Statutory Essentials to Start a Business

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Statutory Essentials to Start a Business

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 we 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 roprietorship
  • 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 fonders' 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 accunting software sloutions that can be unseful 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 transperancy and assure fair treatment to all employees. It should align with the business's vision and values. It should both eloborate on how your business fuctions and also how employees shall contribute towards achieving your goals. It shall address hiring practics, on-boarding, agreements to be signed, compensation & perks, employee conduct, perforrmance 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) Enure on 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 agreemets. 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 

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