In any business legal and statutory clarity is of utmost importance but unfortunately most early stage entrepreneurs do not have the clarity or do not do enough homework in order to make sure that they understand the legal aspects well, because of which at the end of the day the business bears the brunt. and most entrepreneurs realize it too late in the day regarding the various legal pitfalls and at that point of time Often steps are taken too late in the day by which time the legal aspects have already become very complicated so for any business before you start is going to be very important to ask ourselves three fundamental questions
- What kind of Registrations need to be made?
- What kind of permits need to be obtained?
- What kind of compliances need to be followed?
Types of Permits
There are generally two types of permits if you could broadly classify them. One would be the 1. Generic Permit – that go to any form of businesses. These would relate to tax registrations, service tax registrations to enable payments being made, withholding of taxes when payments are being made. Then there would be those which relate to generally 2. Office Setup – When it comes to office set up it could relate to shops and establishment, compliance with your municipal laws, which zones your offices are located at in the relevant areas. Very often people don’t realize that residential premises can’t be used for office purposes. There are municipal laws, there are municipal requirements, so the best way to go about it is not to do research yourself Best way to go about is engage a consultant, it could be a lawyer, it could be a consultant who deals in this area. The other thing is that when you set up your company and you get the registration of your company done, you also need to ask your lawyers that whether there are any 3. Industry Specific Permit or license is require and what I mean is that today for example, if you are in the media business. Let’s say that you have a television channel. You may require a license from ministry of information and broadcasting.
Permits are a legal form of authorization that allows you to do certain activities on the basis of certain permissions taken from the respective regulatory bodies. The purpose is of course to avoid any legal implications in future. The various types of permits and registrations are listed below:
1) Tax Registrations – Applies to almost all forms of business, namely PAN, TAN, etc. Certain other tax registrations apply depending on the nature of business, namely, Central Excise if goods are being manufactured, and Service Tax for activities that qualify as “services” under applicable tax laws, etc.
2) Office Setup Permit – These are permits which are required to commence any business as per certain acts like shops and establishment act, municipal laws, etc.
3) Labour Law Registrations – These apply to the employer for the benefit of its employees namely provident fund registration, gratuity, etc.
4) Industry Specific Permit – These are business specific permits which are required as per the industry. So, permissions are to be taken from respective ministries. For example, if you are operating in the media industry, you must get the license/approvals from the Ministry of Information and Broadcasting.
Tax Registration Documents:
It is good to have all the tax registrations in place even before you commence your business. Most startups tend to avoid and delay these activities, leaving it for the time when they start making revenues. This is not advisable, as it is a must to have your house in order, for it to function well, and on an ongoing basis. There are two basics that you need to have:
1. Permanent Account Number (PAN): It is a mandatory requirement for any business to have a PAN number before opening a bank account. PAN is used for paying direct taxes.
2. Tax Deduction Account Number (TAN): This is required when you make any third-party payments, say to the supplier of your goods/service. TAN is used for deducting tax at source.
Compliance is one of the key building blocks to a successful business. What compliance really does is it builds a process and in any organization structure whether internally or whether you are looking at it externally, compliance sets the discipline, it sets a certain motion to the organization.
Ineffective compliance creates a huge business risk for any entrepreneur. Issues with compliance keep getting complex as your business grows. Having processes in place help you avoid legal hurdles; gain investor confidence and improve operations. Not following the same, can lead to a number of setbacks, like loss of management time in correction, monetary penalties and loss of reputation.
For compliance purposes, you need to make certain filings for annual compliance, quarterly compliance and conduct board meetings as per policy. For all these, it is advisable to hire a Company Secretary.
When you seek investments, one of the first things that potential investors will look for is whether the company is legally compliant or not and whether the reported numbers are audited or not, etc.
In the case of the burgeoning e-commerce space, it is becoming important to follow relevant e-business policies. There are certain areas which need to be addressed like:
- Ensuring data privacy
- Following payment gateway rules
You should be able to:
- Understand the different types of permits required for your business
- Think through the required tax registration documents as per the law
- Acknowledge the importance of compliance and follow them