Entrepreneurs must get used to learning new and complicated concepts all the time, at least until such time as their operations are large enough to support a person or firm managing legal compliance. The one term that gets discussed too often is Shops & Establishments Registration.

It's because it's a vague term that everyone seems to know about and ask for. Even if you attempt to open a bank account, the manager will likely ask your for this registration. Each state tends to have its own version of this Act, which differ only slightly.

This explains the existence of different acts for Maharashtra (Bombay Shops and Establishments Act, 1948), Bangalore (Karnataka Shops & Commercial Establishments Act, 1962), etc.

Many, though, believe they don’t need it at all. Coaching classes for school children or financial management firms, for example, are among the businesses that often operate without one. Let's understand why this is not exactly the case.

Why It Applies Across Categories

While it seems to regulate commercial establishments exclusively, this registration is an important labour law compliance. It informs management about the number of hours it can keep employees working, dictates business hours, and other working conditions for employees. Therefore, it doesn't so much matter what your business is; it applies to all businesses with employees and also all shops and establishments.

Therefore, even at the very beginning, when it's just you running the show out of your home, you may still be asked for it, particularly if your work involves something that poses a risk to the neighbourhood and, therefore, requires clearance from the municipal department or fire department (for example, a food truck or a caterer with contract staff).

How it Defines Shops, Establishments & Employees

As per the Karnataka Shops & Establishments Act, 1962:
  • 2 (i) establishment means a shop or a commercial establishment;

  • 2 (e) commercial establishment means a commercial or trading or banking or insurance establishment, an establishment or administrative service in which persons employed are mainly engaged in office work, a hotel, restaurant, boarding or eating house, a cafe or any other refreshment house, a theatre or any other place of public amusement or entertainment and includes such establishments as the State Government may by notification declare to be a commercial establishment for the purposes of this Act;

  • 2 (u) shop means any premises where any trade or business is carried on or where services are rendered to customers, and includes offices, storerooms, godowns, or warehouses, whether in the same premises or otherwise, used in connection with such trade or business, but does not include a commercial establishment or a shop attached to a factory where the persons employed in the shop fall within the scope of the Factories Act, 1948;
It, therefore, applies to all businesses, aside from government establishments and those covered by Factories Act. 

  • 2 (g) employee means a person wholly or principally employed in or in connection with, any establishment whether working on permanent, periodical, contract or piece-rate wages, or on commission basis, even though he receives no reward for his labour and includes an apprentice, any clerical or other member of the staff of a factory or industrial establishment who falls outside the scope of the Factories Act, 1948, but does not include a member of the employer’s family; and employed shall be construed accordingly;

Therefore, all employees are counted. However, the various acts do make exceptions with regard to timings for certain categories of employees, such as drivers and watchmen, who must word odd hours.

Do Online Businesses Need It?

Online businesses -- the ones that are truly online -- aren't shops or establishments, at least not according to the Acts. This is primarily because they were all passed decades ago, before the Internet. Maharashtra and Gujarat, for example, follow a law that was passed in 1948.

So What Should You Do?

So long as you're an online business, doing work from home, a virtual office or collaborating remotely with your partner, you can claim that you don't need a Shops & Establishments Registration. After all, the law states that businesses involved in selling goods and services to customers out of commercial offices are liable to register. But you're selling online online; it would, of course, be different if you were to entertain walk-in clients and sell them products and services. But so long as you don't, you could technically free yourself from this requirement.

Employees Matter

The various acts concern themselves not just with shops and other establishments 'selling', but mainly with the employees that work there, their work timings, public holidays and working conditions. Therefore, the moment you hire employees, a Shops & Establishments Registration becomes inescapable, even if you're only selling online.

Institutions Need It

When you go looking for licenses and facilities that a business requires -- a current account, for example -- one of the documents you may need to provide is this registration (though, many banks will also accept VAT efiling acknowledgement. This may make it difficult to manage a business without it.

Therefore, while online businesses may not be a shop or establishment, and may have a loophole initially, they will still end up needing one as their business grows. And it's not like the registration is painful to be granted or you need to file returns regularly. Within 10 to 20 days, depending on your location, you could have one, and there are only a few updates that need to be provided. So rather than fight it, it may make more sense to just register.

The above article is by Hrishikesh Datar, CEO & Found of vakilsearch.com, a leading facilitator of legal services online.

[Top Image - Shutterstock]

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