BASICS TO KNOW BEFORE SETTING A STARTUP
By Kirti Singh
Startup India movement reflects new India, driven by the energy, enthusiasm and enterprise of our India said our Leaders. But it is equally true that most of our youth lacks the basic understanding about setting up their own startups. So I won’t take much of your time and directly jump to what you guys turned up for here by looking at heading of the article.
RIGHT LEGAL STRUCTURE FOR THE COMPANY
After you have a business idea and you have done your market research, you need to establish your startup. For that you need to choose a right legal structure for your company and know about the registration process for the same. To know the right legal structure for your company beforehand is beneficial because it affects the business in the long run. Also the most aspects the paper work and finances depend on it. So it is wise to take help of a Chartered Accountant or a Company Secretary in the process of registration. Now lets you take through different company legal structures –
Sole Proprietorship- Here the ownership is single; one has the full-decision making power, least compliance requirements but also unlimited personal liability, lacks credibility among investors and no provision to add partners. No formal registration is required just decide the entity name and open a bank account.
Private Limited Company- Here you can have multiple shareholders but maximum 200 because of which there is limited liability. It is good for scalable businesses and raising funds. Here you require separate legal existence, high compliance and have few tax advantages. To register to a Private Limited Company, obtain Direct Identification Number (DIN) and Digital Signature Certificate (DSC). File the name with Registrar of Companies (RoC), Draft Memorandum of Association (MoA) and Articles of Association (AoA) and finally submit all documents to RoC.
General Partnership- The business is set up in partnership with maximum 20 partners. The cost of entity formation is low for an individual and profit shared among partners as per the set deal or the contributions made by them in the business. Create and sign partnership deed which contains name of firm, capital contribution ratio, profit sharing ratio, duties and powers of partners, nature of business, place of business. It is optional but to avail tax benefits and dispute resolution get your partnership deed registered with regulatory authority which is Registrar of Firms.
Limited Liability Partnership (LLP) – This is a mix of General Partnership and Private Limited Company. Here the liability benefit is limited, moderate compliance required and has superior tax advantage. The process of registration is similar to Private Limited Company, obtain DIN, DSC from certifying authorities in India like MTNL, TCS etc. which can be easily accessed on Ministry of Corporate affairs website (www.mac.gov.in), file name with RoC, submit incorporation form to RoC, Draft an LLP agreement and file the deed with RoC.
MAKING A BUSINESS PLAN
Drafting a business plan helps to have an overview of your business and analyzing the where it stands now, and how it can be stood where you actually want to see it. So for this you need to analyze and chart down following things such as Goal and Vision, description of your company and the competition in the market, and then figuring out operational plans, financial plans, a good management team, etc.
One should start thinking about the funding process approximately 6 months before one requires funding. To reach out to the investors it is better for new startups in the market to get introduced through a portfolio company or through someone trusted by the investor and also one can reach out through press releases. One of the key skills for any entrepreneur to learn is the ability to give the right pitch to investors. An entrepreneur should be able to give away efficiently all about the company, right from idea validation to product development to team formation and execution capabilities to impress investors. Use of Social Media like LinkedIn helps out to the reach of your company.
It is always good to have an understanding of various financial terms and statements to ace the game of entrepreneurship because little legal mistakes can cost your dream project. For that you take help of again a chartered account or look out for tutorials from business schools.