Every year, vast sums of money are invested in technologies, apps, and other similar endeavors. Investments enable you to put your ideas into action, but today’s entrepreneurs are prone to make mistakes that might jeopardize their whole investment. As a result, we’ve compiled a list of the most common registration blunders that might jeopardize a startup’s success.
The top three registration errors that KILL businesses include adopting the incorrect entity structure, failing to safeguard intellectual property, and failing to register with the appropriate regulatory agencies. Hundreds of billions of dollars are invested each year in new concepts, apps, and portals. While financing gives company concept wings, entrepreneurs must exercise extreme caution at all times, since even a minor blunder may convert large investments into dust.
Ignoring the law of the country is one such blunder. Many times, businesses ignore legal procedures such as government registrations, brand name protection, product design protection, and so on, and wind up paying hefty interest and penalties as a result.
Startups are businesses or enterprises that are centered on a single product or service that the founders aim to sell. These businesses usually lack a fully defined business strategy and, more importantly, sufficient money to go to the next stage of development. The majority of these businesses are started by their founders.
Many companies resort to family, friends, and venture capitalists for further investment. Silicon Valley is well-known for its thriving venture capital industry and as a popular startup destination, but it is also often regarded as the most difficult arena.
Seed cash can be used by startups to fund research and the development of their business concepts. A comprehensive business plan outlines the company’s mission statement, visions, and goals, as well as management and marketing strategies. Market research helps determine the demand for a product or service, whereas a comprehensive business plan outlines the company’s mission statement, visions, and goals, as well as management and marketing strategies.
In the 1990s, dotcoms were a prevalent type of business. Due to a frenzy among investors to bet on the growth of these new firms, venture money was particularly easy to get by at this time. Unfortunately, the majority of these online businesses failed to owe to fundamental faults in their business strategies, such as a lack of a long-term income stream. When the dot-com bubble burst, just a few firms survived. Amazon (AMZN) and eBay (EBAY) are both good examples.
Many businesses fail in their first few years. This is why the first few months are so crucial. Entrepreneurs must raise funds, develop a company strategy and plan, employ key staff, iron out nitty-gritty issues like stock holdings for partners and investors, and prepare for the long term. Many of today’s most successful businesses—including Microsoft (MSFT), Apple (AAPL), and Facebook (FB), to mention a few—began as startups and eventually became publicly listed.
Although start-ups are inherently hazardous, potential investors might use a variety of methods to assess their worth. Start-ups begin with a concept that they must refine, test, and sell. It entails a significant financial investment. We cannot avoid the harsh reality that the majority of today’s start-ups fail, yet others have gone on to become history’s most successful start-ups. Microsoft, Ford Motors, and other companies are examples.
1. Not choosing LLP or private limited company as a legal entity for business
It is recommended that each startup firm in India be registered as a private limited company or a limited liability partnership. Startup registration is crucial for businesses to run smoothly. However, most Indian startup firms choose Single Proprietorship as a legal organization since it is possible to create a sole proprietorship corporation without having to register.
For a firm to be classified as a startup in India, it must be established as a Private Limited Company or Limited Liability Partnership (LLP). Because if it isn’t, it won’t be eligible for government benefits and incentives such as the Startup India loan scheme, tax holidays, the Venture Capital Assistance Scheme, raw material assistance, MSME market development assistance, Atal Incubation Centres (AIC), and Startup Assistance Scheme, and so on. I’d also want to point out that the majority of investors choose to put their money into private limited corporations or limited liability partnerships.
2. Not registering as a partnership and not drafting a partnership deed
If you have formed a partnership firm as a startup, you must register it or form a partnership deed so that your partnership firm will have a proper corporate structure and all terms and conditions will be laid out and noted with the registrar of firms so that any legal or business-related conflict can be dealt with properly and accurately. In addition, registering a partnership firm online will assist in gaining Startup recognition in India.
3. Licenses necessary by startups are delayed or ignored.
Some startups delay or fail to get Shop Act licenses, FSSAI licenses, Health Trade Licenses, or any other state license necessary to conduct business. Make sure you understand all of the licensing requirements in the state and country where your company is located.
4. Non-protection of intellectual property
Do you realize how critical it is to obtain legal protection for your intellectual property? It is critical to obtain such protection since the output of your brain might be used for profit by others, resulting in the loss of commercial possibilities as well as financial loss.
Aside from tangible assets such as buildings, different intangible assets are acquired and created over the life of a firm. It may be your domain name, corporate logo, distinctive product design, form, or a unique blend of components that distinguishes your product from the competition. Intellectual property refers to things like ideas, logos, and innovations.
5. Ignorance of the legal boundaries and taxation
Authorities at the federal and state levels establish rules and regulate company activities. Businesses are needed to register under the applicable authorities’ legislation.
It is typical to see enterprises disregard the application of some registrations and end up paying hefty fines and penalties for failing to register with the appropriate authorities.
The following are some of the different government registrations:
Shop and Establishment License– For your business locations such as your registered office, branch office, and so on, you may be needed to get a shop and establishment license.
IEC– Transactions involving import and export are only feasible if you have an Import Export Code.
GST Registration– Those involved in the provision of goods and services in India should get GST Registration.
When a person is self-employed or works for an employer, they must pay professional tax. The employer is the one who deducts and collects it. Furthermore, it is only applicable in a few states.
EPF (Employee Provident Fund) Act– The EPF (Employee Provident Fund) Act applies to businesses with more than 20 workers.
6. Lone founder
If you are the only creator of your startup and want to run it on your own, you should reconsider this strategy. As your firm grows, you may want professional counsel, cash, and entrepreneurial talents, so you may pick an entity structure that permits many individuals to join you in your venture. Remember that there can only be one member in an OPC business organization, but there can be numerous directors.
7. Delay in launching business
If you have an actionable business strategy, register it under the proper framework and obtain legal protection. Delaying the start of your company might be a mistake you want to avoid. It can also postpone the rewards that you are going to enjoy, so if you have an actionable business strategy, you should get started right away.
If you’re just starting started with your new firm, make sure you avoid these common registration blunders. Company registration, deciding of partnership deed, and some basic yet crucial decisions are necessary to make for the startup to run smoothly and in a long run. Using the services of legal professionals before registering a business can also help to streamline the process.