Starting a new business has never been an easy task; one has to deal with many things. Nuts and bolts of the operational and managerial tasks are one thing, whereas the legalities often swamp new businesses. Choosing an essential structure for your business could become a daunting task, whether to go for an LLP, Private company, or a sole proprietorship.
Here is why start-up should take into consideration the below listed legal intricacies.
While choosing the right business structure
By the looks of it, it might seem easy to use, but it takes a lot of mental space to contemplate which one is the right business structure for your business as one has to go through multiple options in front of themselves before choosing the right one. This could become one type of bittersweet moment for entrepreneurs. You have to look into many aspects such as your business’s nature, compliance necessity for each structure, formation cost and taxing system. Lately, registration for Private limited companies as a business structure has been burgeoning because it provides a greater opportunity to raise finance initially.
Getting the right license for your business
One has to walk on a tightrope with caution while getting the license right for their business and meeting its requirements. If you do not do that, then it could lead your business into legal entanglement. With cumulative effect, it might attract fewer funds from the market for your business and it comes losing faith from investors, jeopardizing the future of business. That is why it becomes mandatory to go for it without any fuss. All it requires while filling an application for it is a verified business incorporation certificate.
Complying to taxation and auditing compliance
One of the most prominent legal compliance for any business annually is accounting and taxation. If a company is operating in India, it should be aware of the taxation system. For instance, abiding to the compliance laid down by the rules GST and its classification and tax slabs wherein e filing of GST Returns becomes important. Another thing you should carefully look into initially is, maintaining your accounting books from time to time. Any technical glitches while keeping accounting books may lead to chaos and misrepresentation. To meet annual auditing requirements, one should hire a 3rd party auditor in tandem with an internal auditor. Declaration of tax liability has to be made regularly to avoid any predicament.
Funding sources, along with its management
To meet day to day demands and requirements, every business requires some amount of capital and funds. That requires any business to inject the money into the business from multiple ways. Now, let us look at some of the sources from where a business can bring capital.
– Acquiring shared capital on board
To acquire share capital for the long-term requires consent from other members. During its initiation, any business has to pay requisite fees towards stamp duty that mentions the amount of share capital it could enlarge. The same has to be stated in the MOA of the company.
– Infusing more capital
When registered as a private limited company, it enables the start-up to infuse more capital other than from shared capital. This could be done via the ESOP program, where you offer shares to your employees. Along with this, one can take a private placement and equity stakes route to do so. Nowadays, the predominant route to infuse capital for a public limited company is through IPO.
– Acquiring via VCs
For timely return, venture capitalists and term loan providers invest in the start-ups, usually for the long-term commitment. One way to attract them is by stating the financial planning of the start-up beforehand with precision. Initially, earning trust from VCs and investors should be the priority.
Assurance to The Agreements
Operational necessity would mandate start-ups to take part in agreements. There is a surge in the undertaking of shareholders’ agreement and co-founders’ agreement, especially for the businesses having MSME online registration. The Government of India provides many benefits under the MSME scheme that can help save a lot based on that the agreements can be made. In the longer run, it helps in drawing the line in roles and responsibility of engaged co-founders.
A-team has also been covered in the contract of the new start-ups. Employees’ contract would consist of stock options, salary, and scope of his/her work. Mentioning such things would enhance efficiency and diminution of risks involved while working. One should also make sure about vendors’ contract agreement, although it is not mandatory.
For smooth functioning and efficient working, one should essentialize compliances. The focus should be given on provisions that have been mentioned in the governing aspect as business actions, dealings, and procedures. The significance of legal necessity and procedures cannot be disregarded that safeguards the business. You should adhere to the compliances that are the sine qua non to running a smooth business.