How to start export business in India?

Introduction

The decade of 90's has witnessed the emergence of new world economic order, with Globalization being widely accepted as the basic paradigm for economic development of the country. The sustained growth in exports is a well recognized barometer of the economic development of a developing economy like India. The strategy of export-led growth, followed as a result of the introduction of economic reforms in India since June 1991, has now become an integral element for the overall strategy of her economic development. As a consequence, export sector offers the most promising opportunities for the career growth both as an entrepreneur and in the job market.

The present regulatory framework is also highly supportive of the entrepreneurial efforts to promote India's export. The Government also provides various incentives to the exporters for earning valuable foreign exchange for the country for meeting their requirements for importing modern technology and essential inputs. Exports business is a highly profitable line of business activity provided it is conducted in a systematic and professional manner. Once an entrepreneur has taken a decision for establishing the export business, the first steps is to organize the export firm. We shall like to begin this section by mentioning the registrations that every Indian exporter is required to make before venturing into export marketing practice.

Formalities for commencing

Every Indian Exporter must:

1. Register with licensing authorities and obtain an IC (Importer Exporter Code No.)

2. Register with the appropriate EPC (Export Promotion Council) / CB Commodity Board) / DA (Development Authority) and obtain RCMIC (Registration Cum Membership Certificate).

Give a name to your enterprise:

First and foremost, you have to give a name to your enterprise. You may like to keep the following tips in mind while thinking of a name.

1. Avoid a large name

2. Name should be easy to pronounce and pleasant to hear.

3. Name should not be linked to any particular class or community.

4. It would be better if the name gives an idea of the (proposed) activities of the firm. If you are planning to go in for export marketing, inclusion of worlds like "International"', "Overseas", "Exports", "World", etc. would be a wise decision.

5. Make sure that use of the name selected by you is not prohibited by any law of the land.

Decide on the Form of Ownership:

The next step is to decide about the legal constitution of your enterprise, that is the firm of its ownership. The ownership of your enterprise may take any of the following forms.

1. Sole proprietorship

2. Partnership firm.

3. Joint stock company

4. Cooperative society

5. Hindu undivided family

Sole proprietorship firm:

It is a form of business organization which is owned and controlled by an individual. The individual is the owner and is known as sole proprietor. No specific document is required to create his type of concern. Business can be conducted in the personal name of the proprietor or in any other name given to the enterprises. The proprietor enjoys the rewards and assumes the risks of running the business. He realizes all the profits, bears all the losses, and incurs the liabilities of all the business.

The advantages of the sole proprietorship form of business are:

1. It can be set up easily and inexpensively as there is no formal requirement for incorporation.

2. It is subject to few Government regulations.

The limitations of the sole proprietorship form of business are:

1. The life of proprietorship concern is limited to the life of the owner.

2. The personal liabilities of an owner are unlimited.

3. The ability of the firm to raise funds is severely constrained. This limits its growth.

4. Since the income of the concern is treated as the income of the proprietor, the incidence of taxation can be high when the income is high.

Partnership firm:

Partnership is a relationship between two or more but less than twenty persons who have agreed to share the profit of a business earned on by all. A partnership firm may be formed orally or in writing though it would be better if the partnership firm is formed through a written partnership indeed. After dividing the name of the firm, a partnership deed can be drawn by any competent lawyer, giving in it terms and conditions of the partnership. After the partners have given approval, it should be typed on an appropriate Stamp paper and should be registered with the Registrar of firms. The formations registration, dissolution, etc. of a partnership firm are governed by Indian partnership Act; 1932 and rules framed there are under the State Government.

The advantages of the partnership form of Business organization are:

1. It can be, like a proprietorship concern, set up with relative case and economy.

2. It is relatively free from Governmental regulations.

3. It can benefit from the varied experience and expertise of the partners.

The limitations of the partnership form of business are:

1. The life of a partnership firm is rather limited. Withdrawal or death of any of the partners may result in the dissolution of the partnership firm.

2. Possible conflict among the partners is a threat to the business.

3. The personal liability of the partners is unlimited.

4. While the partnership firm can raise more funds than a proprietor concern, its ability to raise funds is also limited.

Joint stock company:

The entrepreneur(s) can avoid the risk of personal and unlimited liability by selecting join stock

company form of ownership organization as provides for limited liability of the owners and their liability is not personal. It is also possible to raise large amount of funds to finance the expansion and growth of the business.

Joint Stock Company is defined as the voluntary association of persons, recognized by law, to carry on a lawful business with a common name, a common seal, common capital divisible into transferable shares, limited liabilities and perpetual succession. The Companies - Act, 1956 (has amended from time to time) provides for the registration of the join stock companies. Once a voluntary association is registered (incorporate: 1 under the Companies Act, it becomes a corporate body and is allowed to carry on business in its own distinctive name different and distinct from the existence of those who promoted if or contributed to its capital funds. The total capital of company is divided into shares of fixed amount. Capital is brought in by means of members purchasing the shares. Joint stock companies are of few types.

