How to Open Small Business in India

Small businesses are the backbone of the Indian Economy. As per the MSME report, there are over 36 million small businesses in India providing employment to over 80 million persons. Small businesses contribute over 8% to the GDP and account for 45% of the total manufacturing output and 40% of the export from India. The Government of India recognizes the tremendous contribution made by small businesses and support them through a number of subsidy schemes and initiatives. In this article, we look at how to open small business in India.

Small Business Ideas

A small business can be started as a service or manufacturing unit. As per Ministry of Micro, Small and Medium Enterprises, any service sector unit with an investment in equipment of not more than Rs.2 crores is classified as a small business. In the manufacturing sector, any unit with an investment in plant and machinery of less than Rs.5 crores is classified as a small business. Going by the above definition, there are various businesses that can be started as a small business. Click here to view small business ideas that are home based.

While choosing a small business idea to implement, the Entrepreneur must keep the following key areas into consideration:

Market Opportunity
Investment Requirement
Entrepreneur’s Experience
Business Objective
Raw Material Requirement
Staffing Requirement
Business Entity
Business Licenses Required
Taxation
Break-even Point
Financial Projections

Business Entity

Most small businesses in India are started as a proprietorship or partnership firm due to ease of compliance. However, to afford limited liability protection and creation of a registered entity, the Government of India introduced Limited Liability Partnerships in India in 2008 through the Limited Limited Partnership Act, 2008. Therefore, those small businesses that would have an annual turnover of more than Rs.10 lakhs in a year can start a LLP to enjoy additional benefits like limited liability protection, easy access to bank finance, easy business transferability, etc.,

Limited Liability Partnerships also do not require an audit if the annual sales turnover is less than Rs.40 lakhs and the capital capital contribution is less than Rs.25 lakhs, making it an ideal entity for small businesses with lesser compliance requirements. In case the small business has significant investment in equipment or machinery likely to exceed Rs.25 lakhs or if the business would have an annual sales turnover in excess of Rs.40 lakhs, then a private limited company can be registered.