Starting a construction company in India is never rocket science, and neither does it involve being an experienced construction engineer. With strong experience in the construction industry and the necessary licenses, one can start a construction venture.
In 2023, the total market valuation of this industry had been $639 billion. According to ICRA findings, Indian construction companies are expected to grow at a rate of 8-10% and have been anticipated to expand more in the long run.
The Indian construction industry is gradually accelerating towards profitability. This mounting profitability makes the industry a wise investment option. This blog will explain in detail how to start a construction company in India.
What is a Construction Business?
Definition
A construction business involves renovating, developing, and improving a country's buildings and infrastructure. The major activities of a construction venture include several activities, ranging from creating a blueprint to finishing the construction within a specific deadline.
Projects handled by construction firm
A construction firm handles different projects, here are some examples:
- Construction of private residential properties
- Construction of commercial buildings, warehouses
- Construction of state properties or properties sanctioned by the government, for example, public hospitals, municipality buildings
- Construction of public utilities such as roads, parks, bridges
Major activities by a construction business
A construction entity is tasked with multiple activities, which can be easily classified before understanding how to start a construction company. Below is a list of the core activities:
- Procuring raw materials and manpower.
- Contracting with parties via major vendors.
- Check on-site safety measures and work closely with site inspectors.
Check these major steps that highlight the construction industry business plan.
Research and Choose Your Construction Business Idea
Researching is the first step towards starting your own construction business. The research can be classified into two divisions - research about the competitors and the sector.
Researching the sector
As a first step, you need to research and select the sector of the construction industry; whether your business will be based on residential construction or commercial construction. The construction requirements vary across various sectors, such as the construction needed for building a restaurant will selectively differ from creating a public hospital. There are various construction industries to choose from - public infrastructure development industry to building commercial premises.
Competitors' research
The research about the competitors can be a formidable task, yet it is rewarding in the long run. You can research the competitors by looking through regional construction companies, what clients they have partnered with and their major sponsors.
Understanding the marketing strategies of your competitors is also a crucial part of research. Many construction companies promote themselves through social media channels, which is the easiest way to scan for their promotion strategies.
Develop a Construction Industry Business Plan
Building a business plan for your construction company can be challenging, especially when you are starting from the origin. Let’s break down all the integral components needed to build a construction industry business plan.
- Describing the target market - The target market in the construction industry is the first step. The target market refers to the potential customers and leads, so creating a customer persona will define the target market naturally.
- Identifying the problem of the market - Before attempting to build a business plan, it is vital to identify the existing challenge persisting in the market. In the construction industry, the challenge can be manifold - from skilled labour shortage to deficiency in installing updated machinery. For example, the Indian construction industry has been fire-fighting the gap in skilled labour for a longer period according to a news report.
- Identifying the market potential - The direct answer to how to start a construction company is simple, identify the potential curvature of the market. The construction industry, although may sound like a profit-churning sector, often is grappling with problems such as regulatory non-compliance or skilled labour shortage. Weighing the problems along with the recurring benefits can outline the market potential.
Register Your Construction Company
This step marks the inception of your company, right after formulating construction business ideas. Registration involves several simple steps, check the below section to quickly register your construction firm.
Legal Structures for a Construction Company
Before registering, choose the legal structure for your company. The legal structure determines the nature of operations and the type of business, it can be a sole proprietorship or a partnership business. A quick guide to the four types of legal structure in a construction venture is here:
- Sole proprietorship - In a sole proprietorship business, the owner is responsible for managing the entire construction venture, all alone.
- Limited Liability Corporation -In a limited liability business, any financial burden or losses of the business are treated as a loss of business entity solely, and not as the loss of the business owners. This one is a popular venture type among most legal structures, where the owner has a complete team with the benefit of being the sole owner of the construction business.
- Partnership business - Partnerships among construction enterprises are popular too, take for example Lodha Group, which has partnered with Ivanhoe Cambridge to develop promising projects.
- Public Limited Company - Many famed construction companies are public limited companies, Hindustan Construction Company being one. In this legal structure, there are several owners, and the shares of the company are available for the public to buy.
Steps to Register a Company in India
After detailing the construction industry business plan, let’s shift to the process of registration. Here are the steps for registration.
- Step 1 - First, you have to obtain the license to become an authorized contractor. For this, you can visit the office of the Public Works Department (PWD) in your area, and submit the required documents to get a license for construction.
- Step 2 - Register by visiting the official site of the Ministry of Corporate Affairs (MCA) and filling in the e-form of SPICe -INC-32. Before that, you have to register with MCA with PAN details and other personal details. After approval by MCA, the company owners get their respective Directors Identification Number (DIN).
- Step 3 - Choose a name according to the guidelines of MCA, and fill in the form eForm 1 A with the construction entity name.
- Step 4 - Getting registered under the Real Estate Regulatory Authority (RERA) is the next act. The RERA Act ensures a fair sale and distribution of home property, and the registration process is simple. You can visit the official website of RERA based on your state, and choose property registration after submitting all the required documents. It usually takes 30 days to get registered under the RERA Act.
- Step 5 - The next step is to obtain the digital signature certificate (DSC), and for that, you have to visit the Government eMarketplace (GeM) portal.
- Step 6 - Next, you have to obtain a Memorandum of Association (MoA) by visiting the MCA portal and filling out the e-form of Form. No. INC-33 with the assigned DSC.
- Step 7 - Upon successful submission, you can expect to receive the Certificate of Incorporation in 7 working days.
Licenses and Permits Required for the Construction Business
Here are some licenses and permits needed to initiate a construction venture in India:
- Contractor Permit
- PAN card of business
- Identification proof documents of business owner(s)
- Business address proof in the form of electricity or water utility bill
- GST registration certificate of the company
- Document of rent or lease for business property (if any)
Funding Options for Your Construction Business
Major funding options
A construction contractor can obtain funds from various sources, it can be taking out loans from government loan schemes or taking credit loans from banking institutions. It can obtain funds from:
- Pradhan Mantri Mudra Yojana (PMMY) scheme that offers funding to 10 lakhs INR is a great option for a construction startup.
- Taking funds from a banking firm under any contractor loan scheme. Various public and private banks offer contractor loans, which come off with minimum eligibility such as better CIBIL scores and audit reports.
- Many private entities also offer working capital funds to get started for construction firms.
Factors to consider in funding options
- Review business plan - Reviewing the plan will directly point towards the capital requirement, and explain the funds required to cover the constraints.
- Looking out for a rate of interest - During borrowing credit, looking out for a flexible rate of interest is significant as it avoids any financial burden.
- Weighing down the expenses - Construction businesses have multiple channels of activities, such as procuring raw materials to recruit skilled engineers. Funding options will also depend on the main activities pursued.
Get insurance for the company
Insurance is a necessity in the case of a construction business, as it involves key activities that may threaten physical health. For example, site workers and labourers run the risk of facing any physical injury during construction. Some of the main insurance policies to consider in the construction industry are:
- Workmen Compensation Insurance policy
- Constractor’s All Risk Insurance
Coverbiz provides all of these insurance policies with just one click. Make sure to check more such policies to insure your construction company.
Conclusion
Starting a construction company in India requires three core steps to follow, strategising the business plan, registering and researching the clients and competitors. With the elevation of new paths and impressive investments by the Indian government, the construction industry stands as an alluring business to explore.
