Business laws are the body of laws and regulations that pertain to the governance of business formation, guidance, and conduct. Simply put, it refers to the regulatory laws of business and commerce in the public and private sectors. Business laws comprise numerous aspects, e.g., company registration, inter-corporate contracts, employment legislation, taxation policies, and environmental protection laws.

Overview of India’s business landscape

The government of India has passed many business laws for its country so that businesses operate within a legal framework. Those business laws are significant to India’s economic sector. Business laws are fundamental to the law in general because the corporate, manufacturing, and retail sectors would be tyrannical without them. This article aims to identify some of the critical regulatory laws of business in India so that entrepreneurs can gain insight into them and run their businesses smoothly without any complications and hardships.

Companies Act 2013:

The Companies Act 2013 was passed on 29 August 2013 and was a crucial piece of business law in India. This supreme business legislation governs the formation, functioning, and dissolution of businesses established in India. This Act was passed to ensure that companies run smoothly without any hurdles and to make it easy for entrepreneurs to start a business, along with fulfilling the rights of stakeholders. The Companies Act 1956 was superseded by the Companies Act 2013 to improve corporate governance.

Types of companies

According to the Companies Act 2013, companies can be categorized into many types:

Private company:

A private company is a business or firm that can only be owned privately. The public cannot buy its shares. The company can only have members between a range of 2 to 200, according to [SECTION 2(68)]. Moreover, if more than two individuals buy the shares combined, they would be treated as a single member.

Public Companies:

When a private company “goes public,” it becomes public. When a company transforms into a public company, the public is allowed to buy its shares. Private companies usually convert into public companies to raise funds for business expenses. These types of companies don’t have any restrictions about the limits of stakeholders and are listed on the stock exchange. When a private firm or company offers its shares to the public for the first time after its formation, Initial public offering (IPO) happens.

One-person company:

A one-person company (OPC) is a type of company that an individual privately owns. It simply means that the company can have only one member or shareholder.

According to the Companies Act 2013, a one-person company is private. Still, the only difference is that the minimum number of stakeholders in private companies should be 2, while in a one-person company, a single person can form the company.

Corporate governance:

Corporate governance is the governance of a company or firm based on certain principles and regulations. It ensures that the firm is controlled so that it provides its shareholders, employees, and suppliers with long-term benefits. Corporate governance helps to avoid fraud and promote fair decision-making as well. It also helps ensure the company runs ethically by following all the business laws. Corporate governance is under the board’s control, ensuring that the decisions should be in the interest of the company and its shareholders. For this purpose, it assigns individual directors to make the decision-making fair and unbiased. Due to this, the number of directors assigned to different types of companies varies.

For example:

1. For private companies, at least 2 directors must be assigned.
2. For public companies, at least 3 companies must be assigned
3. For One-person companies (OPC), only 1 director is assigned.

Director’s responsibility

Directors have several responsibilities while governing companies.

Duty of confidentiality: The director assigned to a company should act in the company’s and its shareholders’ best interest.

Conflicts of interest: He should be unbiased and fair while making any decision; he shouldn’t make an unfair decision for his own interest, and he must avoid situations where the company’s interest conflicts with his interests.

Making decisions carefully: The director should make decisions wisely and diligently.

Assent of laws: The directors should ensure that the company obeys all the business laws, e.g., filling financial statements, attending regular board meetings, etc.

Goods and Services Tax (GST)

The goods and services tax (GST) is an indirect federal sales tax applied to certain goods and services. The business adds the goods and service tax (GST) to the price of the product, and a customer who buys the product pays the sales price including the GST. The goods and services (GST) portion is collected by the business or seller and forwarded to the government. It is also called value-added tax (VAT) in some countries. The GST Act was passed in the Parliament on 29 March 2017 and came into effect on 1 July 2017 in India.

The basic structure of GST in India:

Goods and services tax (GST) is a multi-stage and destination-based tax. This means that GST is imposed on goods at every stage, from manufacturing to final sale.

