This article is written by Anurag Singh from ILS Law College, Pune. This is a comprehensive article on legal formalities to be satisfied to start a restaurant business.
The Indian food market is the 6th largest in the world. Globalization in the 1990s has helped to shape the food industry. Indian cuisine is very vast and diverse, which makes the Indian food industry a whole lot more interesting. Indians are in love with food and experimenting with food. Interestingly, you’ll find yourself visiting the new restaurant in the town every single time. Moreover, once in your lifetime, you would have thought of opening your restaurant but gave up though because you were not aware of the legal compliances and the complexity of opening and sustaining a business within this competitive niche. However, through this article one of the problems that can be solved, that’s the legal compliances associated with opening a restaurant business.
The hype of a restaurant business
The Indian gourmet food market is currently valued at USD 1.3 billion and is growing at a Compound annual growth rate (CAGR) of 20%. Food business will go on forever, with all technological advancement taking place before our eyes. Food is something that will live with the human race until the very end because in order to survive a man needs fuel in the form of food. Moreover, with an increased standard of living. Restaurants are the future.
In addition to the aforementioned point, people nowadays with their busy schedules don’t have time to make their food. More often than not people tend to either dine in the restaurant or order something from their favourite restaurant. This is where the online food delivery apps come in. As of 2020 after the pandemic hit the country two major players emerged as online food delivery giants the are Zomato and Swiggy.
These apps have made life so easy for restaurants in recent years, earlier the journey of discovering a restaurant and then becoming a loyal customer was too long because for that people had to physically go and try cuisines at the restaurant and then decide that they love the restaurant and they want to keep coming back to it. However, with these apps, in the comfort of your home, you can order food and discover cuisines, and then if you like it you can start dining there as well. This advancement in technology was a boon for not only the customers but the restaurant owner as well as small restaurants that are starting and want to experiment with new flavours and new cuisines can add them to the menu on the website and test whether it is working or not if it does they can keep it and if doesn’t they can very swiftly remove it from the menu without anyone noticing. Moreover, restaurants have also been all about the look, the fancier it looks the better it is. Therefore, the restaurants with small restaurants were not able to generate customers and profit. However, with these apps that gap has been bridged between the restaurants and the customers.
The hype in the food industry has not only been created by the people eating fast food. Interestingly, the people that prefer eating clean and healthy food also contribute heavily towards the hype, because nowadays people are more woke and aware of the fact that food is fuel. Therefore, people are shifting from their traditional food choices to healthier ones. Furthermore, many startups and businesses see the opportunity and are shifting towards creating food options that are healthy and tasty at the same time. Now that we have realized that hype around the food industry is real, let’s understand what are the few legal compliances that need to be adhered to.
Legal compliances to keep in mind while setting up a restaurant business
The first and foremost thing to open a restaurant is the plan, niche, and good food. Moreover, opening a restaurant is not a walk in the park. You have to thoroughly study the market and know about the needs of people in the area. Once you are ready with the adequate resources and capital to start your restaurant, one has to look at the legal compliances in order to avoid their restaurant from any legal complication in the future.
The registration of a restaurant under the law is the first step for starting a restaurant and any business in India. One can register them based on the requirement and the needs of their business, the various types of registration under the Companies Act, 2013 are:
- Limited Liability Partnership
- Private Limited Company
- One Person Company.
When thinking about opening your restaurant, think about the liabilities and the tax slab you want in your restaurant. Because making your decision just by copying what others are doing or what is the regular practice; might not suit your needs and one might end up making a wrong decision that cannot be reversed.
Food Safety and Standard Authority of India (FSSAI)
Food Safety and Standard Authority of India (FSSAI) is a food license that is required by all restaurants because it is a food security license. This license holds the utmost importance because it confirms the food safety for the customers, and it is a regulatory body to ensure safety not only ensures the food safety of restaurants but the safety of all food products across the country.
Interestingly, the registration under FSSAI is an easy process, as it requires a set of documents that is mentioned on their website and then fills the form, once the form is filed and all the documents are submitted a confirmation is received in the form of a certificate with a 14 digit registration number. Moreover, there are three types of FSSAI certificates depending on the place of the restaurant and turnover of the restaurant, they are:
- FSSAI registration (for an annual turnover of 12 lakhs),
- State FSSAI registration (for an annual turnover between 12 lakh-20 crores),
- Central FSSAI Registration (For an annual turnover of 20 crores onwards).
