Fashion Law Journal
There is no doubt that the domestic fashion industry in India has seen a sharp rise with strong consumer demand for fashionable clothing through online portals, mall stores or small boutiques. In this article, we will look at the procedure to start an online fashion business in India. In order to learn the requirements for a business startup, it is vital to have a proper idea not only about the market and its consumer but also about the fundamental laws, rules, regulations that are important for the effortless administration of the business.
THE CHECKLIST TO START AN ONLINE FASHION BUSINESS
Step 1: Decide the business plan and model with a suitable brand logo
When starting a fashion business, the aspiration, expertise and experience of the promoter must be taken into consideration to decide on the business model. The following are well-known fashion related business – Fashion Designing, Fashion Boutique or Online Fashion Retail. Thereafter, it is important to develop a business plan and a brand logo for further administration of the business.
Step 2: Register your company
The next step is to register your company. In India, the company can be classified as following – Sole proprietorship (no limitation of liability), One-person company, Limited liability partnership (LLP) and Private limited company.
A company or LLP is preferred while starting an e-commerce venture because it provides for limited liability protection and improves the ease of doing business. Opening of bank account and registration of GST is also easy and fast if you have a company or LLP. This is important because if you have opted for a company or partnership-based structure, then you’re expected to file a tax return and have a tax ID number. Online businesses of this model require an Employer Identification Number (EIN) to open a business checking account in order that the business taxes can be filed in the next fiscal year. EIN may be a unique number that identifies your number.
Step 3: Register your e-commerce business
Apply for the Director’s Identification e-commerce business Number (DIN), which may be downloaded using the DIN application (DIN 3 form) from the official website of the Ministry of Corporate Affairs. You can also apply for DIN online, by just attaching and uploading the required documents. Permanent Account Number (PAN) and Digital Signature Certificate are essential for this step.
After receiving the DIN, the name of the company can be finalised by applying to the Registrar of the company (ROC), to check for the availability of the name you have chosen for your company. The verification of the names can also be done on the official website of the Ministry of Corporate Affairs.
The company incorporation can take place after receiving confirmation regarding the name of the company. This can be done within six months after receiving the confirmation. The name of the company can be renewed by paying a certain fee.
The next step is to apply for the Goods and Service Tax (GST) certification, Shops and Establishment Licence – necessary in cases of Payment Gateway Integration – and Professional Tax (PT).
Other registrations include – apply to the respective Provident Fund Organization to open a Provident Fund (PF), the medical insurance of the employees is registered with Employees’ State Insurance Corporation and finally apply for the certificate of the company’s incorporation under the Company’s Act, 2013.
Step 4: Tax Registration
After the registration of the company, the registration of GST and other tax norms are mandatory. Registration under GST (Good and Services Tax) is essential if the sales or turnover cross more than INR 20 lakh annually or INR 10 lakh in case the establishment is in the North East States irrespective of the fact whether you are offering services or product.
Step 5: Opening a bank account
After the registration of the company, a bank account with any bank in the official name of the company has to be opened up. It is mandatory to obtain GST registration to open a bank account in the name of the business, in the case of a Proprietorship firm.
Step 6: Trademark Registration
After thorough research of the market and prior registered/pending applications for registration, you need to choose your trademark. Once you are sure that the selected trademark name or logo is not listed in the Trademark Registry India, you can apply for its registration.
After the filling of the trademark application, the examiner examines the application for any discrepancies. This can take 1-2 months. Once the application is processed for registration, it is published in the Trademark Journal. After which a registration certificate under the seal of the Trademark Office is issued. After every 10 years, the trademark can be renewed. Hence, it is protected perpetually.
Step 7: Build your e-commerce website
A website can be made from scratch or a pre-built platform can be used. Some of the top Pre-built E-commerce Platforms are – Shopify, BigCommerce, Magento, WooCommerce and Wix.
If you are building the website from scratch, then the following steps have to be taken – a) Choose your domain name, b) Choose hosting provider, c) Designing your e-commerce store, d) Secure your website with an SSL certificate (SSL certificates are used to create an encrypted channel between the client and the server), e) Set up the payment gateway and f) Selecting your logistics partner for packaging and product shipping.
