In this article, Premvati Dhaka who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses possible ways to structure a family owned retail business. Process, compliance, best practice and relevant law.

What is business

• A group or trade and industry where goods and services are replaced for one another or for currency. Each and every business required type of investment and customer to make a profit.¹
• In other words, we can explain business, with an objective, an action is conducted for earning the profit.
• Business is also known as an enterprise, a corporation or a firm.

Family owned business

• A Family business is company retained, controlled and operated by members of one or several families. Many family businesses have non-family supporters as an employee but particularly in smaller companies, the top places may be owed to family members. The family owned business and family operated business play an important role in service and GDP creation in the most of the capitalist countries.
• Family and business two collaborative measurements creates a family business, usually owned and managed by two or more family members. In the other form of business like public sector enterprises, multinationals and public limited corporations, ownership is faced as a separate issue from handling the business like competition, less values and less motivation.
• Whereas in case of family business esteem, faith and sacrifice among family members take importance over reaching business objectives. Family business will give more open environment to the employee and time flexibility. They will focus on the productivity not on the working hours.

Disadvantage also there with this business that it can be possible that protectiveness, fight and ego in between the family members. A traditional family business pattern if new generation wants to change according to new technology, may be it would be not acceptable by the elder and old one of the top position member of management.

A quick look at India’s top family business enterprises

1. Reliance Industries
2. Tata Consultancy Services
3. Bharati Airtel
4. Wipro
5. Jindal Group

Characteristics of Business

1. Interchange of goods and services – Business actions are straight or secondarily concerned with the interchange of goods or services for money.
2. Deals in many transactions – All business man daily handle many transactions. Exchange goods or service is regular work done in business.
3. Income is the main objective – Profit of the business is reward in terms of money that a businessman get after successful business process.
4. Business expertise for financial success – A businessman needs to have good potentials and knowledge to start and successfully continuing any business.
5. Threats and Uncertainties –Different type of risks are there in business. Few can be insured like fire and theft. These kind of situations are uncertain. Other conditions are not included in insurance like loss in business due to competition or fall in price, all these kind of loss must be tolerated by businessman.
6. Customer and Vendor – Each business has at least two parties, one is a purchaser and a dealer. It’s a deal between these two parties. One will buy and one will sale. Buyer will get good/service and seller will get money.
7. Linked with production – If business is related to manufacturing of items or goods, this is called industry. It also includes the distribution of the goods also.
8. Social duties ² – Now the business trend is related to service. The good is the service the best would be the business. The current approach of business is not profit oriented, it’s completely service oriented approach, for customer satisfaction.

Retail

It’s very old approach of the business. In this kind of business there are many distributions networks to earn the profit. Supply chain network is very crucial in retail business. Retailer needs to be focus on the type of the stores, locations of the stores, surrounding other competitor for the same kind of goods, market status. Once the plan of retail business sets well according to the factors required. Retailer has to set up more support services like credit payment, delivery services and huge range of the additional supporting services as well. Online shopping is very common and fast growing support services that can be provided by a retailer to grow the more business customers.

What is the importance of retail business?⁴

Retailers are the connecting chain in between the producers and customers. Retailers to make easy available of goods or services to customers. Retailers offer many schemes to the customer for more business like feedback, shopping sessions and gift packaging. Retailers make comfortable shopping for customers if its stores they have many salesperson to help you and guide you. If the retail chain is online they provide chat popups.

How it works

Supply chain starts from manufacturer or producer, wholesalers, retailers and last user is consumer. A manufacturer who manufactured the goods by use of machines, raw material, and labor. Many big retail companies like Walmart and amazon are large to deal with manufacturer, they don’t need any mediator or middle body of the transaction.⁵

Type of family business

• Family owned business
• Family owned and managed business
• Family owned and led business⁸

Basic workflow of a retail business

• Master Data (Article, Listing, Assortment etc)
• Planning: Merchandising planning
• Distribution (DC to DC, DC to Store etc)
• Inventory Management
• Store operation
• Financial posting

Operational process of Retail business

• Purchasing and store operation – Retail store head take care of the purchasing responsibility. It depends on the retail store size, It`s small sized then manager is responsible and if it is large sized organization then it handled by centralized.

Manager or head of the department place order of the stock after checking inventory. Either on regular basis or when they observed that particular item is less available and fast moving.

• Handling inventory – Handling include all kind of work like receiving consignment, unloading containers, sort out boxes and arranged in the store. The basic rules of the retail is first in – first out rule. Store should be arranged in appropriate and attractive way so easy for customers and artistic appeal.

• Customer Service

• Accounting and finance – For the large retail business, there would be many chains for the retail stores. One important information is accounting, sales, refund, and claims. This department needs to work on the balance sheet. Finance has responsibility to calculating the salaries of the employee.

• Information Technology – This is the vigorous part of the department. The person who handled this department managing the electronic payment system and online customer services.

• Marketing – the importance of the department is to raise the sale of products to the end clients and generate income of the retail store.