For example, let’s consider that the item goes through the following processes:

1. Purchase of raw material
2. Production of the final product
3. Warehousing of the final product
4. Sell the final product to wholesalers
5. Sell the product to the retailers
6. Sell to the end consumers. In each step, a goods and services tax (GST) would be imposed on the product, which makes it a multi-stage tax.

Moreover, the GST of the product is collected at its destination, where the goods are being consumed, not where they were manufactured.

Now, let’s consider that a product was manufactured in Mumbai and then sold to a consumer in Delhi, so the goods and service tax (GST) would be imposed when it reaches Delhi. The GST revenue collected would be forwarded to the government of Delhi.

Components of Goods and Services Tax (GST):

The Goods and services tax is divided into several components:

(Central-GST) CGST: CGST is collected by the central government when sales under the same state happen

(State-GST)SGST: SGST is collected by the state government when sales under the same state happen

(Union Territory GST)UTGST: This tax is applied to union territories that don’t have their own state government.it is like SGST.

(Integrated-GST)IGST: IGST is collected by the central government of a state when interstate sales (sales between two different states) happen.

Registration requirements

Businesses in India must register themselves for Goods and services tax (GST) if their annual sales revenue exceeds a certain threshold.

The threshold limit is 40 lacs or higher for manufacturing sectors. The service sector has a threshold of 20 lac or higher.

The threshold limit is 10 lacs or more for specific category states e.g. Assam, Jammu & Kashmir, Uttarakhand, Manipur etc.

Regardless of turnovers, some other businesses must register for the GST.e.g.

E-commerce operators (businesses engaged in supplies between interstates), casual taxable persons (who supply goods occasionally), businesses registered under previous taxes such as VAT and service tax, TDS/TCS deductors, etc.

Income Tax Act, 1961

The Income Tax Act 1961 is the set of rules upon which the Income Tax Department imposes, administers, collects, and recovers taxes. It is a law that governs the taxation of income earned by individuals or companies.

Corporate tax rates:

In India, corporations or companies have to pay taxes based on how much income they earn.  The tax rates are different for both the domestic and foreign companies.

Domestic corporates:

Domestic companies in India must pay 22% of their income tax, while new domestic start-up companies can pay a lower income tax of about 15% if they follow certain rules.

For foreign companies:

For foreign companies, the tax rate is generally 40%, but it can vary based on specific agreements.

Taxation deduction and exemption:

Companies can reduce their taxes by claiming deductions and exemptions under the income tax in 1961.

Some deductions are:

Section 80C is one of the most popular sections among taxpayers because it allows them to reduce taxes by investing in things like provident funds (retirement savings) or life insurance.

Section 80G: if a company or organization gives a charity to a charitable organization, it reduces the taxes the taxpayer has to pay.

Depreciation:  When a business buys a fixed asset like machinery, its value decreases with time. This is known as depreciation, and the company can ask for a tax decrease. In this way, the company can reduce the machinery cost yearly to reduce its taxes.

Advanced tax and TDS obligations

Advance tax:

Advance tax is the income tax paid in advance instead of the whole at the end of the financial year. This has to be paid in installments before the deadline provided by the income tax department. If the total tax liability of salaried individuals, freelancers, and businesses is 10 thousand or more, they should pay an advance tax.

Tax Deducted at source (TDS)

Businesses deduct a part of the payment as a tax before giving salaries to employees, rent to property owners, or fees to professionals, known as TDS.

After deducting the tax from salaries, rents, and fees, the businesses are ordered to deposit the tax amount to the government on the person who has paid the tax.

Labour Laws:

Labor laws address the legal rights and restrictions on working people and their organizations.

Origin of labor laws: Labour laws were generally made when workers demanded betterment, safe workplaces, and well-being. On the other hand, the employers were worried that they would have to increase their salaries if they organized to form unions to higher their wages, which would consequently reduce the profit rate of the employer.