Step 8: Payment Gateways
Payment gateway is the next step after completion of all the legalities. The payment gateway has to be embedded in your website. The following documents have to be submitted to get a grant for payment gateway for the e-commerce business: a) Official Bank account of the Company, b) PAN card of the business, c) Certificate of Incorporation, d) Memorandum of Association, e) Articles of Association, f) Identity proof, g) Address proof, h) Website terms of use and i) Website privacy policy.
Some of the popular payment gateway service providers in India are: CCAvenue, PayU, EBS from Egenco, DirectPay. Application in the required format along with the above-mentioned documents can be submitted to any of the payment gateway service providers to obtain payment gateway service for the website. On average payment gateway service takes about 1 week to process the application.
After the payment gateway service provider approves the application for payment gateway, a test payment gateway ID would be provided to integrate the payment gateway into the website. This process requires you to draft the Website Terms and Conditions and Privacy Policy which are to be updated on the website.
The format of Website Terms and Conditions format and Website Privacy Policy is available on IndiaFilings.com. Along with the legal documents, make the websites e-Commerce listing live with the appropriate pricing.
SOME SIGNIFICANT LAWS AND REGULATIONS TO OPERATE THE E-COMMERCE BUSINESS
Indian Contracts Act, 1872 read with Information Technology Act, 2000 – This act deals with the rules that apply to communication and acceptance of proposals, revocation, and contract formation between customers, sellers, and the marketplace provider. Moreover, it emphasises the validity of the contracts through electronic means and legal validity of the online agreements of Terms of Service, Privacy Policy and Return Policies.
Information Technology Act, 2000 (IT Act) and General Data Protection Regulations (GDPR) – This act applies Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011. Also, the application of the Intermediary Rules 2011 under the IT Act is important to regulate the content displayed on the intermediary website especially pertaining to defamation and obscenity. Further, certain safe harbours are available to e-commerce entities functioning as ‘Intermediaries’ under section 79 of the IT Act and rules applicable to them relating to the content displayed on the portal. Furthermore, it applies GDPR compliance in case the consumer is an EU resident.
Intellectual Property Issues – IPR laws secure all trademarks and copyrights used by the company, it is also mandatory for the company not to infringe the intellectual property rights of other businesses. To avoid prosecution, it is essential for the company not to sell counterfeit goods and misuse the trademark rights by sellers listed on the platform. It is important to beware of various intellectual property infringements that may happen online such as cybersquatting, identity theft, copyright infringement, caching, derivative works, domain name protection, etc.
Payment and Settlements Systems Act, 2007 and other RBI regulations on payment mechanisms – Under the law “payment system” means a system that enables payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them, but does not include a stock exchange. An e-commerce entity has to qualify the above-mentioned law (payment system) and comply with it. The notification of RBI provides that an intermediary receiving payment through electronic modes needs to have a Nodal Account in operation for settling the payments of the merchants on its online e-commerce platform. (RBI notification DPSS.CO.PD. No.1102 /02.14.08/ 2009-10 dated 24 November 2009). The company has to comply with the rules provided by the Reserve Bank of India (RBI) relating to online payments.
Labelling and Packaging – The laws that should be complied with in respect of Labelling and Packaging are: Legal Metrology Act, 2009; Food Safety and Standards Act, 2006; and Drugs and Cosmetics Act, 1940, etc.
Sales, Shipping, Refunds and Returns – The Sale of Goods Act, 1930 has various provisions regarding adequate policy dealing with sales and shipping of the products, the default provisions relating to the legal incidence of transfer of property in goods, and other aspects of sales such as warranties and conditions.
Consumer Protection/ Dispute Resolution – With respect to the Consumer Protection Act, 1986, the company must have policies to address consumer complaints. Mediation and arbitration platforms are also advisable in this regard.
Competition Issues – Sections 3 and 4 of the Competition Act, 2002 deals with the fixation of prices by arrangements between sellers listed on the platform and the entity, exclusive sales agreements, and other such practices, which can be brought under scrutiny of the Competition Commission of India.
GST Applicability – It is mandatory for all e-commerce operators and sellers/ distributors/ suppliers who sell through e-commerce to register GST in all states where they sell their goods or services.
Author: Muskan Mahajan, Legal Content Writer at Legal Desire Media & Insights
