1. Business Setup: Legal Structures and Registration
The first critical step is choosing the correct legal structure, as it impacts liability, taxation, compliance, and funding potential.
A. Major Business Structures in India
| Structure | Liability | Best Suited For | Key Feature |
| Sole Proprietorship | Unlimited (Owner’s assets are at risk) | Freelancers, very small traders, home businesses. | Simplest setup, minimal compliance, no separate legal entity. |
| Partnership Firm | Unlimited (Jointly & severally liable) | Small enterprises with multiple founders, family businesses. | Governed by a Partnership Deed, easy to start, low compliance (if unregistered). |
| Limited Liability Partnership (LLP) | Limited (Partner’s liability is limited to their contribution) | Consulting, service-based ventures, small startups seeking limited liability. | Combines partnership flexibility with limited liability, moderate compliance. |
| Private Limited Company (Pvt Ltd) | Limited (Liability limited to shareholding) | High-growth startups, tech startups, businesses seeking equity funding/Venture Capital. | High credibility, best for fundraising, higher compliance burden. |
| One Person Company (OPC) | Limited | Solo founders seeking limited liability and a formal company structure. | Single owner enjoys limited liability, easier compliance than a Pvt Ltd Company. |
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B. Essential Setup Steps (India)
- Business Idea & Plan: Finalize a unique idea and create a detailed business plan outlining milestones, market analysis, and financial projections.
- Choose Structure: Select the legal entity that aligns with your goals (e.g., liability, capital needs).
- Name Approval & Registration: Get the name approved (for companies/LLPs) and register the business with the Ministry of Corporate Affairs (MCA) or relevant authority.
- For Companies/LLPs, obtain a Digital Signature Certificate (DSC) and Director Identification Number (DIN).
- Obtain a Certificate of Incorporation (COI).
- Licenses & Registrations: Obtain necessary permits and licenses, such as:
- Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).
- Goods and Services Tax (GST) Registration (mandatory for turnover above a threshold, ∼₹40 lakhs for most goods/services).
- Sector-specific licenses (e.g., FSSAI for food, Drug License for pharma).
- Import-Export Code (IEC) if dealing with international trade.
- Open a Bank Account: Open a dedicated Business Current Account to keep business finances strictly separate from personal finances—this is crucial for accounting and legal clarity.
2. Business Finance: Funding & Management
Effective financial planning and management are vital for survival and growth.
A. Sourcing Funds (Funding Options)
The source of funds often depends on the business stage and the legal structure chosen.
| Funding Source | Description | Ideal For |
| Self-Funding / Bootstrapping | Using personal savings or funds from friends and family. | Initial stage, small-scale businesses, maintaining full ownership/control. |
| Business Loans (Banks & NBFCs) | Term loans (for assets), working capital loans (for daily operations), Bill Discounting, Overdraft Facilities. | All sizes of established businesses for expansion or operational needs. |
| Government Schemes (India) | Initiatives like the Pradhan Mantri Mudra Yojana (PMMY) for collateral-free loans up to ₹10 lakhs (Shishu, Kishor, Tarun categories) and the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) which offers loan guarantees without collateral. | Micro, Small, and Medium Enterprises (MSMEs). |
| Startup India Funding Support | Schemes like the Startup India Seed Fund Scheme (SISFS) and the Fund of Funds for Startups (FFS) managed by SIDBI. | High-potential startups for proof of concept, prototype development, etc. |
| Equity Funding (Angel Investors & VCs) | Selling a stake (equity) in the company to wealthy individuals (Angels) or professional firms (Venture Capitalists) in exchange for capital. | High-growth companies, typically structured as Private Limited Companies. |
| Crowdfunding | Raising small amounts of money from a large number of people, often via online platforms. | Businesses with unique, publicly appealing products/ideas. |
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B. Core Financial Management Practices
- Startup Budget: Create a detailed startup budget (financial roadmap) estimating initial costs, projected monthly expenses, and estimated revenue timeline to determine the required capital.
- Segregation of Funds: Absolutely separate business finances from personal finances. This simplifies tax filing and is a legal requirement for most formal structures.
- Accounting & Bookkeeping: Establish a robust system for recording all financial transactions. This is essential for:
- Monitoring cash flow and profitability.
- Making informed decisions.
- Ensuring compliance and easier tax filing.
- Tax Planning & Compliance:
- Understand the taxation rules specific to your business structure (e.g., corporate tax for a Pvt Ltd Company, or individual income tax for a Sole Proprietorship).
- Comply with GST regulations, TDS (Tax Deducted at Source), and TCS (Tax Collected at Source).
- File statutory returns with the MCA (for companies/LLPs) and income tax returns annually.
- Working Capital Management: Efficiently manage current assets and liabilities (inventory, accounts receivable, accounts payable) to ensure the business has enough liquid funds for day-to-day operations.
- Financial Reporting: Regularly prepare and analyze key financial statements, such as the Balance Sheet, Profit & Loss (Income) Statement, and Cash Flow Statement.