Have an awesome startup idea in place? Your friends, family and their family and friends love it too? And, now you're thinking you're a billionaire. Give that thought a rest if you're currently in India because starting a business in the country isn’t that easy. While having an idea may seem the biggest hurdle everywhere else. Here in India, once you have conceived an idea there are bigger troubles waiting ahead for you.
While starting up one doesn't really plan about what will happen in future if their company becomes a success. At that point of time, we're just focused in making things work and making them work smoothly. But, if you're a person starting up a company in India, you should take our advice and always plan ahead.
While at the peak of your business you might just want to enjoy your success, but the scenario in India can be quite different. Once successful, there are a lot of legalities that one has to deal and in certain cases this has resulted in complete washout of businesses.
[Related - How to Register a Company/Startup in India]
India's inefficient legal system makes it an extremely difficult country to start a business in. It is interesting to note that it is easier to do business in Nepal, Pakistan and Bangladesh than it is to do in India.
India's Weakness As A Market For Startups
- Poor Business Legislation
- Poor Basic Infrastructure
- Inadequate Health & Enviornment Safety.
- Bribery & Curruption
- Exchange Rate Volatility
- Low Broadband Rate.
- Ambiguous Laws & Regulations
Though PM Narendra Modi seems to be doing all things right to endorse his make in India but what effect will have it on a larger scale is "yet to be seen".
Some of the complexities that one has to deal with while starting up and in order to make your task a little easier, Below is a list of essential things which you must keep in mind when starting a new company.
Founder's agreement
While everything might feel hunky dory today, that might not be the situation forever. Always think of the future while doing something or entering into a partnership. Assess all the possible scenarios in your head and chalk out a proper plan for them.
Make it a point to get a written agreement signed amongst the founders’ right at the beginning. Don't sign incorporation until your startup starts earning some real revenue. Having a founders agreement in place helps in saving time and money and even decreases the chances of mudslinging afterwards.
If you have to do incorporate, make sure you get a no frills service rather than a CA or a lawyer. Startups are a different breed of business altogether and hence their documentation also needs to be different than others.
Always consider the tax liability of your newly opened business. LLP has proved to be much cheaper when considering tax bills and is good for lifestyle business, family business etc. especially when your business has no immediate plans of raising any funds.
Business Licenses
Doing business in India means getting ready to run pillar to post for several business licenses. Research well about all the licenses that might be applicable to your business.
Not having proper licenses might not be deterrent initially but it can prove to be a setback in future when you're looking towards getting funds as investors are often very specific about licenses.
Moreover, not having licenses can get your startup entangled into unnecessary legalities and costly legal suits. In some cases it can also result in a complete shutdown of the business.
Vendors Contract-
Being a startup, you should always keep your eyes and ears open. Just don't go on a signing spree and sign whatever comes your way so that business gets started sooner.
Vendor contacts signed in the beginning stage are very crucial. Make sure you read each and every point, each and every clause with utmost concentration. Read up some contact law and make sure that you haven't missed out on some important clause.
Enforcement of Contracts -
Having a contract in place and enforcing it meticulously are two very different things.
According to the world Bank, India ranked at 184 is one of the five worst countries in the entire world in terms of enforcing a contract.
While big businesses have a proper army of people in place to make sure that their each and every point in the contract is enforced to the T, businesses just starting up can't afford to dish out that much money.
Make sure that you yourself have strong negotiation skills or higher someone with these skills sets. Having good negotiation skills at place can give you the desired advantage over your contemporaries.
Accounts & Taxation -
The saying "Ignorance is bliss" doesn't works here. This is where a lot of startups fail and wash out completely. A lot of founders have also faced prison time because of this. Being the founder of the company, you must have some very basic understanding of your company's accounts and taxation. Make it a point to never leave it entirely to a CA as the money involved here is huge and the consequences of anything going wrong can prove to be devastating.
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