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What Are The Legal Requirements For Opening A Playschool In India

In this blogpost, Mansi Arora, Student of Delhi University and of the Diploma in Entrepreneurship Administration and Business Laws by NUJS, writes about the business plan and the legal requirements for starting a play school in India.
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In the recent years, India has achieved milestones of success in the economic sector by becoming the tenth-largest in the world by nominal GDP and the third-largest by purchasing power parity; and has witnessed significant social development with rising levels of literacy and social awareness. Where a fast growing economy has generated numerous opportunities and created a favorable environment for businesses to flourish, the rising social awareness has led to a demand for quality education for all age groups including the formative years of a child. The Right to Education Act enacted by the Government of India in 2009 provides for free and compulsory education for children between 6 and 14 in India under Article 21A of the Indian Constitution. Though children below the age of 6 are beyond the scope of the fundamental Right to Education; the act does address early childhood care in Section 11 of the Act by stating that “the appropriate government may make necessary arrangement for providing free pre-school education.” In pursuance to this, the Government of India has signed a convention for implementing Early Childhood care and Education Scheme for free playschool education. As per the Law commission Report No.259 Early Childhood Development and Legal Entitlements “The National Early Childhood Care and Education (ECCE) Policy, 2013 envisions a holistic and integrated development of the child with a focus on care and early learning at each sub-stage of the development continuum, in order to promote all-round development.” However, The ECCE scheme is yet to be implemented.

As per the 2011 Census, Children in the age group of 0-6 years constitute 158.7 million that is about 16% of the total Indian population. Henceforth the increasing demand and rising importance of preschool education for shaping a child’s personality and laying the foundation of his/her character has made setting up a Playschool a lucrative business opportunity. This article shall dwell upon the Business structure for starting a play school in India and elaborate upon the various foundations it lies on.

Business plan/ outline

For setting up a playschool, first and foremost a Business plan must be prepared to take into consideration all important issues and challenges. This shall serve as a blueprint for guiding further course of action and include details like the

Formations of entity

Profit/ Non- profit enterprise

Preschools can be set up as profit or nonprofit enterprises.
In the case of the playschool being a Profit making enterprise, it is advisable to incorporate it into a private limited company or a Limited Liability Partnership.

In the case of the playschool being a nonprofit enterprise, a Company or a Trust can be registered under Section 8 of the Companies Act 2013, which pertains to a established company  ‘for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object’, provided the profits, if any, or other income is applied for promoting only the objects of the company, and no dividend is paid to its members.

 

Franchise/ setting up one’s institution

For starting a Playschool; one can either choose a franchise or set up one’s own institution

Franchise

In the case of the Franchise, one needs to enter into an agreement with the parent organization and abide by the terms and conditions of the same. In India, there is no specific law on the regulation of franchised businesses. Chapter 5 of the Finance Act defines ‘franchise’ as “an agreement by which the franchisee is granted representational rights to sell or manufacture goods or to provide service or undertake any process identified with franchisor, whether or not a trademark, service mark, trade name or logo or any such symbol, as the case may be, is involved.” Franchise arrangement is therefore largely contractual in nature and governed by The Indian Contract act 1872. Moreover,  Laws relating to intellectual property, (includes Copyright, Trademark Act, Patent, etc) Taxation, Sale of Goods, Property Laws, Insurance Law and Labour Laws also apply to franchise transactions.
In the last decade, Franchising in the pre-school sector has grown. Different organizations of Playschools have different criteria mostly in relation to investment, location, training, etc; these along with curriculum and support are usually listed on their websites and can also be availed with the help of various play school consultancies. As compared to setting up one’s own institution, a Franchise involves less risk as they have an already established brand name and offer support in selecting a location for playschool, hiring trained staff, developing good curriculum, marketing, purchasing school equipment, promotions, support in organizing events, etc. However, the franchise agreement needs to be carefully drafted keeping in mind interest of both parties.

Setting Up One’s Own Institution

A new institution can be set up either as a proprietary concern or Partnership or as a company. Where a company needs to be registered with the Ministry of Corporate affairs and is governed by The Companies Act 2013, A Partnership deed is governed by The Partnership Act 1932. It is usually easier to form a partnership, as it is cheaper and quick to register.
The advantage of Setting up one’s own institution is that the investment for setting up preschool is lesser as no amount has to be paid as franchise fees or royalty later. Also, there is greater control and opportunities for innovation which would be difficult to exercise in case of a franchise.

Residential Playschool

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A playschool can also be started from a place of residence. For this, the permission of cooperative housing society or apartment association would be needed. Furthermore, in case the residential area is acquired on rent/lease, the purpose of using the residential area for running a play school should be clearly mentioned in the lease agreement.

Legal requirements

There is no specific legislation or certification for setting up a play school in India. However, laws like the Private School Education Acts enacted by the State Government needs to be thoroughly considered as they may require registration and licensing of playschool. Moreover to set up a playschool in an independent premise, the formalities related the Municipal Corporation and education department of the city where the play school is being set up need to be completed and the respective application and registration fee is to be paid. For instance in Maharashtra, The Maharashtra Preschool Centres (Regulation of Admission) Act. 1996 provides for compulsory registration of preschools.
Similarly, In Tamil Nadu The District Elementary Educational Officer is the Competent Authority for the approval as per Draft Code Regulations for Play schools 2015
It is proposed that The ‘Early Childhood Care and Education (ECCE) Policy’ along with regularizing the curriculum and learning tools for children, shall also make registration and accreditation of playschools mandatory

Other Regulations

The Shops and Establishments Act, in general, is silent in case of a playschool, that is a play school need not be registered under the said act, however as the regulations are different for every state, the act of the state where the preschool is proposed to be set up needs to be carefully studied and verified in order to reach to any conclusion.

Similarly in the case of Labor Laws, the respective state act needs to be followed:

For instance, the minimum wages for primary schools is Rs. 80 per day but these tend to vary from state to state and are to be accordingly paid. Also In case of the number of employees being more than 20, Employees Provident Fund schemes and Payment of Bonus Act, 1965 are to be considered

Service Tax Applicability for Schools

As per clause (l) of Section 66D of the Finance Act, 1994 service tax is not applicable for a playschool as it is included in the negative list

Conclusion

In today’s era of increasing competition and demand for quality, starting a Playschool in India is not only a lucrative business opportunity but also a Social and ethical responsibility which along with economic gains provides a sense of moral satisfaction and fulfillment. Thus by carefully formulating a business plan; choosing the suitable form of entity and considering applicable legal requirements, A playschool can be successfully started in India.

 

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