Paperwork is key to smooth functioning of enterprises

Entrepreneurs would be better equipped if they consider and give importance to certain basic legal functions. A careful and due consideration given to legal and compliance norms would go a long way in terms of a seamless and smooth establishment and functioning of the organisation and being an effective and optimal tax saving and tax planning tool. It also protects the business and top management from sudden and unexpected interventions and facilitates progression of the business activities to next and higher levels without any surprise elements. 

Select the nature/type of legal entity to be set to undertake the business. One should choose the profit or non-profit motive of his business. Also, freeze the format of entity viz. Proprietorship, partnership, limited liability partnership, private or public company. Private firm is most suited recommended form for a business having potential for funding/shareholding by multiple partners. 

Next up, the strategies for ownership and shareholding structures. Proprietorship and partnership firms are traditional and well known formats. However, if a private company format is chosen, the entrepreneur should select whether he would hold part or full shareholding. In India, a minimum of 26% shareholding would give certain veto powers. 51% would give majority control & 76% shareholding would give absolute control.

Structuring the business model to be adopted is also a major task. One should finalise a model which lists out the projected income and expenditure of the business, which would stipulate the sources of the capital/revenue expenses (including direct/ indirect taxes) as also the revenue potential of the company. The success of the business model would depend on the accuracy and reality of the projections. Securing and pre setting up of licenses, permits and other legal compliance measures are imperative as well. Each State and the region as also the nature of business would require obtaining certain basic licenses and permits. Like, Factory License, Shops & Establishment License, Building permit, Income-Tax, Excise-Service Tax-VAT registrations etc. Entrepreneurs must ensure all approvals are in place to avoid delays and legal interventions and resultant business losses.

Secure business secrets like trademarks, copyrights and patents. Startup entities should ensure their trade/business secrets are protected by filing relevant applications. This helps protect its IP rights and prevent competition from copying them. Ongoing business licenses and permits may be required for regular conduct of business. One should also comply with tax obligations along with filing of regular returns and undergoing of assessment process. 

Source the right talent with legally binding term to secure trade secrets from them. Contract with appropriate terms for employees along with provision for prevention of slippage of trade secrets through them are to be put in place. Appointment of field experts to be in-charge of certain legal compliance norms is permitted under various statutes.