Can we based inventory based e-commerce store

644 votes

Hi, This is definitely allowed. However, you will have to keep a few issues in mind with respect to your international customers - (a) Export Rules - The items you are selling to international customers must comply with India's export rules and you would also require relevant permissions and licenses for exporting goods. Further, certain items may be export restricted and therefore the same would have to be determined and confirmed prior to export of any such goods; (b) RBI - Payments originating from abroad would be subject to certain reserve bank rules and regulations and you would have to comply with relevant RBI Guidelines and notification with respect to the banking channels used for such payments.

Coming to the issue of 'inventory based' e-commerce. For the purposes of FDI in order to determine whether it is aggregation or inventory based e-commerce, the determining criteria is whether more than 25% of your sales happens from the particularly entity/distributer/company etc. So whether you keep 30% stock or otherwise, the determining factor is whether any 1 entity is responsible for more than 25% of your sales. If you are such an entity then 'Foreign Direct Investment' would not be permitted within such an e-commerce company. However, since you have mentioned that you are not looking for funds, this does not apply to you immediately, however it would become relevant if you were to attempt to raise such funds in the future in the form of Foreign Direct Investment.

Advocate Aditya Shamlal LawRato

866 votes

You said you are not looking for investments here i.e., neither from foreign investors nor Indian investors. Please confirm. There is no prohibition in doing e-commerce activities which are either B2B or B2C. However, the website content needs to drafted with a lawyer's assistance. Going forward, issues relating IPR, delivery time, stocking, labelling, refund etc. may cause legal troubles. Let me know if you require any assistance/advise.

All the best!

Advocate Mansi Airi Gambhir LawRato

595 votes

Just to educate its lengthy because i think Indian startups need to educate, There are two types of e commerce model
1. Marketplace based model of e-commerce
2. & other is inventory based model of e-commerce

first market place e commerce model means providing of an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer and seller so i am not touching on market place as you are not one of them as you said.

Now inventory based model if FDI funded (i know you are not lookings for fund, but may be in future ) than there are different restriction and its applicable to B2B only but B2C can be also be funded and through subject to terms and condition on manufacturing and inventory.

Coming back to your question, Inventory based model of e-commerce means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly. And you fall under this category first of all your model cannot be funded because govt of india doesn't allowed also you are not manufacturer also, but good news is there is no restriction on inventory other than the following (new changes) :

1. no group company or seller on a marketplace can contribute more than 25% of the sales generated, your total sale for 100 cr comes from A, B ,C who are manufacturer , but here you breach the law , so in this model A sales cannot be more than 25 cr in you total sale vice versa.Applicable to both inventory and market place e-commerce model.
2. You cannot influence product prices means its time to say goodbye or no more discounting price for all , jabong, flipkart everyone has to soon revised strategy
3. Three, small sellers will now have to take responsibility of quality of goods and after sales support.Quality control and you are also responsible under this service model (bylaws)
4.other than your model you need to consult CA also for taxation and custom purpose for international goods

other than all documents like disclaimer, vendor agreement, privacy policy will be there but you need be make sure that you are following Cyber security & related cyber crimes and financial frauds, data privacy, mobile wallet ,cyber security due diligence and cyber law due diligence, Online payment legal compliances in India are diverse and complicated in nature.

In coming days govt of india will come with strong laws for e commerce business. so you have to be more careful this business model, whomever you hire please hire a lawyer who are not just want to have you for documentation work but do proper business modelling .

We are expert in this model and we have consult one of logistics e commerce startup , and this startup today rank 5 in this country as per revenue model , don't worry we are affordable. Take a appointment through law rato and you can meet us.

Good luck hope you find right person.

Advocate Nischal Arvind Singh LawRato