CS Executive · Setting Up of Business, Industrial and Labour Laws

Identifying Laws applicable to various Industries and their Initial Compliances: formula sheet

Full chapter guide

Key formulas

Sole proprietorship: One owner; no separate legal entity; unlimited liability; Easiest to start and close. Business income is taxed in the owner's hands. Continuity depends on the owner.
Partnership firm: Minimum 2 partners; agreement; unlimited joint and several liability; no separate entity; Governed by the Indian Partnership Act, 1932. The maximum number of partners is as set under the Companies Act, 2013 and its rules. Check the current limit in your study material.
LLP: Minimum 2 partners; separate legal entity; limited liability; perpetual succession; Governed by the LLP Act, 2008. Needs at least 2 designated partners, at least one of them resident in India. Partner is not liable for another partner's wrongful act.
Private company: Minimum 2 members; maximum 200 members (excluding employees and certain former employees); restricts transfer of shares; no public invitation; Needs at least 2 directors. Limited liability and separate legal entity. Cannot invite the public to subscribe to securities.
Public company: Minimum 7 members; no maximum; minimum 3 directors; Shares freely transferable. Can raise funds from the public. Highest compliance and disclosure.
One Person Company: 1 member; 1 nominee; minimum 1 director; separate entity; limited liability; A private company with a single member. A natural person who is an Indian citizen and resident in India can form it; the exact conditions are in the Act and rules.
Layering rule: Applicable laws = General laws + State/local laws + Sector-specific laws; Use this as the skeleton for any answer. Name at least one law under each layer.
Four-question test: Activity + Form + Size + Location; Activity picks the sector law, form picks the entity law, size picks thresholds for labour and MSME rules, location picks state laws.
Banking and insurance regulators: Bank: Banking Regulation Act, 1949 + RBI Act, 1934; Insurer: Insurance Act, 1938; These are sector laws that sit on top of the Companies Act, 2013 for companies in these sectors.
Licence before operation: Sector licence/registration → then commence operations; Banking, insurance, food and pharma need a regulator's licence or registration before they operate.
PAN: Issued by the Income Tax Department; a 10-character alphanumeric number; Needed for tax filing, opening bank accounts and most other registrations. Every company and LLP needs one.
TAN: Needed by a person who deducts or collects tax at source; a 10-character alphanumeric number; Quote TAN in TDS and TCS returns and challans. PAN and TAN are different things.
GST registration trigger: Register if aggregate turnover exceeds the threshold for the State and type of supply, or if the law requires registration regardless of turnover; Do not quote one fixed limit for all cases. Say that compulsory categories, such as certain inter-State supplies of goods, need registration irrespective of turnover.
Udyam registration: Online, based on self-declaration, using Aadhaar of the proprietor, managing partner or authorised signatory; PAN is linked, and GST details are linked where the enterprise is GST-registered or liable to register; Voluntary. It gives a certificate and a permanent number. Classification depends on investment and turnover under the MSMED Act.
Shops and Establishment: Registration or intimation under the State Act, within the time set by that State; Applies to shops, offices and commercial establishments. Conditions vary by State.
FSSAI: Registration or licence under the Food Safety and Standards Act, 2006, depending on the size of the food business; Small businesses get basic registration. Larger ones need a State or Central licence.
IEC: Import Export Code issued by the Directorate General of Foreign Trade (DGFT); Generally mandatory to import or export goods as a business. For services it is generally not required, unless the exporter wants to claim benefits under the Foreign Trade Policy. Some exceptions apply, so state the general rule.
Professional tax: Levied by the State; employer registers and deducts from salary, and persons in trade also enrol; Not levied in every State. The rates and slabs are State specific.
Registered office: Registered office from day 15; INC-22 within 30 days of incorporation; Section 12. The Registrar can inspect to verify the office. Filing INC-22 is also a condition for INC-20A.
First Board meeting: Within 30 days of the date of incorporation; Section 173(1). Notice at least 7 days, as per Section 173(3) and Secretarial Standard SS-1, unless shorter notice is validly given.
First auditor: Board appoints within 30 days of registration; if the Board fails, members appoint at an EGM within 90 days; Section 139(6). The first auditor holds office until the conclusion of the first AGM. File ADT-1 within 15 days of the appointment.
Commencement of business (INC-20A): Declaration within 180 days of incorporation, filed in INC-20A; Section 10A. Applies to a company having share capital. A director declares that every subscriber has paid the value of shares agreed to be taken, and INC-22 must have been filed.
Penalty for default under Section 10A: Company ₹50,000; each officer in default ₹1,000 per day, up to ₹1,00,000; The Registrar may also begin removal of the company name under Section 248 if there is reason to believe the company is not carrying on business.
Share certificates to subscribers: Within 2 months of incorporation; Section 56. Subscribers to the memorandum hold their shares from incorporation; the certificate is evidence of title.
Director disclosures at first meeting: MBP-1 (Section 184) and DIR-8 (non-disqualification); Each director discloses interest in other entities and confirms he is not disqualified under Section 164.

Quick revision

The choice of business form decides liability, control, cost and compliance load.
A company is a separate legal entity, unlike a sole proprietorship or a plain partnership.
An LLP combines limited liability with partnership-style flexibility.
Industry decides the extra laws: always ask what the business actually does.
Sector regulators may require their own approval before or after incorporation.
Some registrations apply to nearly all businesses; others depend on turnover, activity or employees.
Incorporation compliances follow a sequence: name, documents, certificate, then post-incorporation steps.
Post-incorporation steps include first board meeting, auditor appointment and opening a bank account.
Recurring compliances include annual filings, meetings, registers and returns.
A compliance calendar groups due dates so none is missed.
In answers, name the law, apply it to the facts, then state a clear conclusion.
Use only current law, such as the Companies Act, 2013 and the four Labour Codes.

Common mistakes

Saying a partnership firm is a separate legal entity. Fix: Remember that only an LLP, OPC and company have a separate legal identity. A firm is just a name for the partners together.
Saying LLP partners have no liability at all. Fix: State that liability is limited to the agreed contribution, but a partner is personally liable for their own fraud or wrongful act.
Listing only sector laws and ignoring general laws Fix: Always start with entity, tax and labour laws, then add sector laws.
Forgetting state-level laws Fix: Add shops and establishments, professional tax and local approvals in every answer.
Treating PAN and TAN as the same. Fix: PAN identifies a taxpayer. TAN is for those who deduct or collect tax at source. A business may need both.
Saying Udyam registration is compulsory. Fix: Say it is voluntary but gives benefits such as access to MSME schemes and priority treatment.
Saying INC-20A is due in 30 days. Fix: Link INC-20A with 180 days and Section 10A. Remember that 30 days is for organisation steps and 180 days is for share money and commencement.
Forgetting that the first auditor is appointed by the Board, not the shareholders. Fix: For the first auditor, the Board acts within 30 days. Only if the Board fails do members appoint at an EGM within 90 days. The auditor serves until the first AGM.

Exam tips

Practise the comparison with fixed heads: liability, legal status, compliance, taxation, fundraising, continuity.
In scenario questions, name the deciding factor in the facts, then link your recommendation to it.
Quote the governing Act for each form: Indian Partnership Act, 1932, LLP Act, 2008 and Companies Act, 2013.
Never write that a partnership firm or proprietorship is a separate legal entity.
Always end with a clear conclusion in one line.
Structure answers in layers: general, state, sector. Examiners reward clear structure.
Learn one core law each for banking, insurance, food and pharma so you can name a sector law quickly.
Use the facts in the question, such as location, size and product, and tie each law to a fact.