What is the difference between Shop Act and Udyog Aadhar?

What is the difference between Shop Act and Udyog Aadhar?

Legal & Compliance

Vakilsearch Staff

Vakilsearch Staff

107 week ago — 8 min read

The Shops and Establishments Act, 1947, and the MSMED Act, 2006 are extremely different from one another. Although a few commercial establishments fall in the area of the intersection of both the Acts, the purposes of the legislation vary to a great extent.


What is the difference between Shop Act and Udyog Aadhar?

The setting up of any kind of business, large or small, indigenous or multinational, is governed by the stipulated legislation in India. This is true, regardless of the genre of the business, the amount of investment, and its turnover.  The business might be a commercial establishment or might be one that’s operating in the entertainment industry, it can be pursuing manufacturing and production of specific goods or might be involved in the rendering of services. Every business, depending upon the sector it is operating in, is therefore regulated and administered by the rules put forward by the government. Additionally, the businesses most often should also procure the required licenses to operate. For instance, hotels and restaurants require the FSSAI (Food Safety and Standards Authority of India) license to operate. These businesses should also take the appropriate licenses under the Shops and Establishments Act, 1947, the Prevention of Food Adulteration Act, 1954, etc. Likewise, other businesses might also be required to be registered under multiple Acts.


When it comes to small-scale industries, most of them require authorisation under both the Shops and Establishments Act, 1947 and the Micro, Small, and Medium Enterprises Development Act, (MSMED) 2006 through the Udyog Aadhar registration. Although there are similarities between both the legislations, they are quite different from each other. Also, the registration under one does not equalise the registration under the other. Therefore, the businesses must get themselves registered under the Acts separately.


Registration of Businesses Under the Shops and Establishments Act, 1947

This is a State Act, which is unique for every state in India. The Act regulates the operations of businesses wherein any trade, or profession is practiced. In addition to commercial establishments like small and petty shops, the Act also governs trusts, societies, educational institutions, IT (Information Technology) and software companies, banking, and financial institutions, etc. The Act aims to regulate various factors such as the hours of employment, weekly holidays, leave policy, deductions from salaries, etc in the shops and commercial establishments.


The Shops and Establishments Act, 1947 aims to regulate the following areas for the business entities:

  •   To enable the peaceful operation of the businesses in accordance with the respective State rules. The Act, being a State Act, would vary from State to State in India
  •   To enable the businesses to comply with the guidelines pertaining to the hours of work, adequate wages to be paid to the employees, leave and termination policy of employees, etc.
  •   To regulate and provide guidance for those entities that do not fall under the Factories Act of 1948.

Registration of Businesses Under the Micro, Small, and Medium Enterprises Development Act, (MSMED) 2006

Basically, Small Scale Industries (SSI) or Micro, Small, and Medium Enterprises are governed by the MSMED, 2006 Act. The government of India had formulated the Act to boost small-scale industries and had rolled out several benefit plans to help such businesses. The Act had laid out the minimum threshold levels of investment and turnover for various industries in the manufacturing and servicing sectors to be eligible to be classified as Micro, Small, or Medium Enterprises. These businesses in turn had to get themselves registered under the Udyog Aadhar portal to avail of the schemes put forward by the government. The registration is fairly simple as the businesses only need to furnish the Udyog Aadhar Memorandum (UAM), a self-attested declaration, in which the business establishment self-certifies its existence, mentioning the basic information that is required.


The Act governs the businesses in the following aspects:

  •   Validates the businesses registered in Udyog Aadhar, to check if they belong to the MSME category and if so enables them to avail the benefits of various governmental schemes
  •   To formulate various financial aids and marketing strategies to aid MSMEs
  •   Offering uninterrupted support for the MSME industries by staging entrepreneurship development programs, especially for the minority population.

While both the Acts regulate and govern the activities of businesses, indisputable differences do exist between them.


Differences between the Shops and Establishment Act and Udyog Aadhar

S.No Characteristic Shops and Establishments Act, 1947 MSMED Act, 2006, through Udyog Aadhar
1 Governing Authority State Government Both State and Central Government
2 Purpose To govern the working hours, leave policies, employee benefits, etc for various commercial establishments To enable the MSMEs flourish through various beneficial schemes put forward by the government
3 Eligibility

All commercial establishments like shops, hotels, clubs, amusement centers etc are eligible to apply for license under the Act


Business entities that are in consonance with the minimum registration threshold with respect to investment and turnover are eligible
4 Compliance of Rules The rules laid out in the Act are to be complied with by commercial establishments including MSMEs

The rules laid out in the Act have to be complied with by the MSMEs registered in the Udyog Aadhar portal


5 Mandatory/Optional The registration of shops and commercial establishments under the Act is mandatory with very few exceptions The registration of MSMEs under Udyog Aadhar is optional
6 Tax Privileges

The establishments that claim licenses under this Act, do not reap any tax benefits


The Act’s predominant intention is to provide benefits for MSMEs and therefore offers special privileges under the GST (Goods and Services Tax) and Income Tax



Thus, the similarity between the Shops and Establishments Act, 1947, and the MSMED Act, 2006 is that both deal with commercial establishments and regulate and govern their activities. But the Acts serve completely different purposes as elucidated above and they are undoubtedly as different as night and day.


Also read: Tax & compliance tasks to manage your business


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Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker.


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