Compliance is an integral element of corporate governance for any business entity and an important aspect to maintain business integrity and discipline within the organization. Compliance and its importance are often overlooked by the startups that are new to the business ecosystem simply because either they are unaware of the existing laws or they deliberately choose to ignore it as a non-value add activity. Statutory and regulatory compliances are fundamental to any businesses whether the established ones or the startups. More so in case of startups, since they are looking to establish a new system to accomplish their objectives in an efficient manner. Corporate compliance requires adhering to policies, procedure, rules, regulations, laws and standards which are established to protect your business, employees, stakeholders and all others involved with the organization. It is absolutely non-negotiable. Failing to do so may hinder the progress of the company even leading to harsher implications like imprisonment, disqualification, cancellation of registration and approval, fines and penalties and other intrusive action by regulatory bodies. Non-compliant entities often lose the credibility of the company in the long run.
COMPLIANCE REGARDING REGISTRATION, APPROVAL AND RENEWALS
To begin with, startups should first register themselves as entities with the concerned regulatory offices. For a safer business operation, in the long run, companies are required to register under the Company Act, 2063 and get approvals based on the nature of business activities accordingly.
Similarly, other important registrations are:
- Company/firm/proprietorship registration
- Registration of business at the ward office
- Tax registration
- Industry registration or registration as a commerce
- Registration with Social Security Fund
- Registration of intellectual properties
Proper documentation protects you from uncertain mishaps relating to the decisions made for your entity. Incorporation documents, as well as any other documents, are needed to be recorded promptly. Agreements prepared at an early stage of your business between the founders of your company need to be recorded properly to avoid future conflicts.
- Of Agreements
Following are some of the documents relating to agreement that you may endorse and such are to be recorded promptly:
- Co-Founder’s Agreement
- Shareholder’s Agreement and share certificates
- Agreements with Investors
- Employment Agreement along with the details of the employee
These documents define the expectations and liabilities of the parties concerned and safeguard their respective interests. Employees benefit from employment contracts while investors are guaranteed returns as stipulated in the agreements. You may face serious problems in lack of proper agreements, for instance, one of our clients had experienced theft of its software source code by its own employee, which the employee used to develop a competing product and sell it to the existing customers of our clients at a much cheaper price.
Apart from these agreements, incorporation and approval documents as well as licenses, certificates, notices from regulatory bodies need to be kept safely. You may need to produce these documents at any time, keeping those safe and correct will certainly help you in future. The law requires for mandatory display of the registration certificates at its principal place of business and also the tax registration number.
- Books of Accounts
Maintaining books of accounts is a sign of ideal startup hygiene. Slight incaution may lead to some serious accounting incongruity that may create inconvenience in annual compliances. Adherence to auditing and taxation compliance is another priority for startups.
Make adequate arrangements of books such as minute books of the general meeting and board of directors, annual financial statements, share register and accounts of the company. The directors or other officers have the responsibility to maintain the books of accounts and records of the company.
You have to bear in mind that documentation and record keeping are compulsory compliances under Company Act, 2063. Failure to do so may even result in the directors or other officers facing serious punishment including fine and imprisonment. Failure to maintain records, non-submission of returns or late submission, non-payment or short payment of tax will result in additional financial burden in the forms of late fee/interest at prescribed fees.
Timely filing of details as required under the various laws in another important aspect of compliance. For example, a VAT registered entity is required to file its return of transactions and pay the VAT dues within 25 days from the end of each calendar month. Returns are mandatory even if there is no transaction.
Similarly, as per the Company Act 2006, every company is required to file the documents at the Office of Company Registrar relating to Annual General Meeting, appointment of Auditor, inventory of shares, debentures and loans, directors’ declaration of their involvement in any other company within six months from the end of every fiscal year.
Every employer is also required to conduct a labor audit and submit a copy of the report to the concerned labour office.
For every business including startups, internal control systems, standard operating procedure and by-laws like employment by-laws, employee privacy statements, acceptable use policy, etc. are some crucial aspects that are required for maintaining the ethical and financial discipline. These systems and documents act as a guide to running your business in a systematic and consistent manner.
HIRE AN EXPERT
Startups should make sure that they perform well in terms of competition as well as compliances. For the right set up, make sure to hire the right experts and professionals like company secretary, accountants, auditors and legal advisers. Hiring the right person for the job may well be a costly affair but it will have long term benefits to your venture. Companies often tend to do these things by themselves but these are often cumbersome processes and need the expertise of the required fields to manage these aspects effectively. Every business should never overlook compliances as secondary aspects and only focus on the main operations because everything is interrelated and a non-compliance may jeopardize the overall business.
Therefore, every business should allocate a reasonable budget to manage the various compliances effectively and timely manner. Updated and airtight compliances show your commitment and seriousness towards the venture and will be more effective if you are looking to raise funds from the venture capital and private equity funds or other investors because this gives confidence to the concerned parties. Issues of compliances may even make or break a deal. So, happy and timely compliance.