Papers, Permissions and the Bank

Meena and the nephew's advice

Meena took the 7.10 Shivneri bus from Nashik and was in my office above the floor by half past eleven, blue file on her knees. She had already been told what to do. Her nephew in Thane, who works in a bank's credit card department, had said she must register a private limited company, because "Pvt Ltd sounds serious and nobody takes a proprietor seriously."

I have heard this sentence perhaps forty times. It is half right, which is the dangerous kind of right.

"How much phenyl will you sell in the first year?" I said.

"If Mrs Joshi stays and I get four more schools, maybe ₹9 lakh."

"Then you are a proprietor," I said. "Your nephew can be serious on his own time."

What each form actually costs you

A sole proprietorship is not really registered as such. You are the business. It comes into existence the moment your GSTIN, your Udyam certificate and a current account in your trade name say so, which for Meena meant a few hundred rupees and a week. Profits are added to your personal income and taxed at your slab rate. The catch is plain: if the business owes money it cannot pay, the creditor can come for your flat, your fixed deposits and your gold. Unlimited liability. Most first-generation owners do not read that phrase until it is too late to matter.

A private limited company is a separate legal person. Incorporating one through the government's SPICe+ form cost my clients between ₹8,000 and ₹15,000 in 2024, including a chartered accountant's fee. The running cost is what nobody mentions. A company must have its accounts audited every year, file returns with the Registrar of Companies, hold board meetings and keep minutes. Budget ₹30,000 to ₹50,000 a year for this, more if your accountant is good, and he should be. Corporate tax under the new regime is a flat 22 per cent plus surcharge and cess, about 25.17 per cent in all, which only beats a proprietor's slab once profits are healthy.

A partnership firm or an LLP (limited liability partnership, a hybrid that limits each partner's exposure) suits two people who genuinely bring different things: one the money, one the machines and the customers. I have watched more partnerships between school friends end in silence than in profit. If you do one, write down on day one what happens when somebody wants to leave. Nobody does.

One caution. Limited liability protects you less than people think. For any loan above a few lakh, the bank will ask for your personal guarantee anyway, and then the company's debt is your debt again.

When to change

I ran my unit as a proprietorship from March 2004 until April 2011. I converted for three reasons, and none of them was prestige:

• A multinational food company wanted to put me on its vendor list, and its procurement policy did not register proprietors above a certain annual value.
• My bank limits had grown past ₹60 lakh, and my wife, reasonably, asked what happened to our house if a big customer went under.
• Profits had reached the point where the tax difference paid for the auditor several times over.

Any one of those is a good reason to change. Feeling small is not. Conversion is real work: every machine and debtor has to be transferred to the new company, GST and Udyam registrations are done afresh, and every loan document is signed again. My CA, Deshpande, took eleven weeks over mine, and the bank spent four of those deciding whether my sanction letter still applied.

Meena wrote "proprietor" on the first page of her file, underlined it twice, and asked me to repeat the bit about the house.

The order on her first page

Meena wanted a list. I gave her one on the back of a delivery challan, because the order matters more than the paperwork itself. Do these out of sequence and you spend rent on a shed you cannot legally run.

• Udyam registration
• Current account and GST
• Shop or trade licence from the municipality or gram panchayat
• Pollution-board Consent to Establish
• Fire NOC, if your shed and process call for one
• Factory licence, if your headcount crosses the line
• Consent to Operate, and only then production

Udyam and GST

Udyam is the government's registration for micro, small and medium enterprises. It is free, online and done with your Aadhaar and PAN in about twenty minutes. Under the limits revised in April 2025, a micro unit is one with up to ₹2.5 crore in plant and machinery and up to ₹10 crore in turnover. Meena would be micro for a very long time. The certificate costs nothing and opens the door to priority-sector lending, CGTMSE cover and the rule that buyers must pay an MSME within forty-five days. Several websites will charge you ₹2,000 to ₹5,000 for this. Do not pay them. I said this twice. She wrote it down once.

GST comes next. For goods, registration is compulsory above ₹40 lakh of turnover in most states, ₹20 lakh in a few. Meena's ₹9 lakh would not oblige her. Register anyway. Schools and companies want a tax invoice so they can claim input credit, and an unregistered supplier is quietly dropped. Hers took nine working days, and a GST officer visited the rented shed in Satpur to check that it existed. Keep the rent agreement and an electricity bill in your trade name ready for that visit.

The trade licence or shop licence is local and varies wildly. In Pune's PCMC area I paid a few hundred rupees in 2004. A gram panchayat outside Nashik may simply want a no-objection letter and a receipt.

