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What are the Main Differences Between Shop Act and Udyog Aadhar

  • Posted By SuperCA
  • On 30 June

What are the Main Differences Between Shop Act and Udyog Aadhar

What are Shop Act and Udyog Aadhar?

All businesses depending upon the sector it is operating in are regulated and administered by the Rules and acts prescribed by the government. When we talk about small-scale industries, most of them require authorization under both the Shop Establishments Act, 1947, and the Micro, Small, and Medium Enterprises Development Act, 2006 through the Udyog Aadhar registration. Although there are certain similarities between both, they are quite different from each other. This sometimes leads to confusion for the business owners between the two. Therefore, this article discusses the differences between Registration under Shop & Establishment Act and Udyog Aadhar Registration.

Registration under Udyog Aadhar is a government registration process which provides a certificate to a company along with 12 digits unique Udyog Aadhar number to the applicant. The purpose of Udyog Aadhar is to give maximum benefits and access to the businesses of the various MSME schemes of the government. This initiative is especially meant for SMEs. Aadhar number is necessary for businesses to have an MSME registration certificate. The registration process is quite simple and does not require a lot of paperwork.

On the other hand, Shop Establishment License is issued by the state government which provides permission to carry on the particular trade or business. Shop Establishment is mandatory under the respective state act for every person who is starting any commercial activity like a shop or business. The purpose of this act was to regulate the conditions of workers and employees working in a shop or commercial establishments. Any shop or commercial establishment must apply for Shop and Establishment registration within 30 days of commencing operations. In order to get the license, an application must be submitted to the local municipal corporation of the respective state. It is very easy for a person to avail of shop and establishment licenses from the respective state authority keeping in mind that conditions under this act and fees may vary from state to state.

Benefits of Udyog Aadhar Registration

There are many benefits that can be enjoyed by MSMEs after obtaining the Udyog Aadhar registration. Some of the benefits of Udyog Aadhar Registration are:

➤ A lot of government schemes can be availed by MSMEs such as unsecured MSME loans, easy loans, micro business loans, subsidized rates, etc.
➤ MSMEs can get financial support when participating in foreign expos.
➤ The filing of patents and trademarks can be done at reduced rates.
➤ Current bank accounts can be opened without any hassle.
➤ Exemption on excise and indirect taxes are provided.
➤ Aadhar holders can avail of credit guarantee schemes.
➤ Aadhar Holder can avail concession on electricity bills as well.

Benefits of Shop and Establishment License

➤ It provides legal recognition to the respective establishment or shop which solidifies its position in the market. Consequently, the establishment would start building trust and attract customer attraction.
➤ It avoids unethical business practice that conflicts with the interest of the workforce
➤ The Shops and Establishment license acts as business proof for further business registrations in India.
➤ The registration of Shops and Establishments becomes necessary for reasons like opening a bank account in the name of an establishment/shop. Business entities that take registration under Shop act can easily open the current account in the bank. They would never need additional documents for this purpose, as Shop act license would be enough for that.
➤ The Shops and Establishment license provides a platform to help in raising investments through loans or venture capital for the proposed business establishment.
➤ By getting the shop and establishment license, the entrepreneur can avail various benefits introduced by the government from time to time.
➤ The online process of shop act registration saves time in the registration procedure as well as creates less hectic while in operation.
➤ Keeping up compliances with the Shop Act would reap unseen benefits in long term.

Differences between the Shops and Establishment Act and Udyog Aadhar

Parameter Shop and Establishment License MSMED Act registration through Udyog Aadhaar
1. Authority State government  Both Central and State government
2. Motive To secure rules & regulations for shops and establishments like fixed working hours, employee benefits, termination policy, terms of service and other conditions To provide the business MSME recognition for availing benefits of schemes issued by government & agencies for MSMEs.
3. Eligibility All shops and establishments holding commercial activities including hotels, clubs and all other places of amusement & entertainment. All entities registered in any business form complying to minimum registration criteria in terms of investment in plant & machinery and service equipment.
4. Applicability of rules Specified rules and regulations are applicable for each and every establishment working in any respective form of business including MSME. (Excluding those registered under Factories Act 1948) Specified rules and policies are applicable for only entities registered as MSMEs.
6.Mandatory/Optional Mandatory for all entities excluding a few exceptions. The registration of MSMEs under Udyog Aadhar is optional
7. Obtaining licenses It is generally not required for obtaining any major licenses but is helpful for the opening of the current account of the business and for proprietorship registration. It is required for application of : -Trademark/copyright/patent, Export licenses, Bank account of the business, GST registration
8. Tax Concession The issue of a license under this act does not provide any specified tax benefits. Special exemptions under GST and Income tax are provided for entities registered with Udyog Aadhaar.
9. Renewal Varies as per state. It is renewed by entities every 5 years.



The Shop Establishment License specifies general duties, rules, and regulations of all business shops and establishments towards their employees and the provisions therein, while the Udyog Aadhaar Memorandum as applied under the MSMED Act guides for statutory formation and recognition of MSME entities for compliance following and availing of benefits issued by the government for MSMEs. 

The thing common between the Shops and Establishments Act, 1947, and the MSMED Act, 2006 is that both of them deal with commercial establishments and regulate and govern their activities. But the Acts serve completely different purposes as discussed above.