Best practice of retail business 

• Need to decide Business construction – Firstly, need to decide the legal business structure. It is possible to change business structure after some time also but then it would be expensive and little tough process. So once you start your business you need to do right choice.

• Need to decide name of your retail business – A right name selection is also play a crucial role in the retail business. Same as name logo is also very important to decide for business. That will give a recognition to your business.

• Compose a Professional Strategy – It doesn’t matter that your plan is on written or in your mind but a good business plan can make a business successful. It’s important to plan before execution.

• Choose What Goods to Sell – After all basic set up, we need to choose the goods or services which we want to sell.

• Study the Rules and regulations – For every business there are some legal steps that need to be considered. What regulations needs to be considered while starting a retail business? For this you can consider both lawyer and accountant, they can help you to organize retail business.

• Select a Place – It’s vital to finalized retail business store location. It will directly affect your business success. A good location can make a fast moving business while the wrong location can destroy the value of the business with less customers. Principle rule of the success is

• Create Store Guidelines – During the planning stage we need to set the retail business policies. It’s important to be ready for the situations that can be come unexpectedly, so you have to be ready for that kind of situation with a solution. This can help you and give a path that how to deal with day to day problems or unavoidable situation with a standard way.

• Promotions and advertisement – To give benefit to your retail shop, you need to check the media buy and sales actions. Generate a trade advertising strategy, inspiration sales promotion concepts.

Compliance and legal requirements of retail business^[9]

India is a structured market & a publicly accountable. Legal requirements of a retail business is depending on the kind of the product we are going to sold and the state and city where want to set up that business. Because the law and regulation can be change according to the location as decided for the business. Retail business now focused on the met requirement of the environment, health, and safety regulatory compliance and to satisfy a consumer demand. Handling dangerous material storage necessities to certify fire code responsibilities are met. Proper disposal facility in the store.

• Shops and Establishment License – This license is structured by the department of labor and regulates buildings wherein any business is going on. This act consider the working hours, time interval in-between the work, annual leave, cleanliness, light, ventilation, accident and facilities to the employee and the overtime work. This regulations vary from one state to other state and can be change according to the requirement of the business.

• Trade License – If you want to start a business it’s very urgent to have a trade license. This license is acquired under shop and establishment license. Once we applied, we can get this license in minimum eight days. It has to be get within 30 days of initiation of the business. If without this license anybody start this business it will comes under unethical practice. Renewal period for this license is January 1^st to 31^st Requirements of document for applying the Trade license application form 353 and 354, Tax paid receipt, consent letter and City survey extract.
• Central Excise License – It is charged on making of goods and those into developed in India must pay central excise duty. Any person accountable to pay central excise must obtain a central excise registration no. This no is fifteen digit number, first ten digits are PAN no., next two digits are corresponds with applicant status, last three digit denotes number of premises. Penalty for the absence of license is 10,000 and 7 years of imprisonment.
• State Excise License – Regularization of Excise Income while stopping the use of unsafe liquor and certify knowledgeable intake in sanitized circumstances. Applying State Excise rules and actions by regulating production, conveyance, ownership, deal of the trade in spirit, alcohol and other intoxicants.Value Added Tax (VAT)¹¹ – is ruled by individual state Acts. Value added Tax is vary according to state wise.
• Central Sales Tax (CST)11 – is ruled by Central Sales Tax Act, 1956. This tax is ruled by a single central act.

• Service Tax11 – This is related to income. If the turnover crosses a fix limit of Rs 9lacs, according to law service provider has to register under the law.

• Professional tax – This tax is imposed by particular Municipal Corporations and states of India. It is a basis of income for the government.

• Employees Provident Fund – EPF is a retirement which is applicable for the salaried peoples. Both employee and employer needs to contribute at the rate of the 12 percent. It’s under the governance of the EPFO (Employee provident fund organization) in India.

• Employees State Insurance Corporation (ESIC) – It’s a financial security and health insurance scheme for the Indian worker and governed by the ESIC. As per the law ESIC comes under the ministry of the labour and employment.

• Labor clearance from ministry of labor – Department of the labour issues the clearance certificate for the relieving a principal liabilities.

• Clearances from the local Municipal Corporation – Municipal Corporation are vested with a long list of the functions delegated by the state governments under the municipal legislation.

• Weights & measurement clearance – Weights and measures department works based on the metric system and international systems of units recognized by the international legal metrology.

• Ministry of health & local food commissioner for stored diary & meat products.
• Other Licenses – depending upon the state & nature of business.

The possible legal structures for family owned retail business can be chosen from the following,

Sole Proprietorship

It is a one – man group where a single individual owns, manages and controls the whole business. It is the most suitable legal structure accepted by most family owned business that are in the start-up stage. This kind of business model puts complete liability on the owner while minimizing the legal hurdles for setting up the business. Also spouse and other family members can be employed by the company without having to be formally declared as an employee. It suits retail businesses as the market will mostly be limited, localized and a hint of personal touch to business goes a long way into building credibility amongst customers.

