By Kanisshka Tyagi, Partner Kaden Boriss

Starting your own business and taking it to unprecedented heights is not a cakewalk. While business start-up is exciting and fulfilling, it is quite difficult and challenging at the same time. It is important to figure out the difficulties and challenges arising in the course of time to prepare for the unexpected.

The entrepreneur besides giving life to a great idea is faced with many practical issues like location of office, size of the executing team, hiring employees, quality control, brand building, attracting clients and building a network of suppliers and service providers. Though, initially all this requires equal attention, adequate time may not be devoted to far more important issues like, decision regarding the business form, registration of the business, registering the brand, protection of the idea, raising funds, negotiating with suppliers and service providers, creating tax optimum structure and compliance with basic legal formalities.

A common problem with most of the young entrepreneur is the belief that one can easily handle all the start-up operations themselves. Although, it is a cost-effective way to run the business, it may lead to huge losses in future. Therefore, it is a good idea to consult legal professionals in the nascent stage to avoid common business mistakes. Small businesses are regularly confronted with a bewildering array of legal questions and problems and ignoring them can have serious repercussions. However, hiring and working with a lawyer may not be one of your priorities when starting your dream project but you surely don’t want it to end up as a nightmare. It is advisable to leave the legal issues to the pros and concentrate on your start-up. With the right legal expertise on your side, you will surely feel confident as you get down to business.

NAVIGATING LEGAL WATERS

Everything from structuring and registering your business to drawing up contracts is crucial for small business owners and entrepreneurs. However, internet might be able to solve few problems; it is advisable to have proper legal assistance for handling complex legal issues.

Complex legal issues facing entrepreneurs in the course of the business cycle include:

• Getting the initial structure right;
• Incorporating and forming the business entity;
• Drawing up arrangements with the investors;
• Raising capital;
• Hiring employees;
• Clarifying through a well drafted agreements  the rights and duties of the founding members  in the event of disagreement;
• Tax compliances;
• Negotiating contracts with customers and suppliers;
• Protecting intellectual property;
• Getting licenses and permits;
• Liquidations and exit- routes;
• Adherence to laws of the land and the particular industry.

LET’S GET STARTED!

At the onset, a decision must be made about the legal structure of the business. That is, whether it will take the form of a sole proprietorship, a partnership, a limited liability partnership or a company. A number of factors have to be kept in mind while selecting a particular form of business organisation and the right legal advice will enable the correct choice thereby ensuring minimum regulatory requirements and ease in formation.

The suitability of different forms of organisations can be analysed keeping in mind factors like size, liability, operations, etc. Ideally, sole proprietorship is suitable when the business is small, requirements for finance are limited, business requires secrecy of trade practices, the managerial needs are limited and the area of operations is limited while a company is the preferred form when the scale of operations is large, the liability of members is to be limited, the requirements of finance are more, separation of ownership and management is essential and risk involved is more. Moreover, the legal procedures and compliances that go into incorporating these diverse forms of business too are diverse. For instance, the legal procedures that go into incorporating a restaurant can be very different from the considerations for incorporating a software company or an accountancy firm. And it is here that the appropriate legal advice becomes inevitable.

After the decision regarding the particular form the business will take is made, the incorporation procedure begins which requires compliance with the corresponding legislations. For example, incorporation of a company has to be in compliance with the Companies Act, 1956, while incorporation of a partnership has to adhere to the Partnership Act, 1932. And the last thing you need is getting norvasc entangled in the nitty-gritty of legal procedures involved in incorporation where innumerable documents have to be drafted, affidavits need to be filed and forms need to be submitted. An efficient lawyer in such times will ensure that you sail smoothly over these obstacles and come closer to getting your dream business started as these procedures not only need expertise but are also complex and involve numerous steps. For example, incorporation of a company entails many stages like obtaining director identification number and digital signature certificate; approval of company name; adherence to minimum paid up capital requirements in company law, drafting and filing of memorandum of association and articles of association, obtaining business licences, and filing of numerous forms with the registrar of companies and other authorities.

BUSINESS FINANCING

Having a billion dollar idea for a start-up is great but funding is crucial. Most businesses and entrepreneurs require the minimum business capital and basic funding of their day-to day operations in the early days. Sources of funding may include bootstrapping, assistance from family and friends, loans from banks and financial institutions, micro loan organisations that lend to start-ups, angel investors and in cases of serious funding, venture capitalist. All such funding requirements entail drafting appropriate documents and negotiating terms in addition to compliance with the regulatory regime of regulatory bodies like Securities Exchange Board of India (SEBI), Reserve Bank of India (RBI), and Foreign Investment Promotion Board (FIPB), while keeping in mind the sectoral limits on funding in certain sectors.

Though finding the right funding can be the hardest part of getting your business off the ground, but this just does not end your problems yet. This is just the tip of the ice-berg and an efficient lawyer is required to negotiate on your behalf and iron out the financing issues with the investors. Appropriate legal help on your side can ensure that your concerns are well addressed and your rights are well protected.

TAXATION & LABOUR LAW COMPLIANCE

A new start up needs to be aware of the various tax compliances also. Every business entity comes within the ambit of taxes like income tax, value added tax, sales tax, service tax, professional tax, etc. In such circumstances a tax attorney becomes essential to give advice on the various taxes the business is liable to pay; the rebates and deductions business is entitled to avail; and applicability of sectorial or location remissions. The tax attorney will also provide the requisite assistance in securing a permanent account number (PAN), which is mandatory for filling income tax (IT) returns, opening bank accounts, etc; a tax deduction and collection account number (TAN) for depositing tax deducted at source (TDS) or  tax collected at source (TCS) for which appropriate applications need to be filed with the relevant authority.

Equally complex and technical are labour law regulations within whose ambit your organisation will lie as soon as you hire manpower. Under the Shops & Establishments Act registration of shop/ establishment is mandatory within 30 days of the commencement of the work. Also, provident fund registration is compulsory if the size of your workforce is 20 or more. The employer is required to provide necessary information to the concerned regional Provident Fund Organisation (EPFO) in the prescribed form for the allotment of the establishment code number. Moreover, registrations and provisions for the employees state insurance scheme needs to be made under the Employees State Insurance Act, 1948. Further, compliances of the Factories Act, 1948, Mines Act, 1952, etc. may be required depending upon the business undertaken.

Therefore, assistance from a well qualified lawyer is not only crucial but inevitable. You can run a one man show in the short run but are bound to get trapped in the legal intricacies in the long term.  With a lawyer besides you, your start-up experience will definitely be rewarding. A lawyer will make sure that you know what you are dealing with and what is it that you can expect. It is surely a long road to success, but finding allies along the way to help keep your business afloat can make all the difference.