Five legal considerations before you launch a product manufacturing business

By Vakil Search|19th Sep 2013
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A product manufacturing business will involve keeping a look-out for various laws and compliances that are involved because of the nature of the business.

Here is some good advice on legal things you’ll need to take care of:


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1. Infrastructure and Raw MaterialsFor starters, you’ll have to figure out the piece of land where you can begin your business. For manufacturing you’ll need some industrial use land.

Land use is determined according to the Master Plan. Certain areas are earmarked as industrial areas and you must ensure that what you are buying is in fact land approved for industrial use. Otherwise you could be left with land where all you can do is maybe build a house or grow crops. Not an ideal situation!

Renting industrial land is another way to go and an easier one at that.

2. Now think of the machinery you will use. You could buy local and save major hassles.

However, if you must buy machinery from abroad (maybe the machine isn’t available in India or maybe the Chinese one is cheaper) you’ll have to import and that involves customs and other such levies.

You will need to check the relevant customs duty and other tax rates on the machine you are importing.

An easier way is for you to get machinery and equipment from the National Small Industries Corporation on a hire-purchase basis or on a lease basis. However, this scheme is only available for small scale units (total investment in fixed assets cannot exceed Rs. 1 crore).

For those of you who are planning to import raw materials from abroad, look at the relevant export-import policy and the Foreign Trade (Development and Regulation) Act, 1992.

Also some businesses don’t require raw materials as much as certain technologies from abroad. Depending on how you want to structure the technology transfer, you could do it via FDI or a foreign technology collaboration agreement.

The government allows technology induction through both the above routes. However, you will have to check whether you fall under the automatic route (no prior permission required, only notification is required later on) or the approval route (prior permission required from the government).

Also keep an eye of the tax aspects of these transactions.

Some people may not have their own money to buy land, machinery, raw materials, etc. They will need to look at other ways of capital infusion. Taking a loan is one way to go.

Research on the various loan schemes of PSU Banks. PSU’s have funds earmarked for small and medium scale industries. Also look at Small Industries Development Bank of India’s schemes. They also invest in small businesses.


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3. Form of Business OrganizationWhat sounds better to you? Pvt. Ltd.? Pub. Ltd? A partnership? Sole proprietorship? This is where you decide what form of business organization you want.

Depending on what you choose, you’ll be covered either by the Companies Act, 2013 or the Partnership Act, 1932 or no particular legislation as such.

All these forms have their own advantages and disadvantages, but that’s a conversation for another day.

What you must know now is that if you want the words “Ltd.” you must register your business (choose a unique name) with the Registrar of Companies.

If it’s a partnership that you chose, the registration happens at the Registrar of Firms (it is not mandatory to register a partnership but there are benefits of doing so).

4. Pricing your Product

Generally how much you want to sell your product is an economic decision. However, sometimes, the law has a role in pricing.

Keep an eye on the Essential Commodities Act, 1955. Certain products (cattle fodder, cotton and woolen textiles, jute textiles etc.) are declared as essential under the Act. Meaning you can’t price them over the prescribed price.

Of course while pricing also keep an eye on the sales tax, excise duty and local taxes like octroi. You don’t want your taxes to surpass your profits do you?

5. Regulatory Requirements

So I’ve already told you about the Companies Act, 2013. For those of you who choose the “Ltd.” route, the Companies Act, 2013 is the governing law.

You must comply with the various provisions applicable to you such as the powers and responsibilities of the directors and managers, raising of capital, holding of meetings, maintenance of audit, etc.

Every business has to abide by various environmental guidelines and parameters for environmental protection. The Ministry of Environment and Forest - which is the nodal agency for regulating all environmental aspects - has prescribed various norms.

Further, the Central Pollution Control Board and the State Pollution Control Boards also come out with notifications. Industries are required to take permits before production and must comply with the laid down norms.

Different norms exist for air pollution, water pollution, noise pollution, forest conservation, and wildlife protection amongst other things. Also separate rules exist for industries, which emit hazardous wastes.

The legal needs of every business are different. And to fulfill those in an affordable and a transparent manner, vakilsearch is your friend! Put in a comment below and we’ll get back to you.

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