Factories Act 1948

According to Factories Law 1948, a worker is any person employed through an agency or a contractor to do manual such as operating machines, operational and unskilled work is known as a worker. Some of the key points of Factories Act 1948 are:

Health and safety of laborers: according to the Act 1948 factories are directed to keep their working environment safe, floors should be cleaned daily, should have a proper drainage system, and should have a sufficient supply of drinking water as well for the workers.

Working hours of Adult workers: No adult worker would be allowed to work more than 48 hours a week and 9 hours a day.

Child labour: according to the Act 1948, no child (14 years or older) would be allowed to be employed for more than 4.5 hours daily.

Women’s employment: According to the Act of 1948, no women were allowed to work in the factory except from 6 am to 7 pm.

The penalty for not following the law: if the manager of any factory doesn’t follow the regulations of this Act, they would have to face imprisonment of up to 2 years with an additional fine of 1 lac.

Minimum Wage Act, 1948

The Minimum Wage Act 1948 accommodates fixing wage rates for any industry. And the wages are reviewed accordingly with time to adjust for inflation and living costs.

Some of the key points of the Minimum Wage Act are:

The number of hours fixed for a working day should have at least one break.

The workers would get a three-day weekend in one week.

The workers would be paid even for the rest days they won’t work, and the pay would be equal to or more than the overtime rates.

Payment of Gratuity Act 1972

Payment of gratuity is given as a sum of money to an employee as a reward of appreciation. The employee gets this for their long-term service when they leave the company due to retirement, resignation, etc.

Eligibility criteria:

To become eligible for the gratuity, the employee must have completed at least 5 years of employment with the same employer.

Employees’ Provident Funds and Miscellaneous Provisions Act, 1952:

This security law in India aims to provide retirement benefits like saving schemes for employees and ensuring financial security for employees in factories. Employers and employees will contribute some percentage of their salary to a provident fund account, and after retirement, they can withdraw their savings

Intellectual property (IP) overview

Intellectual property is intangible assets created using someone else’s ideas or creativity. For example, a company logo or an invention. So, to protect these intangible assets, many laws were imposed.

In India, there are several types of intellectual property rights:

Copyright Act, 1957: copyright helps protect the original creative works like original literacy, cinematic films, music and sound recording, etc.

Trademarks Act 1999: A trademark helps in identifying and distinguishing a product from others, it could be any symbol, shape color, or words. It helps to protect brand names, logos, or symbols.

Patents Act, 1970: It is an intellectual property right that protects a new invention and the rights of the inventor. It prevents other people from using it. A patent is granted for a period of 20 years from the date of filing, and it is registered only for original inventions.

Trade Secrets Protection

A trade secret is Confidential business information like its formulas, practices, or methods that give them a competitive edge, e.g., Coca-Cola’s secret formula.

Protection of secrets: The protection of the business’s confidential information depends on its own ability.

Registration: Patents and trademarks are registered with a government agency, while trade secrets are not registered with any government agency.

Trade secret protection: Trade secrets are protected as long as the information remains confidential inside a company.

Environmental Laws

Environment Protection Act, 1986

This law was passed in December 1986 due to the Bhopal Gas tragedy. The purpose of this law was to protect and improve the environment.

This Act gives the government the authority to take action regarding environmental protection, such as controlling pollution of all types, handling hazardous waste, and maintaining environmental safety.

Penalty for contravention of Act: If any individual or business fails to follow the regulations of this Environmental Act, they will have to be imprisoned for 5 years or give a 1 lac fine; they might have to fulfill both penalties as well.

Water (Prevention and Control of Pollution) Act, 1974

This Act was passed to promote the control of water pollution and contamination and to retain the wholesomeness of water so that living creatures can consume it. It was first passed by the states of Assam, Bihar, Kerala, Kashmir, Karnataka, West Bengal, and union territories. It was the first law passed by the Parliament of India that focused especially on the issue of water pollution. Two bodies have been established to manage water pollution problems: the central and state pollution control boards.