Private company:

A private company is a corporate body that can be formed by just two persons with minimum paid up share capital of Rs.1 lakh. Its distinctive features are:

1. The number of shareholders cannot exceed fifty.

2. Public cannot be invited to subscribe to its capital.

3. The members' right to transfer shares is somewhat restricted.

4. Invitation or acceptance of deposits from persons other than its members, directors or their relatives are prohibited.

The Advantages of Private Company form of Organization are:

1. The liability of the share holders is limited.

2. Under the companies act, regulation and control of private companies are not very extensive.

3. The promoters, by being selective in choosing the members, can hope to enjoy unchallenged control over the country.

The disadvantages of the private company form of organization are:

1. The burden of taxation is rather high due to high tax rate livable on the company's income.

2. The shares of a private company are not freely negotiable.

3. The ability of the company to raise capital is limited and

4. It cannot tap deposit from general public.

Public company:

A public company is a corporate body that has Further; additional income tax on dividend declared is required to be paid.

A minimum of seven members (shareholders) and Rs. Five lakh or more as it's paid up capital. A public company unlike a private company:

1. Does not limit the number of its members

2. Invites the public to subscribe its capital; and

3. Permits free transfer of shares.

The advantages of a public company form of organization are considerable;

1. The company has, theoretically, an unlimited life.

2. The ownership of the company, represented by equity shares, is easily transferable.

3. The liability of shareholders is limited to the capital subscribed by them.

4. The firm can raise substantial funds.

The disadvantages associated with the public company form of business are;

1. Setting up a Public Company is somewhat complicated. An elaborate procedure has to be gone through before a public company comes into existence.

2. The taxation rate of company is on higher side. Further, additional income tax on dividend declared is required to be paid.

Cooperative society:

A Co-operative society is an association of persons who have voluntarily joined together to work in co-operation and co-ordination and run a business organization mainly with a view to provide service to its members in particular and the society in general. The members contribute the capital required and share the risks and the benefits of undertaking.

Main features of a Co-operative society are:

1. Voluntary membership: members may come and go 3$ per their choice, minimum memberships for various classes of co-operative societies have been specified in the respective state co-operative laws.

2. Service motive: Service to the members and the society in general is the primary motive. Any profit/surplus arising out of the business is however, distributed among the members.

3. Capital: Capital is provided by the member's by way of the membership fee/donation or by way of loans and grants from Government or other Co-operative institution.

4. Limited liability of members: Members liability is limited to the extent of their share in the capital.

5. Democratic functioning: A Co-operative functions through the managing committee, elected by the general body of members.

Although the co-operative societies are helped by the Government in various ways, but

unfortunately, the experience of the people of India with the co-operative firm has not been a happy one. They are generally bogged down with internal quarrels perhaps, you may be fortunate to have a team of likeminded people for forming co-operative society, and accordingly frame the memorandum and Articles of Association. These are then registered with the Registrar of Co-operative societies who issue a certificate of registration.

Hindu undivided family:

Traditionally, family business is carried as HUF which is recognized as a separate legal entity. Business is carried on by 'Karta' in the name of HUF.

Choice of the form of ownership:

The choice of the form of business organization at the time of launching a new enterprise depends mainly upon the size of business, the volume of capital investment and the extent of liability. The other considerations in this regard are nature of business activity, degree of control desired, continuity of business, government regulations and tax burden.

In case of large business activity where the capital investment is large and hence the risk element is also high, a company form of business is more suited because it can pool more resources and the ability is limited to the extent of share value. But in medium and small scale business operations, partnership firms get more preference because it ensures enough capital for such business. the owners share the whole of the profits, and there is freedom from government control and regulations.

Having decided the name of your enterprise and its legal constitution your next step should be to open its bank account. Bank selection, though not so irreversible as many other business decisions: are a very important step for the entrepreneur. You begin investing in a good relationship, starting day one. If your choice is a poor one and you have to switch after two years, i.e., two years of efforts and investment in credibility down the drain. Select the right bank early, and begin grooming it against the day you really need it; when your cash crunch finally comes, it will be too late to start shopping.

In the selection process, keep in mind that institutions are only agglomerations of people, arid that as their personal change, so do their attitudes and behaviors. Thus, what you must search out is not just a bank, but a bank and its manager that too can work with now and over the next few years, what it did in the past is important but not of itself decisive. We suggest that you start your search by asking other entrepreneurs to describe their experiences with their banks. After you've talked with a few people, a few suitable candidates (banks) may begin to emerge. Be sure to find out who their advance officer is of each candidate bank.

Another important criterion, particularly from the point of view of entrepreneurs intending to go into export marketing is whether the bank branch is competent to negotiate export credit documents (such as a letter a credits) or not. To our mind, this criterion should be given a much higher weight age than the proximity of the bank branch the place of your business.

