Updated October 23, 2020:

If you're wondering, "what is a trade license," a trade license is needed by a business in order to legally carry out various activities. It is a legal document that provides legitimacy to a company and gives it the ability to perform certain actions in the country in which the trade license was granted. This type of license is only good for the activity it was originally granted for. It does not provide any special permission to carry out an activity other than the one it was issued for.

You may need to present a trade license when you are applying for credit or capital for your business. It will also likely be needed if you want to open a business checking account. More so, it will be of value when you hire employees. A trade license is granted by the License Department, which is an authorized entity that specializes in granting businesses with the authority to conduct certain activities.

When Should a Person Acquire a Trade License?

If you are planning to start a business, you will need a trade license before you begin. This will validate your ability to perform certain activities. The trade license acts as a type of permission slip that gives you the ability to carry out your operational processes. You will need to acquire a trade license at least three months before you intend to commence your activities. During the last 40 years, trade licenses became available in India.

Why Do You Need a Trade License?

One reason you need a trade license is that it proves that the activities to be carried out by your company are not going to present any type of health hazard. It also shows your company is not going to perform any actions that would be considered a nuisance. The fee that you will have to pay to get a trade license is determined by the state you are applying for it in. Some cities have their own fees you will have to pay; these fees may be a set amount, or they may be determined by your annual sales.

Important Things to Consider Before Applying for a Trade License

  • You will need to submit the application for a trade license before you actually start conducting business.
  • Renewing your license on an annual basis is a requirement, and it must be renewed within 30 days of its expiration date.
  • You have to be 18-years-old or older to get a trade license.
  • You cannot have a criminal record (there may be exceptions to this).
  • You must be able to execute require legal work, such as reporting income and expenses.

Additional Reasons to Get a Trade License

Here's a closer look at the reasons you need a trade license.

You need to complete the proper steps to get a trade license because it can help you from getting penalized. In India, it is considered an offense if you don't get a trade license. The Shop and Establishment Act mandates that businesses operate according to business-like working hours and that workers are provided with sufficient benefits. A trade license will help validate that you are meeting these requirements.

Basically, if you don't have a trade license and you are supposed to, then it means you are operating an illegal business, which can lead to hefty fines and penalties.

A trade license is also of benefit because it helps keep you from being personally liable for your business debts. You don't want your personal taxes to be entwined with your business taxes, and a trade license helps separate the two. You will have to file a separate tax return for your business. This means you will have the opportunity to take advantage of a vast range of business deductions. In fact, there are several business tax deductions that you can benefit from that you are not able to file on your personal taxes.

Another reason a trade license is valuable is that it may permit you access to join certain professional groups. Without the license, you would otherwise not be able to join these groups, which may include the Better Business Bureau, business oriented-groups, and investment groups.

Three other reasons you need a trade license is because it can provide:

Lastly, a trade license gives you the right to talk about your company as a legitimate company. This is especially beneficial when it comes to marketing your business. Customers and investors will be much more likely to build a relationship with you if you have a trade license.

If you need help with acquiring a trade license, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.