Whenever a business gets started, there are a lot of legal and financial compliances included, which one needs to complete. These compliances depend on the type of entity one is choosing for the business. There are various types of entities in India, depending on the business owner and which type of entity one wants to register for its business. On the basis of the business and business registration, compliance needs to be done. Compliances play a very crucial role because if one does not comply with these compliances, heavy penalties can be imposed.
For a newly established business, even a small penalty can cause a big loss hence, one must be aware of these compliances. If you are also starting a business, then you must be aware of these complications. The two most important compliances required in the case of almost every business are trade licence and company registration. The current blog will discuss every aspect of these two compliances, especially the difference between the trade licence and company registration.
What is a Trade License?
To run any particular type of business in a particular area, permission needs to be taken by the competent authority, and that authority gives that permission in the form of a licence. This licence is known as a trade licence. Some of the common forms of trade licence are given below:
- FSSAI License
- OSP License
- Drug Licence
- Ayush License
What is Company Registration?
The process of registration of an entity under the Companies Act of 2013 or any other company law that existed before the Act of 2013 is known as company registration. Under the company law, company registration is of the following types:
- Private Limited Company
- Public Limited Company
- Nidhi Companies
- Banking Companies
- One person Companies
- Associate Company
- Company Limited by Guarantee
- Company Limited by Shares
- Foreign Company
- Government Company
- Holding Company
- Subsidiary Company
- Small Companies
- Unlimited Company
Key Differences Between Trade Licence and Company Registration
Both the trade licence and company registration are two very different aspects of a business. Some of the key differences between trade licence and company registration are given below:
| Particulars | Trade License | Company Registration |
| Structure | It is required for the existing entities | It needs to be done so that an entity comes into existence |
| Validity | Valid for one year | Valid for lifetime |
| Renewal | Needs to renew | There is no need for a renewal |
| Types | There are no types of trade licence | There are many types of companies. Some of them are mentioned above |
| Time | The entire process of trade licence takes 7-10 working days | The entire process of company registration takes 10-15 working days |
| Eligibility | Minor cannot take a trade licence | Directors of the company must not be a minor person |
| Members | There are no minimum or maximum requirements for members of a trade licence | The minimum and maximum number of directors are there in the company registration. But it depends on which type of company one is registering. For example, a private limited company needs a minimum of two directors, and a public limited company needs a minimum of seven directors to get company registration |
| Compulsory | For some businesses, but it is suggested to all types of businesses to take a trade licence | Every company needs to get company registration to come into existence |
| Compliances | No complices in case of trade licence | Registered companies need to comply with various compliances like submission of Form INC-22, MGT-7, DIR-1, etc., before the ROC |
| Capital | No minimum and maximum capital requirement | Needs minimum and maximum capital. It also varies from company to company. |
Key Points of Trade Licence and Company Registration
There are certain key points that one must know before taking a trade licence and company registration. These key points with respect to trade licence and company registration are given below:
Process of Company Registration
- Apply for the name approval of the company
- Once the name gets approved, fill out the SPICe+ Part A and SPICe+ Part B forms and submit them before the registrar of companies.
- ROC will verify the application for registration
- If everything is appropriate, they will issue an incorporation certificate of the company within 10-15 working days.
Process to get Trade Licence
- Visit the official website of the respective competent authority
- Create the login credentials and login through the same on the official portal of the respective competent authority
- Fill out the form and provide all the necessary information to the authority
- After filling out the form, submit it before the competent authority
- Verification of application by the competent authorities
- If everything is up to date and correct, a trade licence, which is also known as a business licence, will be issued by the competent authority within 7-10 working days after the submission of the application
Documents Required for Company Registration
- KYC documents of the directors, authorised signatory and shareholders of the companies
- One photograph of directors and authorised signatory of the companies
- Business address proof of the company will be required. In case it is on rent, then the rent agreement will work; otherwise, the utility bill will be required
- In case the business place is on rent, then no objection certificate of the owner will also required
- Bank statements of the directors and authorised signatory of the company
Documents Required for Trade License
- KYC documents of the directors, partners or authorised signatory of the entity
- One photograph of the directors, partners or authorised signatory of the entity
- Business address proof of the company will be required. In case it is on rent, then the rent agreement will work; otherwise, a utility bill will be required.
- In case the business place is on rent, then a no objection certificate of the owner will also be required.
- Documents of the entity like MOA, AOA, COI, deeds, etc
Conclusion
Trade licence and company registration are crucial but distinct aspects of launching and running a business in India. Trade licences are needed by existing businesses to operate in specific locations and are categorised based on business type, serving as compliance permits, while company registration involves establishing a legal entity under various company types, defining the business’s structure and longevity. Trade licences usually require annual renewal and have no specific member or capital requirements, whereas company registration, which can take a bit longer, necessitates a minimum number of directors and can entail varying capital demands based on the company type.
Out of the main distinction between trade licence and company registration, one is that trade licences have fewer ongoing compliance obligations, registered companies must adhere to numerous regulatory requirements, making it essential for entrepreneurs and business owners to differentiate between these two processes to ensure they meet the appropriate legal criteria for their specific business endeavours in India.
