Can you Run a Small Business without Registration?

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Can you Run a Small Business without Registration?

If you’re planning to start a small business and wondering whether you can run such a business without registration, then the answer is yes. However, it is advisable to register a company to become eligible for certain tax benefits and avoid legal conflicts. 

In this article, we will discuss how you can run a small business without registration in India.

How is an Unregistered Business different from an Registered Business?

An unregistered business refers to a business entity that hasn’t yet completed the process of formal registration and is not legally recognized by the government. Such a business is also referred to as an unincorporated business. Sole proprietorships and partnerships, where one or a few individuals own and operate a business, are examples of unregistered companies in India.

On the other hand, registered businesses are business entities that have completed the process of formally registering themselves and obtained legal recognition from the government. Limited liability partnerships (LLPs), private limited companies, public limited companies, or any other type of business entity recognized under the Companies Act, 2013, are examples of registered businesses in India.

Unregistered Business Structures in India

Individuals who start a business without registration save up on the money spent on government registration. However, they cannot avail certain tax benefits, subsidies, etc. from the government. Having a registered business builds credibility and trustworthiness of the business amongst the clients. Nevertheless, many people decide to go for an unregistered business. 

A variety of unregistered business models are frequently chosen for small businesses in India. Let’s discuss these unregistered business models:

Sole Proprietorship

In this kind of business model, a single individual or proprietor solely runs the company. Setting up this kind of business is easy since it doesn’t require much compliance and the owner enjoys absolute control over the operations of the business.

Partnership Firm

As the term suggests, this kind of business requires the involvement of two or more people who jointly own and operate the business in a ‘partnership’. No formal enrollment is required. However, it is necessary to have a partnership deed to avoid any future conflicts.

Hindu Undivided Family (HUF) 

In this kind of business structure, the head of the family deals with the family-claimed business. HUF doesn’t need any formal registration and is recognized by the Hindu law.

How can you run a business without formal registration?

Running a small business without registration in India involves the following process:

• Choosing a Business Model: First and foremost, you need to select your business model which doesn’t require company registration, like sole proprietorship or partnership firm or HUF.
• Obtaining all the necessary licenses: Based on the business model and the area where you choose to operate it, you must obtain all the necessary licenses and certificates.
• Setting up a Business Bank Account: It is crucial that you open a separate business bank account to ensure that your personal and business finances are separate. 
• Complying with the Tax Laws: To stay compliant with the tax laws in India, you need to get GST Registration and obtain a GST number. It is necessary to be in accordance with the tax laws and file your tax returns in a timely manner.
• Marketing and Promotional Activities for Business: It is crucial to do marketing and promotional activities for your business to help people discover your business so that you can get customers/clients. It is also important for building the reputation of your business.

It might be simpler and easier to start your business as an unregistered business. However, there can be limitations and risks associated with this kind of business structure. Many clients prefer trusting registered businesses over unregistered ones. You may not be able to avail a bank loan for your business among other drawbacks in case of an unregistered business.

Conclusion

While many people choose to run a small business without formal registration, it is recommended to get company registration for your business. Company Registration makes the business more trustworthy and transparent in the eyes of the government and also the business customers. Even though it is possible to run a business without the process of formal registration, some other requirements might need to be fulfilled such as partnership deed, opening a business bank account, etc. 

If you need advice on which kind of business model would be suitable in your case, get in touch with Registrationwala.

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