So, you have that glitzy idea that can potentially make millions. You’ve got your team together, your investors are all set but unless you register it formally, your start-up will have no existence in the eyes of law. Typically most start-up founders struggle with getting their legal processes together. While you may still have to consult a professional for deciding the best course of action suited to your specific needs, here are some general guidelines on getting your start-up registered:
1. KYC- Know Your Crunch
Remember the first time you hit the gym and your trainer gave you a basic set of crunches suited to your body-type that made you ache for weeks? Knowing your basic business structure is pretty much like that. You first need to figure out what suits your specific business and the shape you want it to take in future.
A sole-proprietorship type of business is fairly easy to constitute in terms of time and the legal processes it involves. You may also want to consider a One Person Company for the added tax advantage and its simplicity. However, if you plan on scaling it to a larger level or your business type is such that you have multiple founders/partners, you should ideally aim at getting it registered as a LLP which is a limited liability partnership. It is very much like a regular partnership sharing profits with the added advantage that your liability is reduced to a large extent, just like a company. You can also convert it into a private limited company later.
Just like initial muscle ache, it may be troublesome (and expensive!) for you to engage a lawyer or a chartered accountant, but once you have your basics set right, it will be easier for you, your investors and other stakeholders to steer your organization.
2. Read up as much as you can – Tax exemptions, eligibility and the likes of it
Unless you’re rich enough to afford an in-house consultant, any professional you engage will at the end of the day be an outsider to your business, so it pays in the long run to be legally and financially aware – asking the right questions will equip your advisor with the insights that will help everyone take better decisions.
For example, a chartered accountant doing regular filings for individuals and businesses alike may not be aware of specific exemptions. There are exemptions based on location such as tax holidays for setting up a manufacturing unit in certain specific-states, specific asset-acquisition deductions which means allowing a greater deduction from your taxable income for importing or purchasing bio-technology machinery etc, added advantages and facilities of operating in a Special Economic Zone or functioning as an export-unit. Awareness of such schemes while setting up and running a unit can help you save a lot of money – through reduced income tax liability, subsidized input costs and access to better resources.
3. Getting your licenses in order
An existing or potential investor will appreciate it, if you’ve done your groundwork, ensuring you have the necessary licenses in place. If you’re going to be starting a food-cum-bar, there is no way you can function without a liquor license and an alcohol server certificate from the state, a FSSAI food license and a health and trade license.
Certain licenses are also mandatory for all establishments such as a Shops & Establishments license, GST registration, fire safety permit, building permit etc. Ensuring a longer lease term of premises, favourable contracts with manufacturers and other stakeholders, bank guarantees can also help you negotiate a better value for your start-up.
4. Ownership over Intellectual Property
Since start-ups under Indian law are defined as ‘entities working towards innovation, development or improvement of products or processes or services’, it has become extremely desirable to hold intellectual property (IP). These could be patents over your innovative product or an improved process of making something already out there in the market, or a trademark that gives you an exclusive right over selling under a specific name. IP valuation often becomes the cornerstone of the valuation as investors speculate on the worth of your specific IP and its potential growth in the market.
5. Before You say ‘I do’
It is said that choosing your start-up founder is like looking for someone to marry. Your alliance is not likely to end anytime soon and you may regret choosing an incompatible mate. So while it is absolutely necessary to get a lawyer who may help you draft contracts that reek of strict confidentiality clauses and huge penalties for its breach, it is extremely important to choose the right people to work with. Having said that, keep your investors and shareholders, if any, apprised of all your plans to ensure there’s mutual trust and agreement and avoid a potential showdown.