A Financial Technology business, popularly known as ‘FinTech’ is a financial institution that provides financial aid, planning and management services to other businesses and individuals accessible online on computers. A financial business is different from bank and to start an online finance business, finance startup or FinTech in India, in-depth planning and guidance is required.
There are four types of services offered by online finance businesses:
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Payment services: e-wallets and mobile payments. Ex: PayTM
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Peer to Peer (P2P) Lending services. Ex: CapitalFloat
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Customer to Business (C2B) and Business to Customer (B2C) retail banking services. Ex: Mswipe
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Personal Finance and Investment advisory services. Ex: BankBazaar
You must hire an experienced startup lawyer near you who can guide you about the legal procedures involved and take care of the legal formalities for you. This guide simplifies the legal requirements and formalities for a start-up that plans to set up a FinTech in India:
1. Decide the Business Structure: The first step to start an online finance business is to decide the fitting business structure. There are three types of business structure suitable for a FinTech:
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One Person Company: An OPC is a combination of sole proprietorship and company, where the business has only one owner but functions as a company.
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Limited Liability Partnership: An LLP is a combination of partnership and corporation, where all the partners have limited liability restricted only to their respective shares.
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Private Limited Company: In a PLC, the directors and shareholders of the business have no personal liability to the creditors of the company as it has its own rights and liabilities separate from the members. This is the most apt structure for a financial technology business in India.
2. Register for GST: An online finance business or finance startup is required to register for GST and obtain GSTIN for the business. The GST regime has combines the old indirect taxes like service tax, excise duty, etc.
3. Get Legal Contracts and Agreements: To start an online finance business, it is also important to get the following legal documents. A startup lawyer can assist you in drafting customised legal documents in accordance with your business requirement:
4. Obtain Intellectual Property: Intellectual Property includes- Trademark, Copyright, Patent and Design. An online finance business needs to protect its brand name, slogan, website, mobile app, etc. All these can be protected by registering them and obtaining Intellectual Property Rights (IPR).
5. Licensing: Licensing and regulation of a finance startup depend upon the type of service it plans to provide. Services which can be provided by an online finance business include:
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For Payment service: The Reserve Bank of India launched a ‘Differentiated banking license’ scheme for issuing ‘on-tap’ licenses to businesses that want to start financial or banking services. For this, they can apply with the RBI to register themselves.
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For P2P: They can only act as intermediaries.
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For Retail service providers: Licensing to retail fintech to carry out lending and depositing services for micro, small and medium industries and unorganised sectors.
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For Financial Management/Investment: There are no regulations for finance management businesses, but the RBI has proposed that these FinTech would be registered as NBFCs- Non-Banking Finance Companies.
6. Register Domain: A tech company’s basic requirement is having a web presence. Therefore, having a domain name and fully developed website are the main priorities for the online finance business. A finance startup can also set up a mobile app to expand its subscribers and users.
Taking legal advice from the best startup lawyers solve half of the problems that occur when you start a financial company or FinTech startup in India. To make it easier for you, MyAdvo connects you with top startup lawyers in India. Email us at info@myadvo.in or call us at +919811782573.