Health trade license
This is one of those licenses like FASSI and GST registration that is mandatory to have for the businesses that deal with the consumption of food or medicine because their consumption is directly related to the well-being, hygiene, and safety of the people.
Moreover, a health and trade license is issued by the state municipal corporation to the restaurant after inspection of the restaurant, whether or not it meets the benchmark of public health. For obtaining this license, an application with license cost should be submitted, the license cost changes depending on the state rules. Moreover, it takes around 60 days for the corporation to grant this license.
This is a newly added regime in the process of opening a restaurant. It was made mandatory for the restaurants or any business in general after the commencement of goods and service tax (GST) back in July 2017. What this tax regime does is it unifies all the taxes that the restaurant and customers had to pay earlier.
Therefore, this plethora of taxes is now just consolidated into State Goods and Services Tax (SGST) and Central Goods and Services Tax (CGST). Moreover, GST registration is a state-centric matter; therefore, if the restaurants have different outlets, each outlet must be registered separately under that particular state. Furthermore, there are different tax slabs as well for different restaurants they are herein laid down below:
- Category 1: For the restaurants without an AC or liquor license
- Category 2: For the restaurants with AC
- Category 3: For 5-star hotels or luxury hotels that serve liquor and food.
Shop and establishment license
This one such license is not related to the restaurant business but is still very necessary to have because it is a part of the Shops and Establishment Act, 2016. This was enacted under the labor already in force in the country. This was enacted to regulate the working conditions and protect the rights of the employees.
Under this Act, registration of the restaurant should be done within 30 days of the commencement of your business. Moreover, under the ambit of this Act, the employer ensures the working hours, holidays, rest intervals, and wages for overtime. Moreover, it also ensures that children are protected from child labor of any form. It will be safe to say that this license was formulated for labor in the food industry.
Eating house license
In simple words, an eating house is a place that offers various food and drinking options for the consumption of the general public. Therefore, an eating house can be anything: cafes, food trucks, restaurants, hotels, or dhabas. Importantly, an eating house license is to be issued by the city’s licensing police officer where the restaurant’s outlet is supposed to open.
This license is not an essential one to procure, only if the restaurant you know serves liquor only then you have to have this license. However, in cases where the restaurant serves liquor without this license will have to pay heavy penalties. This license is to be acquired from the Local Excise Commissioner. Moreover, it should be kept in mind that this license can only be obtained in states where the consumption of alcohol is not banned. For example, one can’t get a liquor license in Bihar.
Fire safety license
Sometimes unfortunate incidents happen and one such unfortunate incident that can take place in a restaurant is fire. Therefore, obtaining a No Objection Certificate (NOC) from the fire department is a must, because in case a fire breaks out, it will not only destroy the commodities of the restaurant but the safety of customers will also be at stake.
Gone are the days when people used to dine out just to have food, now they want to be entertained, this is the reason why more and more cafes and restaurants keep an occasional stand-up show or call a band to play in their restaurant. Therefore, one has to have a music license for those purposes. There is no doubt in the fact that if the restaurants play music without this license they have to pay penalties. Moreover, this license is issued by Phonographic Performance Limited (PPL)
Environmental clearance certificate
Not just restaurants but all of us are morally bound to protect the environment, we use the resources offered by nature therefore, it’s our duty to protect it as well. Moreover, all the restaurants are legally bound to not do any activity that adversely affects the environment. Hence, all the restaurants are expected to have the environment clearance certificate.
By now you would have understood that opening a restaurant is not child’s play and just like any business this requires a lot of time and effort. Moreover, one always thinks about maximizing their profits if they have worked so hard on the project therefore, advertising and marketing is one such tool. Nowadays with a wider scope in marketing on the internet people tend to shift towards the newest technology for their advertisement, but there is nothing like an old poster or hoarding. However, to do that permission of municipal corporations is quintessential.
In recent times the food industry is on a rise and is continually looking forward to seeing exponential growth in the industry over the years. Therefore, everyone is willing to capitalize on this hype, however, one should keep the long-term goals in mind and move forward because short profits do not last a lifetime. Moreover, if there are new restaurants and fine dine opening every other day, don’t forget that there are also a lot more closing. The majority of them do not know all the legal compliances. Therefore, before entering any kind of food business; do thorough research about the market and study the legal compliance in detail or hire someone with relevant skills.
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