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Different countries have separate laws to determine whether an online business needs to be registered with the government of that nation. When an online business needs to be registered with the government, the website becomes more regulated and transparent. An online business becomes legitimate in the eyes of the law and can take legal recourse in a court of law with respect to registration. Though it is such a simple procedure, it is very effective and serves as a certificate of validation.

Portals such as Flipkart, Amazon, Paytm, Quikr, etc. need to be registered with the Government to sell goods and accept payments for such sale of goods, but also because most of these companies have a turnover of above INR 10,00,000. These portals also require entities (third-party vendors) to be registered in order to operate as a ‘seller’ on their online portals. This enables these entities to enter into official contracts in their own name with the online business. These entities are then allowed to sign a contract agreeing to the terms and conditions laid out. Any infringement of the said terms and conditions will enable the online business to take legal action or avoid legal action against the parties concerned.

In India, it is important to register an online website with the government if that website accepts any payments for goods or services rendered. In order to enable a payment gateway on a website, registration of the online business is required so that tax can be deducted accordingly. A current account needs to be opened to accept payments from customers. A payment gateway can be linked to a current account so that all payments accepted go directly to the bank and serve as proof of income. Payment gateways also exist for unregistered businesses and individuals online that qualify to use those services as well.

Types of Company Registration

• Sole Proprietorship

When a person is a sole proprietor online, he doesn’t need to register because he will be taxed as an individual and not as a company. As per the Indian Laws, a company and a sole proprietor are a single legal entity. As an individual pays private taxes the burden and legal compliance is much lesser as compared to corporate taxes charged to private limited or public limited companies. A sole proprietor doesn’t need an official office and can run his business from his residential location, but in case an entrepreneur wants to set up an office and employ professionals, it is important to consider the Shops And Establishment Act.

• Start-Ups

A startup online can register as a partnership, private limited, one-person company or a limited liability partnership in India. Depending on the turnover, the startup will need to be registered and pay taxes. In order to raise funds, it makes sense for a startup to register as a private limited company so as to dilute equity at some point for investment or funding. A start-up running online needs to register its business if it needs to accept any form of funding because a tax is deducted from funding as well.

• Company

The Ministry of Corporate Affairs has maintained that the every company should be registered with the Registrar of Companies in the State the business is located in. These can be either registered as a ‘Public limited’, ‘One Person Company’ or ‘Private Limited’ company. In any company form of organization, it is possible for a company to make a valid effective contract with any of its directors or shareholders. It is also possible for a person to be employed by a company and also be in control of the same company. Thus, a person can be a shareholder, director, creditor and employee of the company, all at the same time. He will need to enter into several contracts to enable him such privileges. In order for that to happen a business needs to be registered. For example:

• As a director, a person can receive remuneration.
• As a creditor, a person can lend money and earn interest.
• As a shareholder, a person can receive a portion of the dividend.
• As a supplier, a person can supply goods from their family business.
• As a lessor, a person can receive lease rent.

How To Register

Apart from the manual way of going to the registrar’s office and physically filling out several forms and waiting in long queues, one can register using the online route by:

• Digital Signature Certificate (DSC)

Any document electronically submitted should have a valid digital signature certificate in order to ensure authenticity and security of the document. The Controller of Certification Agencies (CCA) appoints or authorizes agencies to use DSC, and the use of any other digital signature (not authorized by the CCA) will be void and invalid, if not breaking the law. Foreign as well as Indian investors are required to have valid digital signature certificates issued by authorized agencies.

• Director Identification Number (DIN)

A director for every company is required to have a DIN number as per the Amendment Act, 2006. The Ministry of Corporate Affairs has an online portal with DIN Forms I to IV that range from a form for obtaining a DIN no to a form for change in personal details or addresses.

• User Registration

New users, as well as existing users, should create an account at the MCA portal for filing electronic forms, payments and transactions. This step requires no registration cost and is free for any user to sign up.

• Incorporate the Company

The company needs to incorporate the name or title of the company, the location of the registered office, share details, appointment of directors, Articles of Association, Memorandum of Association, Permanent Account Number, Tax Deduction Account Number etc. in order to obtain a certificate of Incorporation from the Ministry of Corporate Affairs. Once this is completed, a business is registered.

Advantages Of Registration

• Legal Entity

A registered company becomes a legal entity and has a legal standing in the eyes of the law according to Section 3 of the Companies Act, 1956. Any legal entity has the capacity to enter into contracts, be held responsibility for its actions, sue or be sued in its name, pay or incur debts and assume the obligation. A company can come into existence only after it is declared a legal entity. A company that is registered will be entitled to legal recourse if the case arises.

• Contracts

Any contracts executed in India will come under the Indian Contract Act, 1872 which deals with the enforcement and rights of parties entering into a contract. Any online business will use several contracts such as vendor agreements, employment contracts, privacy policies, terms and conditions, etc. Hence, if the business is not registered then it is pointless having any agreement in place at all.

• Taxation

A website will be required to pay service tax once the annual turnover has crossed INR 10,00,000 and VAT once the annual turnover has crossed INR 5,00,000. A website that sells goods and services on its website will be subject to the Goods And Service Tax (GST) that includes excise, value added tax and sales tax for goods and service tax for services, among other taxes. Companies set up in Special Economic Zones (SEZ), tech-parks, tax exempt zones, etc. will be exempt from paying certain taxes or granted certain privileges with respect to taxation. No less will the business need to be registered.

• Brand Recognition

Any registered business will have the confidence of the people as it would be considered a legal entity approved by a Government body to operate as a business. Most brands that operate a business online maintain a certain brand identity online in order to enhance consumer brand awareness, marketing campaigns, make the sale of goods and services online, and so on. Online business has the added advantage of gaining public faith and enhancing brand recognition through registration.

• Borrowing Capacity

A company’s borrowing capacity is the total amount of money can borrow against the available amount of funds presently with the company. Any loan made is generally secured by some collateral. A registered business would have a higher and better borrowing capacity as compared with a business that hasn’t been registered yet. For any unregistered business apart from the difficulty in availing loans, the loan rates that are available would be sky-high to compensate the lender for the high-risk involved.

• Raising Money/Capital

In order for a company to raise and accept money (from share application, share allotment, first call, second call, etc.) from the general public, the company needs to be registered as a Public Limited Company. Registration is a must, even more so for a business that wants to operate online. Investors are also more willing to invest in companies or online businesses that are legally registered. A Private Limited Company can raise money from private investors, family and friends. A private company online needs to register as well in order to accept any investment.

Conclusion

With every process going digital, there is a need for businesses that operate online to be regulated. With registration, the Government is satisfied with the company’s functioning and business activity. An online business has advantages that come with registration as well, such as rights and powers entitled to it that make it essential for any online business to obtain. All in all, I would recommend any online business to register at the inception of a business before any sales are made. Legal advice is always important to consider with aspects relating to the forms of business registration, when to register, where and how to register, and so on.

LegalDesk.com undertakes all registration such as Digital Signature Certificate, Director Identification Number, User Registration and all things related to the incorporation of a company. Do avail of our services to ensure that your business that intends to sell online is properly registered, proper filings are done, contracts are properly executed and all legal aspects of your business are taken care of.