Whether you are a giant corporation or a startup, to be successful, it is important to analyze if you are compliant and are following certain laid-down protocols.  A business entity that is compliant is automatically trustworthy to its clients and investors. All businesses, Particularly startups, should follow certain compliance protocols. This article will help you on all compliances.

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1) Choosing the right business entity

Choosing the right business vehicle for their venture is a major challenge faced by any entrepreneur. This choice will in the near and long-term affect the startup’s viability, visibility, sustainability, suitability, and profitability. Your long-term goals, vision, and objectives will decide whether the startup will be established as a private limited company, public limited company, partnership firm, or a limited liability partnership. Each of these categories has a different set of compliance procedures and laws. To avoid any backfiring in the form of legal hassles or otherwise, it is better to be aware of all these formalities right at the inception stage.  

 

2) Statutory compliances

The credibility of any business highly depends on its compliance with all the applicable laws. For a Company and LLP, the mandatory compliances with the Registrar of Companies (RoC) are the most essential of all. Some of the important provisions include appointment of auditor, conducting board and shareholder’s meetings, filing statutory annual returns, and maintenance of statutory registers. These criteria should be met and will be verified by the investors.

       a) Appointment of auditors

The first auditors of a company should be appointed within one month of its incorporation and shall hold office till the conclusion of the first annual general meeting. Thereafter, an auditor who can hold office for a period of consecutive five years shall be appointed.

       b) Conducting board meetings

At least one meeting should be conducted in every three calendar months. Four such meetings should be held every calendar year. The Chairman of the said meeting signs the minutes of the meeting.

      c) Filing financial statements and annual returns

Private Limited Companies are required to file its Annual Accounts and Returns disclosing details of its shareholders, directors, etc., to the Registrar of Companies. Such fillings are required to be made once in a year, usually before September 30.

    d) Maintaining statutory registers and records

A Private Limited Company has to maintain various statutory registers and records as required by the Company law such as  Register of shares, Register of Members, Register of Directors, etc. Besides, Incorporation documents of the company, Resolutions of the meetings of the Board of Directors, Minutes of the Board Meetings and Annual General Meeting, etc., are also required to be preserved by the company.

3) Audit compliances

The purpose of a statutory audit is to determine whether an organisation is providing a fair and accurate representation of its financial position by examining information such as bank balances, bookkeeping records, and financial transactions. Compliances related to audit include appointment of the statutory auditors of the company and finalizing annual accounts with the auditors of the company.  

 

4) Payroll compliances

It is obvious that you will have employees working for you when you start an organization. There will be employees, independent consultants, and contractors as well. Such professional relationships are governed by various labour legislations.  For instance, a business with an employee strength of over 20 needs to comply with ESI and PF regulations.  

 

5) Taxation

 A business has to pay taxes to the Central/State government or local bodies. Thus, every new entrepreneur should have the know-how of the aspects of taxation. Tax laws vary with sector and any recent changes should be within an entrepreneur’s radar. Tax compliance measures vary with the kind of business and the nature of services. A company selling goods would need to comply with the state VAT laws. Similarly, businesses working as service providers need to obtain service tax registration, make service tax payments, and file service tax returns on time. The business should also comply with relevant income tax rules and regulations.   The Comparison chart will give you a clear distinction between the compliance requirements of all the three forms of business.  

Factors of comparison Private Limited Company One Person Company Limited Liability Partnership Partnership/ Proprietorship
Statutory compliances Mandatory Mandatory Compulsory Not applicable
Maintenance of books of accounts Mandatory Mandatory Mandatory Required for income tax
Annual General Meetings (AGM) Mandatory Not applicable Not applicable Not applicable
Annual tax filings Mandatory Mandatory Mandatory Mandatory
Statutory audit Mandatory Mandatory If turnover > 40 lakh or contribution > 25 lakh Not applicable
Tax audit If turnover > 1 crore If turnover > 1 crore If turnover > 1 crore If turnover > 1 crore
Taxation Profits taxed at 30% Profits taxed at 30% Profits taxed at 30% Partnership – 30%Proprietorship – Individual slab rates

 

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