There is much documents compliance to be fulfilled when you plan to start a business. A trade license is one such essential document required for running a business or trade. It permits an individual or entity to carry on business or trade in a particular municipal limit.

What is a Trade License?

A Trade license is a document/certificate that gives permission to the applicant (person seeking to open a business) to commence a particular trade or business in a particular area/location. The Municipal Corporation of the state issues the trade license to the applicants.

A trade license ensures that the business or trade is carried on by adhering to all the standards of safety as issued by the State Municipal Corporation. It protects the residents from being affected by any health hazards. All businesses covered under the State Municipal Corporation Act of the state in which they are located must apply for a trade license.

However, the license does not allow the holder to carry out any other trade or business than for which it is issued. Furthermore, this license does not pass on any kind of property ownership to the holder of the license.

Why Trade License?

In India, a trade license was introduced 40 years ago. The Municipal Corporation Acts of the respective state governments regulate trade licenses. It helps to ensure that no one is severely affected by the nuisance and health hazards of any trade or business.

The state governments mandate a trade license to carry out any particular business or trade in a particular area and to ensure that no one is carrying out any unethical business practices. It allows the government to regulate various trade activities in the country. This license creates harmony in society by ensuring that every business is following the relevant rules, guidelines and the required safety measures. Trade license is also known as Shop and Establishment registration. Rules and regulations of this trade license registration vary from one state to another.

What are the Main Objectives of a Trade License?

The following are the main objectives of a trade license: 

·       To regulate and monitor the activities of businesses within a particular area, locality or municipality.

·       To ensure that anti-competitive practices are not followed by businesses within a particular locality or municipality.

·       To ensure that a business is following the corporation or government compliance.

·       To check if a business is breaching laws or causing nuisance in society.

·       To regulate the use of hazardous and other chemical substances used in a business and ensure it does not affect the people or environment.

·       To ensure businesses use environment-friendly substances and protect the environment.

·       To ensure businesses take necessary precautions while carrying out business activities.

Categories of Trade License

·       Food establishment license: hotels, restaurants, canteen, food stall, bakeries, the sale of vegetables and meat etc.

·       Industries license: small and large scale manufacturing factories, cyber café etc.

·       Shop license: a barber shop, dhobi shop, candle manufacturer etc.

Eligibility for getting a Trade License

·       The applicant should be more than 18 years old.

·       The applicant should not have any criminal records.

·       The business should be legally permissible.

Documents requires

·       Lease documents/agreement in case of premises is on lease

·       Occupation certificate

·       ID proof of applicant (for individual it is aadhaar card and for company, it is PAN card & certificate of incorporation)

·       Registration certificate from concerned authority

Three important points before you apply it

·       Application has to made before you start running your business

·       Renewal of application must be filled in 30 working days before expiry of the license

·       Once license issued and it has to be maintained on annual basis

Processing time

Trade license has to be obtained within 7-10 days in metropolitan cities, if documents are not filled according to the rules; it will take time as in 35- 40 working days. It has to be obtained within 30 days of commencement of business in other small cities and rural areas.


Significance of Trade License

 Who runs a business in a smooth way, he/she needs to get trade license as it is compulsory in law. You are familiar with driving license and it is quite similar to trade license. Without driving license, he will get penalty notices for it. You can analyze it with the case of trading license. In short, ‘one business that does not have trade license can be considered illegal and have to submit the massive amount of money on their nature of business.’