Is your startup compliant?
Whether you are a giant corporation or a startup, to be successful, it is important to analyse if you are compliant and are following certain laid-down protocols. It’s imperative to keep a close eye on the laws in the city or state you operate in, failing which you are likely to overlook compliance responsibilities and face damaging penalties and lawsuits that could severely impede the progress of your business entity.
Many organizations show a great deal of promise. However, because they bypassed important compliance procedures they have had founders step down, executives replaced, and employees lost. A business entity that is compliant is automatically trustworthy to its clients and investors.
All businesses, particularly startups, should follow certain compliance protocols. This article will give you a lowdown on all compliances.
1) Choosing the right business entity
The first major challenge faced by any entrepreneur is choosing the right business vehicle for their venture. This choice will in the near and long term affect the startup’s viability, visibility, sustainability, suitability, and profitability. Your long-term goals, vision, and objectives will decide whether the startup will be established as a private limited company, public limited company, partnership firm, or a limited liability partnership.
Each of these categories has a different set of compliance procedures and laws. To avoid any backfiring in the form of legal hassles or otherwise, it is better to be aware of all these formalities right at the inception stage.
2) Statutory Compliances
The credibility of any business highly depends on its compliance with all the applicable laws. For a Company and LLP, the mandatory compliances with the Registrar of Companies (RoC) are the most essential of all. Some of the important provisions include appointment of Auditor, conducting board and shareholder’s meetings, filing statutory annual returns, and maintenance of statutory registers. These criteria should be met and will be verified by the investors.
3) Audit Compliances
The purpose of a statutory audit is to determine whether an organization is providing a fair and accurate representation of its financial position by examining information such as bank balances, bookkeeping records and financial transactions. Compliances related to audit include appointment of the Statutory Auditors of the Company and finalizing annual accounts with the Auditors of the Company.
4) Payroll compliances
When you start an organization, it is obvious that you will have employees working for you. There will be employees, independent consultants and contractors as well. Such professional relationships are governed by various labour legislations. For instance, A business with an employee strength of over 20 needs to comply with ESI and PF regulations.
A business has to pay taxes to the Central/State government or local bodies. Thus, every new entrepreneur should have the know-how of the aspects of taxation. Tax laws vary with sector and any recent changes should be within an entrepreneur’s radar.
Tax compliance measures vary with the kind of business and the nature of services. A company selling goods would need to comply with the state VAT laws. Similarly, businesses working as service providers need to obtain service tax registration, make service tax payments, and file service tax returns on time. The business should also comply with relevant income tax rules and regulations.
The Comparison chart will give you a clear distinction between the compliance requirements of all the three forms of business.
|Factors of Comparison||Private Limited Company||One Person Company||Limited Liability Partnership||Partnership/ Proprietorship|
|Statutory Compliances||Mandatory||Mandatory||Compulsory||Not Applicable|
|Maintenance of Books of Accounts||Mandatory||Mandatory||Mandatory||Required for Income Tax|
|Annual General Meetings (AGM)||Mandatory||Not Applicable||Not Applicable||Not Applicable|
|Annual Tax Filings||Mandatory||Mandatory||Mandatory||Mandatory|
|Statutory Audit||Mandatory||Mandatory||If turnover > 40 lakhs or contribution > 25 lakhs||Not Applicable|
|Tax Audit||If turnover > 1 Crore||If turnover > 1 Crore||If turnover > 1 Crore||If turnover > 1 Crore|
|Taxation||Profits Taxed at 30%||Profits Taxed at 30%||Profits Taxed at 30%||Partnership – 30%|
Proprietorship – Individual Slab Rates
VenturEasy strongly believes that Compliance should be viewed as more than just a process. It should become a part of your startup culture!
This article was first published in YourStory