New entrepreneurs and established small business players find it difficult and cumbersome to get through the first stage of starting a company, which is its legal formation. Though one of the most important areas to look into many people overlook it and find themselves handicapped a few years down the line when they are looking for external investment or finance.
Remember that any investor looks for an asset, and assets have first existence on paper. Even banks look for 3 years' track record to provide unsecured or secured finance. So what should the early start-up do? Here are some steps that Netzcorporate.com LLP would like to advice.
1. Secure your idea on paper
Put a business plan together. Refer to various sample business plans that are available online. Put a study on market size, market need, your product offering and how your product offers significant value addition to other players in the market. Generally investors like ideas that cater to mass market and offer a solution to a much-needed problem at lesser price and in quicker time.
Get your copyright, trademark and apply for patents if possible.
2. Form a company
Decide the ownership structure in equity terms and form the company on paper. In forming a company, here are the options that one has to consider:
a. Sole proprietorship firm
Although a lot of people get started with sole proprietorship firms, such form of companies is suitable if one wants to expand the company operations in the future and scale the company. Sole proprietorship firms let you open a bank account.
b. Partnership firm
Partnership firms are very much like sole proprietorship firms with the only difference of multiple partners. Both forms let you open a bank account and shift to more recognised model in the future.
c. Private limited company
This is the most recognised form of company formation that needs a minimum of Rs one lakh as paid up capital by it's directors and needs a minimum of two directors. Private limited company formation needs director identification numbers and costs approximately Rs 25,000 to Rs 50,000.
d. Limited liability partnership
Limited liability partnerships is a newly introduced format by the ministry of corporate affairs (MCA) and offers several advantages such as:
- Limited liability on directors
- Unlimited partners
- Tax benefits
It costs approximately Rs 15,000 to Rs 25,000 to start a limited liability company.
e. Foreign incorporation
This type of incorporation is required when your target market lies outside your country of residence and operation. Most online firms cater to diversified global clients hence need to form a company in the region they conduct business in. Foreign companies who want to do business in India can register a foreign LLP in India or a private limited with foreign partners. While Indian businesses who want to do foreign incorporation can typically opt for limited liability company structure which can be registered online and are supported by most countries such as US, UK and Singapore.
3. Start recording transactions
You will be able to open your bank accounts once your company is formed online. It is very important to do as many transactions as possible through bank because it is the perfect evidence for various venture capitalists or financing institutions.
4. File your company returns regularly
File returns for your company regularly, there are various tax numbers required in order to do that. But it is better if you file your returns on time.
5. Know the bank people and get your finance pre-approvals
When you start the company and customers start coming in, most people get stuck with inability to arrange finance for scaling up. Although venture capital and angel investment exists, most people know that the probability to secure it is as good as winning a lottery. But do not get upset.
If you have your papers right, any of your local bank has programmes such as unsecured and secured finance, from Rs 30 lakh to even Rs 300 crore.
Netzcorporate.com LLP is an online and offline platform of legal consultants that advise and provide services such as company formation, LLP, tax filing, copyright to domestic as well as foreign entities.