Consent to Establish, before the machines arrive

This is the one people get wrong. The state pollution control board grants two consents. Consent to Establish (CTE) permits you to set up. Consent to Operate (CTO) permits you to produce. You apply for CTE before you install machinery, not after.

How hard it is depends on your colour. A white unit needs no consent at all, only an intimation. Green units get a simpler application and long validity; in Maharashtra, green CTO can run for many years. Orange units face inspection and conditions on effluent and emissions. Red units need a proper application, often an environmental consultant, and land in a notified industrial area. Fees scale with capital investment.

Meena's phenyl is cold-blended: pine oil, emulsifier and water stirred in a tank. When we checked the MPCB list that week it fell in a category requiring consent but not the heavy end. I would not swear to the colour for your state. Lists are revised, and a small change in process, adding heating, say, can move you up a band. Read the current list yourself before you sign a lease.

My own mistake was in 2004. I ran a starch gum kitchen with a small boiler for three months before anyone told me the boiler changed my position. An MPCB field officer named Pawar walked in one Saturday, looked at the chimney and said, "Who gave you permission for this?" Nobody had. The fine was modest. The fright was not.

Fire, factory licence, then the last door

A fire NOC depends on your shed's built-up area, height and what you store. Paper, solvents and plastics attract attention. Budget for extinguishers, sand buckets and a fire officer's inspection.

The factory licence under the Factories Act applies once you cross a worker threshold. Nationally it is ten workers with power, twenty without; Maharashtra raised its own limits to twenty and forty in 2015. Meena planned on three people. Not yet.

Then comes Consent to Operate. The board checks that what you built matches what you promised in the CTE. In Maharashtra the MAITRI single-window portal handles most of these applications now, which helps, though "single window" still meant four separate fee receipts in Meena's file.

She stapled them in date order, oldest at the back, and drew a box on the inside cover for the CTO number. It stayed empty for seven weeks.

Money that actually exists

Meena's phenyl plan needed about ₹7 lakh, so on paper she did not need a bank at all. I told her to borrow part of it anyway. Savings spent on a mixing tank cannot pay the rent in month five, when a school purchase office has decided that forty-five days is a suggestion. Use the bank's money for the machines and keep your own for the bad month.

Here is what is real and turns up on time, as of 2025.

MUDRA loans come through ordinary banks under the Pradhan Mantri Mudra Yojana. They are not a separate lender, just a label on a bank loan with a government guarantee behind it. There are four tiers:

• Shishu, up to ₹50,000
• Kishore, ₹50,000 to ₹5 lakh
• Tarun, ₹5 lakh to ₹10 lakh
• Tarun Plus, ₹10 lakh to ₹20 lakh, added in October 2024 for borrowers who have repaid an earlier Tarun loan

No collateral is asked for at these sizes. That does not mean the bank will lend to anyone who asks. The branch still wants a project report, a GST number and some sign that you have sold something. Meena's thirty days of reselling bought-in phenyl to two schools and a hostel gave her exactly that.

CGTMSE, the Credit Guarantee Fund Trust for Micro and Small Enterprises, covers larger loans. If the bank lends to you without collateral, the trust guarantees most of the loan in return for an annual fee, roughly 0.37 to 1.35 per cent depending on size. The cap went to ₹5 crore in 2023, and the 2025 budget announced ₹10 crore. Check what your branch is actually applying. Your Udyam certificate is the ticket in. Some branch managers still ask for your flat as security on top of the cover. You are entitled to ask, politely, why.

PMEGP, which arrives slowly but arrives

The Prime Minister's Employment Generation Programme is the one subsidy I have watched pay out reliably, with conditions. It is run through KVIC and the District Industries Centre. For a new manufacturing unit up to ₹50 lakh, the government pays part of the project cost as "margin money": 15 per cent in urban areas and 25 per cent in rural for general applicants, and 25 and 35 per cent for women, SC/ST and some other categories. You put in 10 per cent, or 5 per cent if you are in a special category.

Meena, a woman setting up in Satpur, would get 25 per cent. On ₹7 lakh, that is ₹1.75 lakh.

Two catches. You must finish a short entrepreneurship training course before the money is released. And the subsidy does not go into your hand. It sits in a fixed deposit at the bank for three years, and you pay no interest on that portion. It is adjusted against the loan only after an officer visits and confirms the unit is still running. Close in year two and it goes back.

"So I get it in 2028," Meena said.

"If you're still making phenyl in 2028," I said.

She thought that was fair. So do I.

