Are you a compliant start up?

India is the new start-up nation! With third highest start-ups launched in the world after US and UK in the year 2015. To build the investors’ confidence and brand reputation, to drive the top line growth and protect the bottom line, it’s imperative for any start-up to be ready! As startup our plan should focus all three aspects of a business i.e. Commercial, Financial and Compliance. Startups are known for bringing in innovative business ideas, process, products etc. Hence it becomes more critical to analyse the regulatory impact on such ideas, process and products. E-commerce companies are best example wherein since past few months they have been under tremendous pressure of Reserve Bank of India, DIPP, VAT departments for adhering to various compliances including of those who are selling through their platform. Startups have contributed tremendously in improving consumer experience. But it also essential that if you are introducing any new concept then that should be within the four walls of Indian law. So it is pertinent to have regulatory validation along with commercial validation at the beginning, when stakes are low and plans are more flexible.

Compliance is all about the knowledge of  rules that regulate your kind of business and complying with them. Owing to little knowledge and complexity of applicable statuettes, owners of STARTUPs shy away from it thus missing on a very important management tool that ensures security, quality and the potential expansion of the business.

Indian Central and State government has lately been trying to simplify things for STARTUPs so that projects like ‘Make in India’ are a success. ‘Start-up India’ initiative, One Person Company (OPC), Goods and Sales Tax (GST), online registration platforms like ebiz.com are some steps to ease the effort of running a business in India. However looking at the diversity of STARTUPs, their magnitude and the distinct environment to operate and quaint inputs required, it’s necessary that focused measures are taken.

BENEFITS

A Compliant startup can enjoy the following benefit:

1. Absence of regulatory risk which can be operational, monetary and imprisonment;
2. Better chances of attracting investors;
3. High Consumer confidence; and
4. Enhances Goodwill.

COMPLIANCE ASSESSMENT Ordinarily, a company operating in the Indian regulatory environment needs to comply withCentral, State and Local legislations depending on the following:

1. Business of the Company;
2. Operational Process followed to do such business;
3. Locations where such business is being carried on; and
4. HR involved in the process.

The compliances which are required to be executed under these acts can be broadly dividedinto the following category:a. Due Date Based Compliances: Every business entity has to follow and report variousstatutory compliances i.e. monthly, quarterly, half-yearly, annually e.g. Income tax return, TDS return, deposit of TDS, VAT, Service tax etc. These types of compliances are referred to as Due date based Compliances.b. Ongoing Compliances: As the name itself suggests, apart from the due date basedcompliances, every act prescribes certain set of mandatory compliances which are to beensured by a corporate at any and every given point of time e.g. maintenance of Books of accounts, display of abstracts of HR rules and regulations etcc. Event based Compliances: These are compliances which are triggered due to a corporate action e.g. if you are opening a new office or starting a new product then you need to get various registration/modify registrations of Shop and Establishment, VAT, CST, Service Tax. Like-wise a simple act of change in an Executive Director can impact more than 10 Acts in a startup and more than 30 acts in a manufacturing company. These are Event based compliances which can impact various divisions within an organization.             

As per a research conducted by LexComply.com team , if we consider top thirty most commonly applicable laws then due date based compliances are less than 10%, ongoing are almost 50% and event based compliances , which are mostly ignored, are almost 40% of the total compliances. Further non compliances of such cases may result in imprisonment, operational closure or monetary penalty. As per the research there are provisions of imprisonment in almost of 60% cases.

Ignorance or lack of experience is also one of the reasons that the compliance culture is not nurtured but if you are running a business, ignorance can’t be your defense. Financial blockades, litigations and finally end of the enterprise are the aftermath of such callousness.

Realizing the financial and legal implications of being non-compliant, compliance qualifies to be in the top to-do list of all start-up founders. The think tank of a start-up should always consider establish a compliance management system which has facilitates the following features:

• Identification of applicable laws;
• Allocation of responsibilities to various team members;
• Educate and train the team about the same;
• Review regulatory impact of a business decision;
• Ensure that requirements are incorporated into business processes;
• Integration of departments, consultants and management;
• Enables adoption to regulatory changes;
• Act as repository of statutes, forms , challans and compliance support documents; and
• Facilitates review operations to ensure responsibilities are carried out and requirementsare met.

HOW STARTUPs CAN BECOME COMPLIANT?PROFESSIONAL SERVICESStartup can create a community of practicing professionals who can mentor the STARTUPs teams in-house. These practicing professionals are no third parties but the Chartered Accounts, Company Secretaries, Labour Law experts, Fire and safety experts etc already working with the STARTUPs. These mentors can help STARTUPs to identify the applicable Statutes that they have to abide as per the nature of their business and sensitize them about the compliances relating to licenses, approvals, returns records/registers, statutory dues and other compliances.    Additionally also motivate to lay down strong internal controls and processes that ensure that STARTUPs meet not only the national standards but also comply to the International standards of quality and security, thus, opening various new avenues of growth and expansion.

ADOPTION OF TECHNOLOGYCompliance is a crucial function where STARTUPs should integrate technology. Visualize an automated compliance management system that identifies the applicable and relevant compliances, assigns the due tasks, tracks and monitors the progress of the pending tasks and reports the status of all due compliance tasks. Compliance Management tools take the ease of compliance to another level by building comprehensive library of acts and laws and complete repository of the required documents that compliance becomes simple and efficient.

Compliance Management tools like LexComply.com with the mentoring of existing Practicing Professionals attached with the enterprises can help in providing a platform to integrate the community of Practicing Professionals and STARTUPs by way of:

1. Creating a Compliance Hierarchy,
2. Standardization of Statue wise compliance check list;
3. Reminding the due/upcoming compliances;
4. Task Management; and
5. Training of in-house team.

These tools are cost effective as it does not require any Capex on the server or creating library. These tools can be accessed 24X7 from anywhere. 

So if startups use such tools and make an effective integration of external professionalp and in-house team, then it will certainly help in improving compliance environment with minor changes in budgets. If an enterprise is adhering product related regulations like Food Safety, BIS, Legal metrology  etc then their products are more acceptable not only in domestic but also in international market segment. So is an enterprise diligent on labour laws will have improved HR relations and reduces cost of strikes, lockouts or high staff turnover. STARTUPs also have the opportunity to acts job workers to Big Brands or are deemed exporters provided they not only maintain high product quality standards but also are sensitive towards regulatory compliances. A compliant enterprise if in right market segment will have numerous alternative means of increasing the business and having access to funds.

Presently compliance is complex for startups. But this disadvantage can be turned around and changed into an opportunity by having the bird’s eye view of the whole tangle of regulations and adopting focused measures. The tech-savvy STARTUPs can make compliance a key differentiator in improving their efficiencies, reducing costs, gaining insights to strengthen their credentials, products and more importantly positioning themselves strategically in new geographic markets.