Mistakes you should avoid to kick start your business.
Often like-minded friends or acquaintances with path breaking ideas, in enthusiasm to kickstart the business and running it, write the plan at the back of the napkin and seal the deal with the cling of glasses. Mostly due to their relationship they do not feel the need to discuss the terms and ascertain their roles in the business. In the haste of running the businesses, they neglect the next important step to start the business i.e., to write down terms of their agreement (s) in the founders agreement/ partnership Deed/ consultant agreement/ employment agreement with early employees, which are really very important. Failure to do so will land them in problems years down the line.
Businesses are set up by executing ideas into action. Contracts embody the expectations of the parties and outline their boundaries. It legally binds the individuals and/or businesses to their words and give both parties certain rights. They are enforceable by law, and there are assured penalties for any breach. Contracts are a great defense system for any business and are especially important for young startup companies.
An entrepreneur solves a problem faced by people through their ventures. For this one should make sure that every move is precise. Now a days it is trending among the startups to use standard contracts freely available on the internet to save themselves costs of paying the lawyers to draft a customized one. These freely available standard contracts are generic in nature and may overlook some of the vital points in the agreement. They fail to advise the Contract users of the law and its right. Ambiguity in contracts is read against the creator of the agreement in courts of law and ignorance is no defense. The Contract if not well drafted and are not sufficiently specific to address the legal issues unique to the particular transaction in question, can force the parties into court for a resolution, should a dispute arise. The Contract template may not include a provision that may be relevant to the deal. Worse, there may be a provision in the Contract template that requires you to do something you did not want or intend to do. Therefore, it is imperative to get the contract drafted by a lawyer. At a minimum, if you are going to use forms/ Contract, have a lawyer review the Contract and talk about the impacts on your specific needs before you sign the agreement.
Every entrepreneur should be aware of certain laws to maintain the business honest and above the table. Following are the steps you need to take while establishing your flourishing business:
- Structure your business: You need to make sure what is the nature of the business and the type of it. There are multitudes of business structure you can choose from. It could be sole proprietorship, limited liability partnership, private limited, public limited, etc. This decision is very important as it shouldn’t conflict your overall vision & purpose of doing this business. The paper work varies accordingly and it’s imperative to get the structure and paper work right. These registrations lay down the rules on how much you can produce to how many members on the board you can have. Your entire start-ups existence will be governed by the paperwork.
- Acquire specific licenses: After selecting your nature of business, you need to be take care of acquiring specific licenses. These licenses vary according to the nature of the business. Before launching your startup, you need to understand different licenses. In the case of the absence of appropriate licenses, your business might get into legal battles at the inception and all your efforts are down the drain before you even get a chance to begin. If you are opening a business which license do you need? If it’s an ecommerce site, do you need additional licenses? Yes.
Different type of businesses attract different taxes which you should be aware of beforehand. According to the ‘Startup India programme’ launched by the Government Of India, there are many tax exemptions you can benefit from. You need to know what you can qualify for, what are the conditions and if you do meet them.
- Adhere to the specific laws: Irrespective of the size of the establishment, you need to adhere to the Labour laws. These laws could be with regard to minimum wages, gratuity, PF payment, weekly holidays, maternity benefits, sexual harassment, payment of bonus and so on.
- Protect your IP’s: If your innovative product or process is the most important aspect of your business or if you have secret sauce or an algorithm or musical composition or trade secrets, then identify the same and seek protection under the appropriate Intellectual Property Laws. Note that IP laws are territorial, so if you have presence in other parts of the world then you may want to seek IP protection in each of these countries of your interest.
- Contracts: Contracts are very effective to the ensure the normal functioning of any project and is the backbone of ensuring your business’s legality in the eyes of law. Ensure that you have written down the terms with every entity involved with your business. If you have outsourced your work (partly of wholly) to a freelancer, have an agreement in place to ensure the IP rights of the work remains with you or is assigned to you.
So, ensure a better and smoother performance of your activities and add to that a safety net from fraud or any other kind of malpractice. All the best for your venture!!