While you are developing your startup, everything looks like a race. A race in which you want to create a minimum viable product, recognize the local business model, and find a suitable co-founder with a mutual mindset. Therefore, even what should not be done too early looks like a priority to you.
Entrepreneurs are often in a hurry and make rash decisions to incorporate sans giving a thought to all the repercussions of such actions. Registering or incorporating your company too early is one such hasty decision that business owners make frequently. Thus, how should an entrepreneur approach the legal aspect of operating a business? Here is all you need to know about when to incorporate your startup for maximum flexibility.
Also Read: Difference between Private Limited Company and LLP
Tip #1. Planning and research are prerequisite
Opting for an online company registration in India becomes an intrinsic part of building your business. Nonetheless, it also comes with multiple compliance requirements and responsibilities. As a result, it could lead business owners and founders into trouble when it is done too early due to its continuous compliance norms.
Thus, entrepreneurs should make sure that they do what is needed, such as planning and research, before making any crucial decisions. In most cases, waiting for a few months or years can offer them the advantages that quick incorporation would deny.
Tip #2. Keep things simple initially
Before you register your company, you are obliged to know why you are doing it and how it can help you further down the road. When it comes to startups, the sole reason for the company registration is infusing the funds or capital. Nonetheless, if you feel obligated to incorporate as you have promised early employees’ equity, certain agreements can help you with that individual. Thus, until you have developed the product well enough to show and market to investors, there is no requirement to formalize your business as a company.
All you need initially in the odyssey of your business is the basic agreement. Such agreements can outline the responsibilities and roles of the founders. Also, it might include clauses concerning the proprietorship of the IP (intellectual property) created by them. In the first few days of the business, having such details on the paper is more intrinsic than the formal registration.
Nonetheless, to make and sign such agreements, founders and employees will have some tiresome conversations and parley. They are obliged to go over several scenarios and highlight all the possible outcomes to restrict legal issues and consequences. Having such extremely crucial parley sessions would help clear the road for the future and would allow you to improve overall communication.
Companies such as RedBus and Housing.com, which had founders who left the business, could have largely benefitted from having such an agreement in place. Thus, entrepreneurs require to make sure that agreements and parley are happening. Here the benefits of it would go beyond the mere incorporation certificate of the business.
What to choose: Proprietorship or Private Limited Company?
Tip #3. Register a Company when required
Company registration seems crucial when you have initiated to earn revenues and need sales tax registration in the name of your business. In most other cases, you might find it helpful when you initiate planning fundraisers or seeding rounds. Most angel investors would invest in your company once you go through the whole incorporation certificate process. Thus, companies will require to register themselves formally when they initiate looking for external investment.
When you are in this stage, the benefits of company registration would always outweigh its drawbacks. You might have to invest time and money on the compliances, but you would find it advantageous to utilize the credibility that the private limited structure offers. Also, incorporation would allow businesses to recruit with greater flexibility, and ease as the highly qualified person might check your legal status before joining your venture.
Likewise, you can also open the current account with your business’s name to get credits, if required, using your registration certificate. Incorporation would also improve sentiments among customers, vendors, and stakeholders. If that is not convincing enough, private limited companies enjoy tax benefits, and their members have limited liability. As a result, registering your company can also safeguard your wealth and assets from business debts.