Is a Trade License Mandatory for Business?

A Trade License is an essential document that allows the applicant to begin a business or start their business operations. The trade license acts as a certificate that enables businesses to engage in a particular trade or activity as specified by the license. Hence, applicants cannot engage in activities not mentioned in the license. Also, it does not serve as proof of ownership of the business in any way. So, what exactly is the benefit of having this license, and how does one apply for one? In this article, we will take a closer look at the need for this license and whether it is mandatory to start a business.

What is a Trade License?

This license serves as a certificate or document that enables business owners to begin a trading activity in a particular location. However, it does not allow the business owner to engage in any other trade activity, and neither does the license act as proof of business ownership. It merely allows the applicant to start their business operations. The local licensing department of the Municipal Corporation handles the issuing of Trade licenses.

Why do businesses need a trade license?

The trade license was implemented in India over forty years ago to help with the regulation of small businesses and shops. Municipal Corporations and other local authorities help with regulating and issuing such licenses in the country. As a result, it helps the government ensure that no business or trade activity affects society in a harmful manner. It also prevents businesses from engaging in unethical business practices. Hence, the trade license helps encourage and ensure that businesses follow the relevant rules and guidelines mandated by the government.

Is a trade license mandatory for starting a business in India?

The Indian government has made it trade license mandatory for business owners to obtain a trade license before they start a business in the country. It allows business owners to begin their trading operations, and it allows government authorities to control such businesses. Making such a license mandatory helps the government restrict the execution of some businesses from their homes.

What are the different categories of trade license?

• Industries license: For small, medium, and large scale factories and manufacturing facilities
• Shop license: For the operation and sale of dangerous trades such as firewood, barbershops, candles, and crackers.
• Food establishment license: For starting any food-related business including restaurants, food stalls, sale of meat or vegetables, confectionaries, bakeries.

Eligibility for a Trade license

• Applicants must be older than 18 years.
• Applicants must not have any criminal records to their name.
• Business must be legally permissible and not overtly dangerous or illegal.

The entire process takes around seven to ten days, following which the applicant will receive a copy of their license. The trade license remains valid for one year, following which the business owner must renew it periodically. The application regarding the renewal must be filed at least thirty days before the date of expiry of the license. If the renewal process gets delayed, the business owner will be fined as per the regulations of the issuing authority. The applicant must be submit the following documents for renewal of the license;

• Original trade License
• Previous year’s challans
• Property tax receipt

What all are the documents required for a Trade License?

The business owner must submit the following documents to the concerned Municipal Corporation to obtain a Trade License in India.

• Duly filled application form in the prescribed format
• Certificate of Incorporation in case applicant is a Firm, Private or Public company or LLP
• Company PAN Card
• Aadhaar Card
• Property Tax Payment Receipt
• Lease documents regarding the place of doing business
• NOC from the owner of the premises
• NOC from the immediate neighbour
• Layout plan of the trade building certified by a qualified professional
• Katha extracts and certificate
• Sanction plan
• Occupancy certificate (OC)

How to apply for a Trade License in India

• First and foremost, n-users must visit the official website of their respective Municipal Corporation.
• From the homepage, applicants must navigate to the Citizen Service tab, and click on the Online application option.
• Next, they will have to provide personal details and create an account for themselves on the portal.
• Once they have created an account, log in to the website using your credentials.
• Next, opt for the Apply for Trade License option to open up the application form.
• Submit all the required details, including contact information, details about the business and personal information.
• Submit the duly filled form and upload scanned copies of all the required supporting documents.
• Next, pay the required processing fee and complete your application process.
• The executives at the municipality will now verify your documents and provide you with a Unique Application Number using which you can track your application.

Things to Know About the Trade License

• A trade license issued may only be used for a particular type of business activity or trade.
• The rules regarding the issuing and renewal of these licenses vary slightly from one state to another. Hence, business owners should consult a local legal expert before they commence operations to prevent legal hassles.
• The processing fees for the trade license also vary depending on the nature, extent, type, and size of the business.

This license differs from the Shop and Establishment License, which is a document required in certain States in India, The Shop and Establishment Act regulated by the Indian Labor Law oversees the issuing of this license and helps with improving the efficiency of the organised sectors in India. It mainly regulates details involving holidays, working hours, leaves, and wage payment. Additionally, while the trade license applies to any business, trade, or commercial activity, the latter works only for shops and businesses.

Benefits of Obtaining a Trade License

• Mandatory if a business owner wishes to carry out any business in India
• Businesses with a trade license enjoy greater credibility and goodwill.
• Opportunity to expand your business and attract more investors, creditors, and customers.
• Ensures ethical business practice leading to a better economic structure
• The government can prevent malpractice and other illegal activities
• Prove to customers that you value quality and service
• Prevent legal hassles, fines, and penalties and protect yourself against unnecessary liabilities