||A small business, started by an individual; Recognised legally as a company||Oldest business structures, started, managed, controlled by a single owner||A business structure with partners having limited liability based on their agreement|
|Ownership||Single person ownership||Single person ownership||Partners liability limited to the LLP|
|Investment||Minimum capital investment required; profit/loss on the company||Minimum investment; profit/loss borne individually (personal assets)||Authorised capital of ₹1 lakh each at least (audit not required for <₹40 lakh turnover and <₹25 lakh capital investment)|
|Status/Liability||Enjoys status of a private company; owner and company have separate legal entities||Unlimited personal liability; does not have separate legal company status||Liabilities/roles divided between partners as per agreement; no liability for another partner’s activities; separate legal entity|
|Business Registration||Required under Companies Act, 2013||Not required||Introduced in 2008, LLP Act|
|Directors/Partners||Minimum 1 director||Individual/ Self-owner||Minimum 2 partners|
|Compliance||Minimum 1 annual board meeting half-yearly; legal business name and company address required; business succession can be transferred to nominee; taxed at 30% on profits; ITR filings with ROC (Registrar of Companies), GST filings required when applicable; TDS applicable||Minimum compliance requirements, individual taxation slab used for business profit (ITR required), audit optional (only when required)||Business profits shared as per agreement; audits must (for more than ₹40 lakh annual sales) with filings with Income Tax and ROC, GST required, Form 11 and Form 8; LLP Deed and incorporation certificate required; partners can join/leave; Partners need DPIN; LLP can be dissolved|
Note: It is recommended to visit the MCA website for the latest updates on company incorporation, eligibility, and regulations. Visit: www.mca.gov.in
Steps to register a sole proprietorship:
A sole proprietorship is a business owned and run by a single person. It is usually unincorporated, with the business owner and the business considered as a single entity. The owner has complete control and liabilities and is responsible for paying personal income taxes based on the revenue, profits and losses the business incurs.
- Ensure you have PAN and Aadhaar cards, utility bills (for address proof), and other required KYC documents
- Name your business, have an official business address, and open a bank account (current account) with this name
- Register business by getting a Certificate of Registration (under the state Shops and Establishments Act)
- Register for GST (for businesses with ₹20 lakh+ annual turnover)
- Register on the Udyog Aadhar/Udyam portal as an MSME for leveraging MSME tax exemptions, subsidies, and other benefits
Steps to register a One Person Company (OPC):
A hybrid between a sole-proprietorship and a company, the concept of an OPC was introduced with the Company’s Act 2013. It allows a single person to incorporate a company by himself/herself, i.e., have separate legal entities and liabilities as a person and company. The procedure to register a OPC requires minimum documentation, is fast (usually 2-3 weeks), and requires a single Director and member to commence.
- Ensure you meet the eligibility criteria and have the required documents e.g., business PAN and TAN card, Aadhaar card, utility bills, nominee approval through Form INC-3, office address registered
- Get a DSC (Digital Signature Certificate) and DIN (Director’s Identification Number)
- Apply for incorporation of a new company through SPICe form (INC-32) – Company name reservation, allotment of DIN, incorporation of new company, and allotment of PAN and TAN can be availed through this
- Add eMoA and eAoA (if not available the PDF versions should be uploaded)
- Open a new bank account for the business (this is important as it documents the cash flow and business transactions, is useful for ITR and GST, and is usually requested by lenders to check business loan eligibility)
Note: SPICe – Simplified Proforma for Incorporating Company electronically
Steps to register a Limited Liability Partnership
The concept of LLPs in India took a formal shape in 2009. In this business structure, the designated partners have separate entities, their liabilities limited to the roles and responsibilities stated in the LLP Deed.
- Ensure all designated partners have PAN and Aadhaar cards, photographs, business utility bills, bank statements, business address, and other KYC documents
- Ensure all designated partners have a Digital Signature Certificate (DSC)
- Think of a suitable LLP name and check the MCA portal for availability
- Get a business name LLP-RUN, submit fees and wait for the registrar to confirm the name
- Fill in and submit the LLP incorporation form
- Fill in Form 3 online for LLP agreement that outlines the liabilities and responsibility of designated partners (should be completed within 30 days)
Note: For the incorporation of a LLP, at least one designated partner should be an Indian citizen. Specific documents must be self-attested.
Steps to register business as a MSME on Udyam portal
- Visit the Udyam portal (udyamregistration.gov.in)
- Click on ‘For New Entrepreneurs who are not Registered yet as MSME or those with EM-II’
- Enter Aadhaar number and validate with OTP
- Update PAN details (business PAN, type of business)
- Fill in details related to bank details, NIC number for business, banking details etc.
- Get the final OTP to complete the submission
- Check email/mobile for updates on the Udyam certificate and Udyam Registration Number
- Download the PDF from the website by selecting the ‘Print/Verify’ option
Apart from these you may also consider registering for:
- Trademark registration – To protect and safeguard your brand on online portal and advertising
- ESIC and EPFO registration – For businesses with more than 20 members
- IE code – Optional and required only if the business is involved in export and import of goods
Getting started with a small business in India
Running a business is challenging, and the hurdles manifold when running a small business. Yet, in India, every year thousands of entrepreneurs start their small business, while thousands of others plan ideas for growing their small businesses.
At Tata nexarc, a digital B2B platform built to enable MSMEs and emerging businesses accelerate growth, we understand the multiple challenges that new businesses face. We offer businesses a range of services across low-interest business loans, affordable logistics transportation services, information on relevant tenders, opportunities to procure steel raw material at the best rates and more. To know more about our platform and leverage the benefits it offers, connect with us now.