Legal hurdles for setting up a sole proprietorship business are –

• Business licenses/trade license – if the business is run out of a profitable space then it has to comply with shops and establishments act, which specifies the norms relating to work and other general requirements; the employee state insurance act which requires registration depending on the place of work (factory/ establishment) and the no of people working.

In-case of e-retailers, no specific laws are formulated regulating the conduct of business, but they have to comply with labor laws, tax laws and have to have registered domain id.

• Taxation – the company will be registered to the owner and will be considered as a personal asset and filed under individual tax returns rather than filing a separate business tax report. However it is not exempt from other taxes like professional tax, service tax , self-employment taxes etc
• Succession – the chain in a solely owned business is not fixed and can be transferred to anyone depending on the owner. If the owner is incapable/unable to handle the business, then the ownership is not automatically transferred to successor but liquidated as the business and owner are considered as one and the same.
• Capital for investment – the capital for the business comes only from the owner and is not given the option of raising capital through stocks or any other money generating investments.

Partnership firm

A partnership is defined as a relation between two or more persons who have agreed to share the profits of a business carried on by them or any of them acting for all. It is usually suited for small to medium sized business in retail, wholesale trade, manufacturing etc. Start-up companies usually begin with this business model as the liabilities and investments are divided and the organization is clearly outlined. In case of a family owned business following this model, there is clarity in terms of nature of work done by each, individual rights and responsibilities bound by a contract.

Legal hurdles that are to be overcome before setting up of a partnership firm are:

• Compliance – general compliance with the partnership act, contract act and companies act. The partnership is made at will and is not binding .It is based on mutual trust and shared goals. The partners are to be consulted on each of the firm’s decisions and should be considered.
• Taxation – normal taxation according to type of business – service tax, professional tax etc.

Relevant act with the retail business

Partnership act ^[14]

The Indian Partnership Act, 1932 was passed in India in 1932. Under section 44(d) of the Act, a suit can be filed in contradiction of the handling partner for termination of the partnership firm. Family owned retail business can within the partnership of the two members of the one family or in between the siblings.

Contract act^[15]

Indian contract act, 1872 the act was approved by British India. This contract law is effective in all states of India excluding the state of Jammu and Kashmir. This act includes the conditions in which possibilities created by two parties, so that both can be legally bound. We all are in routine basis enter into different kind of contract every day. Each and every contract comes with privileges and responsibilities in between the contracting parties.

Company act^[16]

The Companies Act 2013 is an act of the Parliament of India which controls combination of a company, accountabilities of a company, managements, and termination of a company.

Best exercise for the family owned retail business: ¹⁷

1. Attracting investors: In a family retail business shareholders dedicated more clearly and workwise than other business. Long term stability and growth is the main motto of family shareholders.

2. Remaining expectant: Positive attitude is more important in family owned retail business because of that in any dark situations and circumstances a company can pass that hard time easily. Family business is generally hopeful about their coming bright time and faith on each other. If determination would be high than productivity of the worker would be on high level.

3. Highlighting long-term standards over short-term advantages: Only a family firm will think about the long term stability and work on their fix standards. Their family business passing a high value business to their new generation so they focus on maintaining their long term benefits.
4. Promote your business and customer attractive offers to raise the number of customers.
5. Give many types of payment options to your customers for easy payments
6. Give the facilities for feedback and any complaints

References:

1. https://www.entrepreneur.com/article/38822
2. http://kalyan-city.blogspot.in/2011/03/what-is-business-meaning-definitions.html
3. https://en.wikipedia.org/wiki/Retail
4. https://www.thebalance.com/what-is-retail-2892238
5. http://indianresearchjournals.com/pdf/APJMMR/2012/September/1.pdf
6. http://iosrjournals.org/iosr-jhss/papers/ICIRFSS/8.37-42.pdf
7. http://www.abrmr.com/myfile/conference_proceedings/Con_Pro_12316/article-7.pdf
8. https://www.slideshare.net/ialwaysthinkprettythings/family-business-13536118
9. http://www.indiary.org/en/legal-advice/Retail-%E2%80%93-India-is-open-for-Retail-Business-2-79-22
10. https://www.indiafilings.com/learn/how-to-start-a-retail-business/
11. https://m.yourstory.com/2012/09/service-tax-vat-or-cst-an-overview-taxation-basics-for-startups/
12. http://www.esupportkpo.com/images/Learning%20Pages%20-%20Articles%20-%20Types%20of%20Business%20Structures%20in%20India.pdf
13. ttps://www.entrepreneur.com/article/38822
14. https://en.wikipedia.org/wiki/The_Indian_Partnership_Act,_1932
15. https://en.wikipedia.org/wiki/Indian_Contract_Act,_1872
16. https://en.wikipedia.org/wiki/Companies_Act_2013
17. https://www.fastcompany.com/1811411/best-practices-family-businesses
18. https://blogs.constantcontact.com/retail-best-practices/