The ones that mostly don't arrive

State capital subsidies are where I lose my patience. Maharashtra's Package Scheme of Incentives, and its cousins in Gujarat, Tamil Nadu and Madhya Pradesh, promise capital subsidies, interest subsidies, electricity duty waivers and a refund of state GST. Most of it is real on paper. The money is another matter. Budgets run out and zones get reclassified. Eligibility often hinges on a date your plant first ran, and a missing document can push that date back by a year.

My friend Anil (not his real name), who makes HDPE drums near Jejuri, was sanctioned an interest subsidy in 2016. He received his first instalment in 2019 and the last one in 2022, by which time he had repaid the loan it was meant to ease. He does not complain much now. He just tells people to write the subsidy into their project report as zero.

That is my advice too. Apply for everything you qualify for. Count none of it. If the state's money comes, put it towards a second machine. If it never comes, you will not have built a factory that depended on it.

Meena wrote "₹0 — state" in pencil at the bottom of her funding page. Mr Kulkarni would later circle a different number on that page, and he was right to.

Twenty-eight lakh, in red ink

The first project report I ever wrote that a bank took seriously was for ₹28 lakh, in the autumn of 2008. It covered a second-hand corrugator line, a printer-slotter, a deposit on the shed next door and three months of working capital. I typed it myself on the office computer over eleven evenings. I was proud of it. Mr Kulkarni, the branch manager at our Bhosari bank, read it in front of me with a red ball pen, and by page four I was no longer proud of anything.

I still have it. When people like Meena ask what a report should contain, I hand them a photocopy, red ink included. It runs in this order:

• Promoter profile: who you are, what you have done, what you are putting in
• Product and market: what you make, who buys it, at what price
• Machinery and quotations: each machine, its supplier and a dated quote
• Cost of project and means of finance: what you need and where every rupee comes from
• Projected profit and loss for five years
• Cash flow and repayment, with the debt-service coverage ratio (profit available to repay, divided by what you must repay each year)
• Working capital assessment

Mr Kulkarni circled three things.

The first was my market section. I had written "strong demand from pharma, FMCG and auto sectors in the Pune belt." He drew a ring round the whole sentence and wrote "WHO?" in the margin. I had eleven customers at the time. I had not named one of them.

The second was my debtor days. I had assumed thirty. He pulled my current account statement from his drawer, ran a finger down the credits and said, "Your money comes in after sixty-seven days. Why will it come in after thirty next year?" I had no answer. Sixty-seven days was the truth, and the truth meant my working capital line was short by roughly ₹4 lakh.

The third was a single figure in the cost sheet: scrap at 2 per cent. My own register showed 6.8. I had written down what I hoped for.

"The report is not for impressing me," he said. "It is for frightening you before you sign."

I rewrote it in a week. Named buyers with monthly volumes. Debtor days at sixty-five, with a plan to bring them down. Scrap at 6 per cent. The project grew to ₹31 lakh, the coverage ratio fell from 2.4 to 1.6, and he sanctioned it within a month. A worse-looking report got the loan, because he could believe it.

This is why I distrust the consultants who sit outside District Industries Centre offices offering to "get" your PMEGP or state subsidy for 5 or 10 per cent of the sanctioned amount. Their reports are beautiful. Every machine runs at 85 per cent capacity from month one and every customer pays in thirty days. Bank officers have seen a thousand of them and can smell the template. Worse, you end up paying a percentage for something you could have filed yourself, and you sign a document whose numbers you never had to defend. Pay a chartered accountant a flat fee to check your arithmetic if you like. Write the thing yourself.

Mr Kulkarni retired in 2016. He still reads a report for me now and then, over tea, in exchange for a box of Chitale bakarwadi. In April I posted him Meena's.

He sent it back with one circle, on her funding page. She had shown sales of ₹1.1 lakh in month one, rising to ₹2.4 lakh by month six. Reasonable. But her own margin money, the ₹70,000 she was putting in, was marked as "available from savings" in the same month she planned to pay a shed deposit and the first raw material bill.

"She has spent this money twice," he wrote underneath. "Which time does she mean?"

Meena moved the deposit into the loan, kept her savings back for the bad month, and took the report to a branch on Trimbak Road in the second week of May. The sanction letter came on 19 June: ₹6.3 lakh under Tarun, with the PMEGP margin money parked in a fixed deposit she could not touch until 2028.

She sent me a photograph of it that evening. Behind the letter, on her dining table, I could see a hand-drawn floor plan of a shed she had not yet rented, with a mixing tank sketched in the wrong corner.