Pay heed to compliance issues!
In the race for fast execution of ideas and quick results, a lot of start-ups tend to overlook the issues related with compliance.
While compliance is not merely a government formality, it also plays an integral part when it comes to challenges like fund-raising. Here goes a list of compliance errors a lot of start-ups commit:
1: Starting off without adequate license compliance
Startups need to adhere to strong licensing regulations depending on their specific industry. Any startup in the EXIM sector needs to have an Import Export Code (IEC code) mandatory to initiate business proceedings. Depending on the associated sub sector the startup will need to apply for regulatory approvals. For example if the EXIM startup is involved in export import of products in the food and nutrition industry, regulatory approvals like Food Industry Licenses (FSSAI) are required.
2: Ignoring labour compliance
The new startup policy as per the start-up India action plan puts greater emphasis on self certifications. EXIM startups need to self-certify their compliance with nine labor laws and environmental laws to avoid any inspections. As a lot of EXIM start-ups do not have majority of their manufacturing work in India, they tend to overlook the labour compliance regulatory approvals. Any discrepancy found in delay in self certification or not doing a self certification could lead to fines which puts the startups business off course especially when involved with export and import segment.
3: Lack of focus on financial and tax compliance
Due to export and import oriented trade issues, EXIM start-ups need to watch out their financial and tax compliances more closely than others. While start-up India action plan offers tax sops for start-ups formed until March 31st, 2019, start-ups are required to file returns under TDS, VAT, service tax and excise as applicable in their case. EXIM start-ups with any foreign investment or inflow of funds in their set-up are also required to furnish all FEMA related compliances.
4: Avoiding secretarial compliance
EXIM start-ups need to follow all incorporation compliances like issue of share certificates for LLPs and private limited entities. Start-ups are required to appoint a company secretary or CS if the paid up capital over Rs 5 crore, which many tech and EXIM startups often ignore. Maintenance of statutory registers and minute books along with Board Meeting or AGM compliances are also often overlooked.
5: Statutory compliance
Even when an EXIM start-up maintains all statutory registers and records, companies often overlook the issues related with appointment of auditors or conduction of board meetings. New start-ups tend to focus on their businesses but compliances suggest that first auditor needs to be appointed within one month of start-up incorporation. EXIM business might involve board chairman making frequent business trips overseas, regulatory compliances suggest one board meeting needs to be conducted every three calendar months.
6: Keeping a check on payroll compliance
EXIM startups may not initially have high number of employees as compared to other startups, but that could often lead to overlooking of payroll compliances. As soon as the business employees cross the minimum statuary number of 20, as an EXIM startup the company must comply with ESI and PF regulations.
Although Startup India action plan has simplified compliances for startups, the onus to maintain adequate compliance rests with various startups and their founding team.