What Licenses You Need to Set Up a Factory in India: The Start-up Founder’s Guide

Starting a manufacturing business is like planting a tree. You choose the right soil (location), get the right tools (machinery), hire the right gardeners (team), and dream about the fruits (profits). But here’s the thing: In India, before you plant that first seed, you need to get your paperwork right.

And this is where factory licenses and related approvals come in. Now, don’t think of them as mere ‘government hurdles’ but as the legal backbone of the industry.  This guide will walk you through exactly what licenses and approvals you need, why they matter, and how to get them without feeling lost in a maze of jargon.

First, Know If You’re Even a “Factory”

The Factories Act, 1948 (a key labour law in India) defines a very specific term. If your manufacturing setup:

• Has 10 or more workers and uses power, or
• Has 20 or more workers without using power

Congratulations (or condolences), you’re officially a factory in the eyes of the law.

This is important because even if you call yourself a “workshop” or “unit,” if you meet these thresholds, you must follow the Factories Act. If you’re smaller than that, you might only need to register under your state’s Shops & Establishments Act instead.

The factory licence is the primary licence that you require.

Your official authorisation to function as a factory in India is the Factory License. You run the danger of penalties, closures, and even legal issues without it. This license, which was granted by your state’s labour department, attests to the fact that your factory satisfies the necessary worker welfare, health, and safety requirements. Typically, to obtain it, you must:

• Complete Form 1 with your company’s information.
• Send in important documents (see below for more details).
• Obtain the Director of Factories’ approval for your industrial layout plan.
• The application cost must be paid.
• Pass the inspection.

Only then will your license be granted, and it must be renewed annually (or as per your state’s rules).

Pre-Licensing Step: The Factory Plan Approval

A Factory Plan Approval is required before you can even apply for your licence. The Directorate of Factories reviews your layout drawings here, which include machine location, ventilation, exits, raw material zones, etc.

Why is this important? Consider a chemical leak or a fire. In addition to breaching the law, you are also endangering life if your factory architecture prevents safe evacuation or appropriate waste disposal. That is avoided in part by the plan approval stage.

Documents You’ll Need (Don’t Wait Till the Last Minute)

Every state has its checklist, but most will ask for:

• Business identity: Incorporation certificate, partnership deed, or other registration docs.
• Documentation of the property, like the lease, rent agreement, or property paperwork.
• Layout plan: The Directorate of Factories must give its approval.
• Process information: number of employees, type of machinery, and manufacturing flowchart.
• Adherence to health and safety regulations, as well as any appropriate NOCs from the Pollution Control Board.
• Tax registrations: bank account information, PAN, and GST.

Expert advice: Have soft copies on hand. Online applications are now accepted in most states.

The Application Process: Easier Than It Used to Be

Traditionally, getting a factory license meant running from one office to another with stacks of paper. Thankfully, most states have moved this online:

1. Register on your state labour department’s portal.
2. Fill out the e-form (similar to Form 1).
3. Upload documents and pay fees online.
4. Wait for the inspection, they’ll check safety, hygiene, and worker facilities.
5. Get your license if you’re compliant.

States like Delhi have even simplified the process further: if your unit is in an approved industrial area and you have an MSME Udyam registration, that’s accepted in place of the full factory license in some cases.

Costs and Timelines

Although timelines differ, you can anticipate:

• Approval of the plan: 30–60 days.
• After inspection, the licence is issued 15–30 days later.

The number of employees and the type of manufacturing (hazardous versus non-hazardous) are two examples of the variables that affect fees. Small non-hazardous units often pay a few thousand rupees annually, while larger hazardous ones pay more.

Renewal and Compliance

A license is not “get it once and forget it.”

• Renew annually or as per your state’s cycle.
• Keep records of worker attendance, accidents, and inspections.
• Adherence to safety regulations is a must. Since careless mishaps may result in costly legal action under the Factories Act.

It is dangerous to operate without a legal license, since you might face significant fines or even jail time.

Additional Licenses and Approvals You Require

There are more permits in the game besides the industrial licence. Depending on what you produce, you might additionally require:

• NOC (Pollution Control Board) (for units that release fumes, garbage, etc.)

• Certificate of boiler inspection (if boilers are being used)

• Registration of weights and measures (for packaged items)

• NOC for the fire department

• FSSAI licence (for food processing);

• Local trade licence

You should anticipate more stringent environmental and safety regulations if you work in a hazardous business (such as chemicals, paints, etc.).

Why This Matters for Start-ups

Many founders see compliance as red tape. But a factory license is a strategic asset:

• It lets you access MSME benefits, subsidies, and lower electricity tariffs.
• It improves investor confidence (especially if you’re raising funds).
• It ensures clients and partners know that your business is secure and compliant, and it shields you from unexpected shutdowns during audits.

In short, trust-building is more important than merely abiding by the law.

A Comprehensive Guide to Your First Factory:

To take a step in the right direction. Let’s understand how to proceed:

1. Verify that your configuration satisfies the requirements of the Factories Act.

2. Create and obtain approval for your layout plan.

3. Compile all necessary paperwork and compliance NOCs.

4. Use your state’s labour site to submit an online application.

5. Make the payment and get ready for the check-up.

6. Obtain your licence and begin working.

7. Maintain compliance records and renewals.

Frequently Asked Founder Questions (FAQs)

Q1: What happens if my plant is too small to meet the requirements?

Instead, you’ll probably be subject to the Shops & Establishments Act. Registration is still necessary, but it’s easier.

Q2: Can I work while I’m waiting on my licence application?

No. You need the license before starting production. Operating without one is a punishable offense.

Q3: Is the process the same in every state?

The basic law is central, but forms, fees, and timelines vary by state. Always check your local labour department’s site.

Q4: How much does a factory license cost?

Fees are based on size, worker count, and whether you handle hazardous materials. Smaller factories may pay ₹2,000–₹10,000 annually; hazardous units may pay more.

Q5: Can I outsource this process?

Yes, many start-ups hire legal consultants to handle the paperwork so they can focus on setup.

Final Word: Build the Foundation Right

Launching a factory is thrilling & the machines, the first production run, the sense of scale. But the real foundation is the paperwork that lets you operate both legally and safely.

Getting your factory license early means you can focus on growth instead of worrying about compliance raids or shutdowns. And always remember, the process is getting easier every year, with online portals, simplified forms, and even exemptions for small industrial units.

If your startup is ready to build, start by building your compliance base. A factory is only as strong as the legal framework it stands on.

Author Details-Author Details- Apoorva Lamba (3rd Year Student Madhav Mahavidyalya,Jiwaji University, Gwalior)