Startup Saturday: No ctrl+alt+del option on these core rules

Janhavi Prayag, a chartered accountant and Bansari Joshi, a lawyer and company secretary, share rules and regulations that need to be followed before, and after, launching a startup. These are the facts that need to be focussed on for any entrepreneur to even exist, let alone be a success

pune Updated: Jul 07, 2018 16:53 IST
Namita Shibad
Namita Shibad
Hindustan Times, Pune
Pune,startup saturday,ctlr
Janhavi Prayag, a financial consultant, with her team members on Friday.(Pratham Gokhale/HT Photo)

It’s all very well for passion to run strong in an entrepreneur, but there are some ground rules that one has to comply with as a startup.

Janhavi Prayag, a chartered accountant and Bansari Joshi, a lawyer and company secretary, will be conducting a workshop at NCL venture centre on July 14 and 15 and they will sharing the rules that govern startups and the options available.

The workshop is being organised by Headstart, a not-for-profit organization. It is also an oldest and largest startup ecosystem development organizations.

Financial aspects of starting a business

Janhavi Prayag, a chartered accountant, says , “Before you start raising funds it is imperative that you are a financial entity. An entrepreneur has four options before him. He can choose to be sole proprietor firm, a partnership firm, a limited liability partnership (LLP)firm or a private limited company. As a sole proprietor firm you are completely responsible for any loss your business may incur. This means that even your personal assets are at stake. In a partnership firm too all partners are severally and jointly liable to the firm. So if you have incurred a few losses you are 100% responsible for it, irrespective of your shareholding pattern.

“A LLP firm is a partnership firm but the liability of the partners is restricted to the shareholding pattern or capital held by them. In case of a private limited company, your liability is restricted to your shareholding. However there are differences between a private limited company and a LLP in terms of filing with the registrar of companies, conducting board meetings, audit etc. If the startup is looking to raise capital through private equity, then incorporating the business as private limited company is advisable.”

Prayag says that the start up can pick any of the four mentioned entities. “But this will depend on many factors. If you are looking for funding from the Government’s fund of funds then you have to be registered under the department of industrial policy and promotion (DIPP)”, she says.

Once recognised as a startup under DIPP, the entity enjoys the benefits for a period of 7 years from the date of registration except for startups in biotechnology sector which enjoys benefits for 10 years.

Most start ups are keen to register under DIPP because it offers many benefits. The government has set up a fund of funds of ₹10,000 crore that a recognised Startup can avail.

Startups will allowed to self certify through the Startup mobile app for 6 labour laws and 3 environmental laws. This simplifies various legal compliances resulting in the ease of doing business. The startup intellectual property protection (SIPP) scheme under the startup India plan shall facilitate filing of patents, trademarks and designs by innovative startups. The government will provide 80% rebate towards cost of filing the patents.

A DIPP registered startup can avail Income Tax benefits only if it gets an eligibility certificate from inter ministerial board (IMB). There are many benefits provided under Income Tax Act for such startups. An eligible startup can avail 100% income tax deduction for its business for any 3 consecutive years out of the first 7 years. The eligible startup also enjoys exemption from angel tax provisions.

Like any other business, if the turnover of a Startup is over ₹1 crore, the entity is liable for an audit under Income Tax Act. Similarly, if the turnover is more than ₹ 2 Crores, the entity is liable for an audit under GST.

Legal aspects of starting a business

Bansari Joshi, lawyer and Company Secretary, gives the details of the laws which recognise the following forms of entities

1. Sole proprietorship: Generally chosen by retailers, small businesses and home run business. Only a single founder can opt for this.

2. Partnership firm: This is widely used and is most preferred by mid-level businesses. It is formed by a partnership deed between partners. A minimum of two partners are required. Ther can be a maximum of 10 for banking businesses and 20 for other businesses.

3. Limited liability partnership: Should be ideally preferred by those founders who do not require separation of ownership from that of management. Usually start-ups in real estate, education, consultancy sector and professionals prefer LLP. A minimum of two partners are required for LLP. Foreigners are allowed to invest in LLP, subject to guidelines in that regard.

4. Limited company: It provides distinction between ownership and management and so is preferred by founders who require continuous inflow of investments from market and support of professional persons (by their appointment as a director on board) time and again. It is the most trusted form of entity.

a. Private limited: A `minimum of 2 directors and 2 members are required for incorporating a private limited company.

b. Public limited: A minimum of 3 directors and 7 members are required for incorporating a public limited company

c. One Person Company: A single individual can be a director-member. Bansari Joshi says, “After you decide upon the legal entity for your firm, there are certain compliances to bring it to life.” She adds that all firms are required to do the following:

1. PAN card: Except in case of sole proprietorship, all the other entities are required to apply for a separate PAN card. A legal entity is required to maintain accounting and pay taxes in its own name.

2. Registration under the Maharashtra Shops and Establishments Act, 2017: The Act mandates that all businesses, shops and commercial establishments that are in Maharashtra apply for a licence within 60 days from the date of commencement of business.

3. Registration and/or Enrollment under the Maharashtra state tax on professions, trade, callings and employments Act, 1975.

4. Industry specific registrations Depending on the type of the business, one has to register under FSSAI, or get an Import or Export Code or obtain licence under the Drugs and Cosmetics Act, 1940.

5. Opening of a current bank account All the incorporated entities are expected to carry out their transactions through current bank account.

6. Agreements Once the company is formed, there are a lot of agreements that need to be maintained.

First Published: Jul 07, 2018 16:52 IST