Best business structure for incorporating your E-Commerce Business

E-Commerce Business

This article is written by team LegalWiz.

E-commerce industry has achieved remarkable growth since half a decade in India. The step of planning the business is achievable by the promoters in no time because of their proficiency in the field. The business model is when finalised, next step will be to get the business on plot through business registration. The entrepreneurs seek the guidance for establishing their business to commence the activities as legal entity. The article here gives gist on how to register an e-commerce business in India.

  1. Which form of organisation is most suitable for an e-Commerce Business?

Priority concern for the e-Commerce organisation should be limited liability of the promoters as the e-Commerce business inherent higher risk in nature of the business. The corporate organisation structures like Limited Liability Partnership and Companies provide the benefit of limited liability. LLP ensures the entry for the medium scale businesses easy with the scope of business’s business. Further, it also allows working with the flexibility as per agreement of the LLP.

What are the aspects you should consider for choosing the form of organisation for an e-Commerce Business?

Capital requirement:

The introduction of capital will depend on the scale of operations. When the business will operate on large scale, capital will be infused more with the help of capital through private equities or public issues; hence a Company will be preferable for this. However, the business that is to be established to operate at medium scale will require limited capital to be introduced. The limited capital requirements can be gratified through capital of Partners or loans from financial institutions. Here, formation of LLP  will be suitable option.

Ownership and control

In case of Limited Liability Partnership, the ownership share will be divided as per the LLP Agreement and terms thereof. However, if the Companies bring the capital through equities or public, it will divide the ownership rights and control of the operations. Close control over operations and administration will be available in case of Limited Liability Partnership Registration.

Growth Aspects

The business established as Private Companies will be having higher scope of growth compared to Limited Liability Partnership as it will have option to convert the Private Company into Public Company. However, in case the LLP can also be converted into public or private company by following the procedure prescribed. The conversion procedure is also made easy in Companies (Amendment) Act, 2017.

Compliance Cost:

In comparison of both Private Company and Limited Liability Partnership, the cost of incorporation, as well as post incorporation compliance, is less in case of LLP. The LLP will not be required to appoint statutory auditor until crossing the prescribed limit.

  1. Whether the domain should be registered before its registration of business?

The domain name for an e-commerce business is most important to secure as the whole industry will know from its domain name. The domain name should be easy to remember and spell that uniquely represents the activity or characteristic of the business. However, the concern arises while the establishment of business as LLP or company that when should the domain name be secured for registration purpose.

In case the promoters wish to keep both domain name and organisation’s name as same, it is advisable to make the application for name approval first and then secure the domain name. First, the applicant shall make a search for both name availability at MCA portal for LLP and domain name availability. As the approval criteria for the name approval of the LLP is stringent, promoter shall make sure the approval of from MCA.

  1. What will be the next step?

As soon as the promoters receive the Name Approval, they should proceed with the Limited Liability Partnership Registration by filing of application of incorporation. Upon approval of the firm, the promoters can commence the business under this name of the LLP and undertake the business activities. The form for incorporation will be filed in Form 2 and subsequently, LLP Agreement shall be executed and filed within 30 days of formation of LLP in India.

  1. Bank Account and Payment Gateways

After registration of Limited Liability Partnership, a current account at the bank shall be opened to route the transactions of the LLP. Further, as online e-commerce operators, receipts of payments from third parties. The payment gateways will allow accepting the credit card, debit card and internet banking transactions from the third parties. The accumulated payments in the payments gateways will be transferred to the bank account of the LLP within decided period.

  1. Tax and other Registrations

Under GST Regime, it is mandatory for the online platform providers and aggregators to register themselves under GST Law irrespective of their turnover and activities. Hence, registration under Goods and Service Tax will be the step next to opening the Bank Account in name of LLP. If the LLP will indulge in the international market to transact across the country’s boundary, the registration under IEC will also be required. In India, the entities are required to obtain Importer – Exporter Code to indulge in import or export of goods.

  1. Legal Documentation

Legal Documentations will be must for the dealers or service providers under this category. As the organisation will be communicating with the third parties through web portal, disclosures and privacy policies are necessary after LLP registration. Terms and conditions as well as privacy policies customised as per the specified business.

Flexibility and less compliance cost assured by Limited Liability Partnership make it easy for the start-ups to commence and operate as e-Commerce in India. Where formation of Limited Company is more preferable to commence business as e-Commerce, the formation of LLP in India is also a considerable option for this business. Read a comprehensive guide on formation of LLP in India here.