Lawyers from VakilSearch AnswerLegal Series, Part 2. Read Part 1 here.
With growing disposable incomes and employment among women, playschools for toddlers are becoming a lucrative business opportunity, especially for young women. Before you startup, you may need to keep a few things in mind about the legal regulations that need to be complied with.
a. The Shops and Establishments Act is not applicable: If you are starting an establishment in, say, Tamil Nadu, the Tamil Nadu Shops and Establishments Act will be applicable. However, in the case of a playschool, the Act is silent and you can run your playschool without needing a registration under the Shops and Establishments Act.
We checked the situation in other states too and in most states we checked, the local Shops and Establishments Act is not applicable to playschools. Have this quickly verified by looking at the Shops and Establishments Act in your state just to be safe.
b. Complying with the labour laws: The following labour laws have to be kept in mind:
i. Provident Fund payments if you have more than 20 employees: Specific details about Provident Fund payments are available on the official Government of India website: http://epfindia.nic.in/Applicability.htm)
ii. Minimum wages need to be paid. The minimum wages for primary schools is ~ Rs. 80 per day, although this will vary from State to State. As long as you pay more than this amount (you will need to check the exact number for your state), you will not face any problem.
iii. If you have more than 20 employees, you also need to pay a 1 month bonus (during Diwali / other festivals / at any other point in the year) as per the Payment of Bonus Act, 1965. Though it is customary to pay this bonus during festivals, you can pay the bonus at any time.
c. Forming the entity: You can either run the playschool as a franchise of a larger entity or start your own institution.
i. If you are starting your own institution, it can be done either as a partnership or as a company. It is usually easier to form a partnership, and cheaper and quick to register. Forming a company can take up to 4 weeks, and costs around Rs. 35000.
ii. If you wish to enter into a franchise agreement, you should enter a clause stating that for a certain period of time, the agreement shall not be terminated by the parties unless either party violates the agreement. This will give you some time to establish the playschool in an increasingly crowded market. Be sure to draft the agreement with care.
d. Running it in a residential area: Most playschools tend to be run from residential areas. If that is the case with you, please make sure that your rental agreement permits it. Also make sure that if you live in an apartment, the bye-laws of the apartment association permit you to run a playschool. This is only to avoid problems in the future. Legally, there seems to be no problem with running a playschool in residential premises. It has been decided by Courts in different states that a chartered accountant, yoga teacher and lawyer can carry on their work in residential premises so there is no reason why a playschool cannot be carried on as well, as long as the disturbance to neighbours is minimized.If however, you decide to convert your playschool into a full – service school, you need to:
i. Get permission from the local tehsildar (a no objection certificate), consisting of 4 forms: Form A, Form B, Form C and Form D. These will be to verify the ability of the owner / founder, fitness of the land for the purpose and safety inspections. This is a long and difficult process, and multiple licenses and procedures have to be complied with. For instance, you can get a Fire Safety certificate only after completing the Fire Safety inspections.
ii. Next, you need to make an application to the Directorate of Education in your state, for which you need to show financial capability, create a public trust / charitable institution to run the school with, ensure that the land is in the name of the promoter (you) and maintain a Fixed Deposit in the name of the school as proof of financial strength. After you do this, your school will be recognized by the Government of this State. Starting a school without recognition is inadvisable.
iii. You will need to get affiliated with a certain board, which again requires a lot of procedures to be complied with. Every board (for example, the CBSE) has a detailed list of guidelines to be complied with by every school under that board.
iv. Finally, you need to comply with all the State-specific laws. To take the example of Tamil Nadu again, schools there are subject to the Tamil Nadu Recognised Private Schools (Regulation) Act, 1973. Many states have their own laws governing schools, which contain detailed procedures for the appointment and dismissal of teachers and maintenance of accounts of the school.
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