Entrepreneurs – Pay attention to Statutory Compliance

One of the areas budding entrepreneurs or start-ups do not pay much attention to in the initial years, is statutory compliance. It happens more out of ignorance / ill advice rather than intent. To get an identity to the business idea, the company is registered and from there on, the requirements of the statute are not paid much attention. In fact, the incorporation of the entity itself has to be well thought out, as there are different forms of entities viz., sole proprietorship, partnership, Limited Liability Partnership, Single Director Company and Company with multiple directors. Each of these has its own advantages and shortcomings, which need to be carefully thought out before registering the entity. Entrepreneurs spend all their energies in building the product and business and they hardly have time to pay attention to these requirements. In addition, since businesses are usually non-funded / self-funded in the initial stages, it would be difficult task to earmark funds for carrying out these activities and hence usually is deferred to a later date. In this post, I will be discussing why should entrepreneurs- pay attention to statutory compliance.

Maintaining and managing the following statutory requirements:

Fundamental to any business is maintenance of books of accounts, registrations like PAN, TAN, VAT, Professional Tax, Service Tax, ESI, PF, Registration with local authorities etc., and each of these have to be complied with by adhering to the requirements of the statute in terms of collection / deposit of taxes, submission of returns. Non-compliance of any of these attracts penal charges, which drain the already meager resources of the company. That apart, statutory noncompliance will also affect the growth plans of such companies. Potential investors seek due diligence to verify the veracity of statements made during the investment discussions and thus carry out thorough due diligence of their target companies before investing. Statutory noncompliance becomes a hindrance in scaling up activities as the required compliance need to kept be in place before or during due diligence activities, thus delaying the entire process or sometimes even losing out a good opportunity. Hence, dear entrepreneurs – pay attention to statutory compliance or the requirements of the statute as applicable to your business and comply so that the business could be forward / scaled up without any hassles. Put strict audit processes in place so that you are in well control of the situation. As you know, start-ups with all statutory compliance in place get better valuation from institutional investors as compared to others as the intents of founders on whose idea they invest get clearly reflected through this in some manner. - PVS Prakasam, Founder and Director, Prajwal Business Services Private Limited

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