How are the Trade License and Company Registration Different

Starting a business in India is a complex procedure. Right from implementing the business plan to finding a suitable location, the business procedure consists of a linked chain of multiple activities. In addition to hiring employees, finding new clients, new business owners require proper registration with government authorities and acquire necessary licenses. Without the proper license, new businesses are exposed to fines & penalties. Provisions of registration & license vary as per the state. There are two important things where everybody confuses- company registration and trade license. What’s the difference between the two? Let’s find out-

Defining terms: “Company Registration” and “Trade License”

Company Registration

Company registration in India is governed under the provisions of Companies Act, 2013. It’s a process of starting up the new business entity. Company registered under the Companies Act, 2013 is the organized structured entity through which any type of business can be conducted by taking suitable licenses. Following six types of companies are incorporated under Companies Act:

  • Private Limited Company
  • Public Limited Company
  • One Person Company (OPC)
  • Nidhi Company
  • Section 8 Company
  • Producer Company

Certificate of Incorporation is the Certificate for Company registration and is received once the registration process is completed. This certificate is issued by the Registrar of Companies. It gives a separate legal entity to the Registered Company.

Trade License

Trade license is an authorization through which government authority approves any Company for conducting a particular type of business. There are following different types of trade license depending upon the different types of trade such as:

  • OSP license to authorize IT services
  • FSSAI license for Foodchain operators
  • Drug License for manufacturing and selling of medicines, sanitation, etc.
  • Ayush License for the trading of Ayurvedic products.

Trade Licenses are mandatory and are issued by state government authority for initiating new business activity.

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Understanding Key Points

Number 1: Procedure to obtain Certificate/License

These are two entirely different certificates and both are acquired from government authorities following different steps:

For Company Registration:

  • Apply the name online through web service available at MCA’s online portal by using Reserve Unique Name (RUN). After the name is approved, the Name Approval Letter is allotted to the applicant with a name reserved for 20 days.
  • Apply DIN online and make an application to the Central Government in the form of DIR-3 with necessary documents such as Passport size Photograph, Identity Proof, Address Proof properly scanned as an attachment.
  • Further after name approval, the next step is to apply for registration of a company. Application for incorporation has to be made online through the MCA portal using three linked forms:
  • E-Form INC-32 (SPICe)
  • Form INC-33 (SPICe MoA)
  • Form INC-32 (SPICe AoA)
  • On and from the date of receipt of the application, Registrar based on information and documents provided will scrutinize the forms. After that registrar will provide a Certificate of Incorporation (CoI) if all the necessary details are accurate.

For Trade License:

Obtaining trade licenses differ from state to state. Although the common step for obtaining the trade license is:

  • Fill the application form online with all the necessary details.
  • Submit the form to state government authority or corporation or municipality.
  • Jurisdiction & procedure for approval of an application varies as per the rules and regulations prevailing in that particular state.
  • The normal processing time for the application of a trade license is 7 to 10 days.
  • Trade license is issued after in-person verification by the concerned authority.
  • Trade license issued is valid for 1 year that can also be renewed.

Number 2: Documentation

a)    For Company Registration

  • Memorandum of Association (MoA) & Article of Association (AoA) with brief details of the Company Name, Capital, Registered Office signed by all the subscribers or promoters.
  • A duly signed declaration that has to be given by an advocate, Chartered Accountant, Cost Accountant or Company Secretary in Practice.
  • An affidavit in form INC-9 which is a declaration by subscribers and first directors which state no- conviction of any offense and/or they are not found guilty of any fraud/ misfeasance/or any breach of duty
  • Address of its registered office where it has to be situated
  • Complete details of each subscribers and first directors such as Full Name, Fathers Name, DIN number (If already allotted to them), Date of Birth, Present Address, Permanent Address along with Address proof such as Electricity Bill, Bank Statement, or any Mobile bill (Any One amongst these three), and Identity Proof such as Voter ID, Passport or Driving License (Any One amongst these three).
  • If any of the directors already hold directorship in any other company apart from the Proposed Company in which being appointed, such interest in other entities has to be attached as a declaration.

b)    For Trade License:

  • Application as per the prescribed format
    • COI in case an applicant is a company
    • Aadhaar card in case an applicant is individual
    • Lease certificate in case of rented premise
    • Sanction plan
    • Katha Extracts & certificate
    • Occupancy certificate

Number 3: Validity

a)    For Company Registration:

Certificate of Incorporation will be valid for a lifetime once allotted.

b)    For Trade License:

Trade License is valid for 1 year from the date of issue of license.

How is Trade License different from Company Registration?

To sum up in one line:

“Company Registration gives the new structure of business while the Trade License is an authorization to an already running business for starting new activity or business.” Differences based on validity, authority, documentation, etc are briefly discussed henceforth.

Any running business can register itself as a legal entity or any individual can also form a new structure in the form of a registered company. Trade License is one of the certificates obtained by an already registered company if it was willing to carry on any additional activity. Investors usually hesitate for investing in any sole-proprietor ventures as compared to the entity baked by a legal structure like Company, LLPs, etc.

Basis of difference   Company Registration Trade License
Structure The new business entity is formed to carry on the business. The existing entity takes the approval for carrying a particular type of activity  
Validity Valid for lifetime once allotted   Valid for one year
Renewal They are not renewed as they are valid for a lifetime.   They are renewed after their expiry by submission of necessary documents.
Processing time ROC takes 3-4 days to issue Certificate of Incorporation Concerned authority takes 7 to 10 days for processing of an application  
Types Following are the types of Company:
Private Limited, Public Limited, OPC, etc  
Types of trade license: OSP license, Drug license, etc
Eligibility Directors should not be minor.
The company should be registered with a minimum requirement of capital  
The applicant must have crossed 18 years of age with no criminal record. Business shall be legally authorized by its object to carry on such other activity for the trade license is acquired.  

Conclusion

It is important to choose the right business activity for obtaining trade license or right structure for company registration in perspective of taxation also. Each business activity has its form of compliance that is mandatory. Registered company has to file Income Tax Return as well as Compliances as per Companies Act, 2013. Thus both the acts prevail on it. And there will be an addition in the compliance list if any trade license is acquired by such a company for carrying on the business activity.

Monisha Chaudhary

Experienced Legal and Advisory professional with 5+ years of workings in the field of compliance, statutory governance and licensing, RBI, IRDAI matters etc.

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