How to start an ecommerce business in India


How to start an ecommerce business in India

The e-commerce industry is witnessing a tremendous growth in India backed by increasing smartphone and internet penetration. With further increase in internet service providers and the launch of 3G and 4G services, at affordable prices – the e-commerce and m-commerce industries are set to record even higher growth. In this article, we look at the procedure for starting a successful ecommerce business in India.

Setting up an e-commerce business

Business conducted over the internet is called ecommerce. In recent years, m-commerce or mobile commerce – business conducted through smart phones has become very popular. Currently there are two main modes to starting an e-commerce business, a proprietary e-commerce website or joining an established marketplace.

Creating a proprietary (own) e-commerce website

Creating a proprietary ecommerce wbesite is one of the hardest method of starting an ecommerce business. Starting a proprietary ecommerce business requires a web development team, online marketing team and a payment gateway for receiving payments. Starting a proprietary ecommerce website is a long-term initiative and requires a good amount of investment in terms of money and effort to build up a successful business.

Joining an established marketplace

Joining an established marketplace is an easy way to start an e-commerce business or sell products/services online. Joining an ecommerce marketplace as a seller often requires only a bank account and VAT registration, making the process easy and simple. Further, on an e-commerce or m-commerce platform aspects such as technology development, marketing, payment gateway, logistics, etc., are taken care of by the marketplace platform, reducing the workload on the seller. In addition, sellers can often join multiple marketplaces and sell their products, making it the easiest way to start an online or e-commerce business.
Some of the popular ecommerce or mcommerce marketplaces are:

  • Flipkart
  • Amazon
  • Snapdeal
  • Shopclues
  • PayTM

Legal Formalities for Starting an Ecommerce Business

To start an e-commerce business, proprietary e-commerce website or become a seller on a marketplace, the following registration are required:

Company or LLP Registration

While starting an ecommerce venture it good to have a company or LLP to have limited liability protection and improve the ease of doing business. Having a company or LLP would ensure that opening of bank accounts in the name of business or obtaining a VAT / Service tax registration are easy and fast.
Almost all marketplaces allow Proprietorships and Partnership firms to sell on their website. However, there would be no limited liability protection in case of a litigation. Hence, it is best to start selling with a LLP or Company.
In case the promoters wish to start a proprietary e-commerce website, then it is best to start with a Company, as it is the only type of entity that can allow for angel funding or equity funding – a must for successful e-commerce ventures. ComplianceIndia can help you register Company or LLP in India.

VAT Registration

A VAT registration is a must for becoming a seller on a e-commerce portal or while starting a proprietary e-commerce website. VAT registration is required for anyone selling goods or products in India and must be obtained from the State’s Sales Tax Department. ComplianceIndia can help you obtain VAT registration in India.

Bank Account

Once the Company or LLP is incorporated, a bank account can easily be opened in the name of the business by contacting a Bank. In case of Proprietorship firm, VAT registration must first be obtained to open a bank account in the name of the business. Opening of bank account is essential to list on a e-commerce marketplace or obtain payment gateway for a proprietary e-commerce website.

Payment Gateway

A payment gateway would be required for a proprietary e-commerce website to process customer payments. Payment gateway provides facility for the website to accept credit card, debit card, net banking, internet banking payments from multiple banks and credit card companies. Therefore, one payment gateway is sufficient to accept many forms of online payments. Once, a payment is received from the customer, the payment is sent to the bank account of the business by the payment gateway provide in one or two business days.
In case of selling through online marketplaces, the marketplace would accept the payment through their payment gateway and credit the money to the bank account of the seller directly. Hence, a payment gateway is not required and only a bank account is necessary.

Legal Documents

While selling online, it is important to protect the business and the promoters of the business through proper use of terms and conditions document and privacy policy. In case of a proprietary e-commerce website, the terms and conditions, disclaimer and privacy policy would have to be drafted by the business based on the nature of its activities and products sold online.
If the business sells through online marketplaces, then the legal document or sellers agreement is provided by the marketplace and the seller must abide by the sellers agreement. It is important for any business to read the sellers agreements before agreeing to the agreement.
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