Grooming the Relationship:

To the extent that your side of banking relationship is active rather than passive, you will be maximizing your chances of long term co-operation. Some of the steps you can take without investing much energy include the following:

1. Keep your Banker informed: This should be done irrespective of whether or not you have a loan outstanding.

2. See him in person: Bankers are big believers in personal meeting. Establish human contact remember if your business is successful it is going to demand more money. Cultivate the relationship now for your future needs. At the roof, banking is a business of people, of mutual confidence and assumed integrity.

3. Start borrowing when you are flush with cash: That is the time to begin establishing a record of business like borrowing and no-time repayment. It is also the time to let the bank start earning some money (interest) from your account.

4. Meet your targets: Everything that can be said about the importance of meeting targets applies in relationship. If you acquire a reputation of sloppy cash management poor planning or feeble follow through on your plans, & your bank will be lukewarm on your account even if you are growing and profitable. A few minor targets met on time, easily in the relationship will let the banker step working so much about you.

General Registration:

The next step as to get your enterprise registered with the following department.

1. Sales tax registration: Goods which are to be shipped out of country for export are eligible for exemption from both state sales tax and central sales tax. For this purpose, you should get yourself registered with the sales tax authority of your state by following the procedures prescribed under the sales tax act applicable to your state.

2. Income tax registration: You should get yourself registered with the income tax department and obtain a permanent account number for your enterprise. We should advise you to take the help of a competent lawyer for these registrations. In addition, you may get your enterprise registered under the shops establishments act. Labor act etc. as per the applicability of your enterprise.

3. Registration with licensing authority and obtaining L.E.C No: No export or import shall be made by any reason without an Importer-Exporter code (IEC) number unless specifically exempted. Therefore, person whether an individual or a firm or a company importing or exporting goods into from India will require Importer's - Exporter's code number according to section of the foreign trade (Development and regulation) -Act.1992. For obtaining IC number you should apply to regional licensing authority within whose jurisdiction the head principle office of your enterprise is situated; the prescribed application form can be obtained from any of this address.

The application form should be submitted and duplicate should be supported by the following documents:

1. Demand draft/bank receipt for payment Rs. 500/- Certificate

2. Income tax permanent account number

3. Two copy of the passport in case of an individual applicant.

4. In case the application is signed by an authorized signatory, a copy of the legal authority letter may be furnished.

After necessary scrutiny, the importer-exporter code number will be allotted to you by the concerned Regional Licensing Authority. This code number once issued will -email valid till such time as given by the issuing authority. There will write only one IC number for each firm/company. If a firm/company has branches; the IC number issued for the head office should be use by all its branches as well. Information about any modifications in the particulars of the applicant should be sent to the concerned licensing authority within 60 days. The same form has to be filled for allotment of IEC number has to use for furnishing the details of modification(s).

Exemption from Importer-Exporter code number:

The following categories of importer or exporter are exempted from obtain importer exporter code (EC) number:

Importers covered by clause 3.

1. Within the exception of importers are covered by the sub-clause (c) and (1).

2. Exporters covered by clause 3 (2 with the exception of those covered by the 'sub-clause (i) and (2 of the foreign trade (Exemption from applicable of rules in certain cases) order, 1993.

3. Ministries /Departments of the central or a State Government

4. Person importing or exporting goods from / to Nepal provided the CIF value of a single consignment does not exceed Indian Rs. 25000.

5. Persons importing / exporting/ goods from/to Myanmar through. Indo-Myanmar border areas provided the CIF value of a single consignment does not exceed Indian Rs. 25000.

Registration with the appropriate EPC/CB/DA:

Registration with the appropriate EPC/CB/DATA is not a legal requirement for exporting from India, but it is needed for claiming the various exports,-benefits. Address of the various Export Promotion Councils, Commodity Board, and Development Authorities, along with the list of products covered by each one of them. Some products will come under the purview of sore EPC/CB/DA or other. However, if that is not the case, then the concerned registration for claiming of the export benefits will be issued by the regional licensing authorities.

For registration of your enterprise, you should apply in the prescribed form to the EPC/CBDA relating to your main line of business. The prescribed application form can be obtained from their officer.

The application form should be accompanied by the following documents.

1. A photo-copy of the import-export code number issued by the regional licensing authority concerned.

2. A bank certificate in support of the applicant's financial soundness.

3. In the case of a manufacturer-exporter, a copy of registration with the district industries center or any such authority.

Fee is applicable as per current rates of the concerning EP council/CA/DA etc. of the application for registration is granted, the EPC/CB/DA shall issue the registration cum-membership certificate (RCMC) indicating the status of the applicant as merchant-exporter or manufacturer-exporter. The RCMC shall be valid for five years, ending 31st of March. The certificate, shall deserved to be valid from 1st April of the licensing year in which it was issued, intimation about modification(s) in the particular of the applicant should be sent to the concerned registration body within 30 days.