Key elements to be considered before starting a business with regard to statutory requirements.
Starting a business involves understanding and handling many complexities — statutory compliances, financing, marketing, protecting intellectual property, human resources and many more. Upcoming entrepreneurs would have come up with many tips and suggestions to overcome the same through various sources like blogs, webminars, networking portals, etc.
Here I have made an attempt to collate the key elements to be considered before starting a business with regard to statutory requirements.
1) Decide on the right incorporation format
Business formation can be done in various formats. The following are the available formats in India:
- Sole proprietorship
- Partnership
- Private limited
- Limited liability partnership
- One person company
- Sec 8 company
You should decide on the format based on your long term objectives.
2) Make the deal clear with co-founders
If it is a business with co-founders, you should agree on the details of the business relationship. Having a founders’ agreement is preliminary requirement or it may lead to legal issues. Key elements to be considered in a founders’ agreement:
- equity split among the founders
- roles & responsibilities of the founders
- buy back rights & terms of founder’s shares
- founder’s salaries & perks
- removal of a founder
3) Set-up good accounting and book-keeping system
Keeping track of your finances, like, revenues, expenses, capital, etc is important to know the business’s cash flow. It is also needed for tax filings. There are number of powerful system based or online accounting software solutions that can be useful in this regard. You can also take the assistance of external consultants or freelancers for the same.
4) Have a comprehensive human resources policy
The Human Resources policies and procedures are to be designed to provide suitable HR tools & processes, enable transparency and assure fair treatment to all employees. It should align with the business’s vision and values. It should both elaborate on how your business functions and also how employees shall contribute towards achieving your goals. It shall address hiring practices, on-boarding, agreements to be signed, compensation & perks, employee conduct, performance evaluation, organisation structure, roles & responsibilities, etc. Each business is unique and it is imperative to create policies to suit that nature.
5) Maintain appropriate books and records
You have to maintain multiple books and records. Some of them are:
- Financial statements
- Board & stockholder meeting records
- Members’ register
- Tax records
- Employee records
- Other statutory records
6) Take steps to protect your intellectual property
Many start-ups in their enthusiasm to build a market or other tasks miss to protect their intellectual property (IP). Further, IP protection is considered cumbersome and costly affair. But forfeiting your IPR over your inventions or ideas is more dearer. Forms of intellectual property are:
- Patents: Protection for new inventions.
- Copyrights: Covers the original work — books, music, art, software, etc
- Trademarks: Protects the symbolic value of word, name, symbol, etc
7) Ensure registrations and licenses required for your business
Your business may need various registrations, licenses and permits depending on its nature. Take the assistance of relevant experts to determine the requirements and obtaining the same. Some of them are:
- GST registration
- PAN
- PF/ESI
- FSSAI
- Import & Export Code
- Pollution Control
8) Pay attention to your business contracts
Business contracts are important part of your business as they are legally binding written agreements. Hence, the terms/clauses are needed to be negotiated carefully. A signed contract shall:
- describe all obligations of signing parties
- limit any liabilities
- set parameters, such as timeframe
- establish the risks & responsibilities of the parties
Suggested key contracts for a new start-up in its own standard format:
- Sales / service agreement
- Employee offer letter
- Consulting agreement
- Non-disclosure agreement
9) Hire experienced start-up legal professionals
You will need the services of experienced legal professionals — Chartered Accountants, Company Secretaries, Lawyers, etc. An experienced legal expert can assist you in:
- Incorporate
- Draft contracts / agreements
- Help in HR related affairs
- Help negotiate in investment deal
- Protect your intellectual property