Penalty for contravention: If a person or company is found guilty of violating the regulations, they can face imprisonment of up to 6 years, with an additional fine of 1 thousand rupees per day. However, if the person or company continues to violate the laws, the imprisonment may extend to 7 years with a fine of more than 1 thousand, depending on the extent of the violation.

Air (Prevention and Control of Pollution) Act, 1981

This Act was passed to promote air pollution control and maintain its quality standards. According to this law, the companies are directed to treat the wastewater before releasing it into direct water streams to ensure that water resources are kept clean.

Penalty for contravention of the Act: The penalty for failure to follow the regulations would result in imprisonment of 1 year. It can be extended to 6 years with an additional fine of 5000 rupees per day.

Environmental clearances for businesses

Businesses are directed to get approval from the government before starting a project, which is known as environmental clearance. MoEFCC, or the State Environmental Impact Assessment Authority (SEIAA), grants environmental clearance to a business or company depending on the scale and its impact on the environment. The main purpose of environmental clearance is to determine the potential environmental risks before the project initializes. Environmental clearance provides detailed insight into the project’s impacts on natural resources, water, air, biodiversity, etc.

Importance of environmental clearance:

It is very important for a firm to take an environmental clearance before starting a project for several reasons:

Legal requirement: It is a legal requirement for particular projects in India. Failure to get this clearance can result in many legal consequences like penalties, project delays, imprisonment, etc.

Environmental protection: Since environmental clearance gives insight into the impacts of the relative project on the environment, this process helps minimize damage to the natural ecosystem.

Social responsibility: If a project affects the environment, it also affects the people living in the surroundings. An environmental clearance shows that the company also thinks about the people’s concerns, which shows that the company is socially responsible and cares about the consequences of the project, too.

Contract Law

Indian Contract Act, 1872

Indian Contract Act, 1872 governs the law relating to contracts in India. British India passed it. The Act is imposed on the whole of India, including Jammu and Kashmir. It defines some essential elements of a valid contract and describes how it is handled.

Essential elements of a valid contract:

Acceptance from both sides: if one party makes an offer and the other party agrees, it would be considered a valid contract. In case of any one company’s disagreement, the contract won’t be considered valid.

Free consent: Both parties must agree to a contract without being forced to do so; if a company agrees to an offer under some pressure, the contract won’t be considered valid.

Purpose of contract: the purpose of the contract must be legal.

Competent parties: the companies making a contract must be legally allowed to do so, e.g., they should be adults who are mentally capable of understanding and should not be acclaimed as a culprit legally.

Breach of contracts and Remedies: A breach occurs when one of the parties does not fulfill their responsibilities according to the contract.

The Contract Act of 1972 has proposed some remedies for the wronged party:

Compensation: the party who faced the loss would be compensated with money.

Obligation for the breaching party: the breaching party would have to fulfill their obligation as mentioned in the contract.

Cancellation of agreement: In case of a contract breach, the contract gets canceled, and both parties are free from their commitments.

Special contracts

The Indian Contract Act of 1872 also governs special types of contracts as well:

Sales of goods: this contract is related to the buying and selling goods. The contract contains the written responsibilities of the seller and buyer. For example, the seller has to provide good quality goods to the consumer, and the seller is responsible for paying for the goods he purchased.

Partnership contracts: A partnership contract is an agreement between 2 or more than 2 people who want to run a business together. The contract contains the ratios of profit and loss shares between both parties, the responsibility of each individual, and what to do if one of the parties leaves the contract.

Conclusion

The government of India has set many business laws in its country so that businesses run smoothly. This article descriptively tells about all the rules and regulations that entrepreneurs need to follow to avoid hurdles in running their businesses. The laws of business set by the Indian government help promote transparency and are a guide for beginners who are just starting up. These laws also protect the stakeholders. Business owners can save themselves from penalties like fines and imprisonment by following these laws. This also creates a sense of reliability towards the business, and the customer starts to trust the firm. If a firm follows all the ethical business laws, it remains competitive in the economic landscape.