Top Registration Mistakes Made by Startups

Ashish M. Shaji

09 Jun, 2022

Every year huge amount of money is invested in innovations, applications etc. Investments help your ideas to be implemented, but today entrepreneurs are susceptible to making certain mistakes that can ruin their entire investment. Therefore to make you aware, we bring to you some of the top registration mistakes that can spoil the deal for start-ups.

Start-up: Brief Overview

A start-up is a young company that is usually founded with an objective to develop a unique product or service and introduce it to the market. The start-up is initially funded by the founders or their friends and families.

Start-ups are generally risky propositions, but potential investors have various approaches to determine its value. Start-ups start with an idea that they have to develop, test and market. It involves investing considerable amount of money. We cannot run from the bitter truth that majority of the start-ups today fail, but some of the start-ups have gone onto becoming history’s most successful start-ups. For eg- Microsoft, Ford Motors etc.

Registration Mistakes

As pointed out earlier, various start-ups fall apart in the initial step itself as they make certain mistakes related to start-up registration. Here we will discuss some of the biggest registration mistakes:

• Selecting wrong legal structure for business

A business entity can be registered in India under different corporate structure such as Private Limited Company, One Person Company, Limited Liability Partnership, General Partnership Firm or Sole Proprietorship Firm.

Before you opt for the structure, you are advised to research the pros and cons of each entity structure. The entity that you opt for can create restrictions with respect to the number of people who may join as owners, and therefore you should be aware of each entity structure before making the final call.

• Non-Protection of Intellectual Property

Do you know the importance of getting legal protection for your intellectual property? It is crucial to get such protection as the product of your intellect can be used by others for profits and cause loss of business opportunities to you and also result in financial loss.

During a business lifespan other than tangible assets such as building etc., various intangible assets are procured and made. It may be your domain name, company logo, unique product design, shape, a unique combination of ingredients that helps your product to stand apart from other products in the market. These ideas, logos, innovations etc., are called intellectual property.

It is a term that pertains to the ownership of creation of an artistic idea. It is also an intangible asset of your business that you made exclusively for your products or services. Companies should take steps to safeguard their intellectual properties and get them registered under various protections available under IP rights such as Patent, Trademark and Copyright.

• Ignorance of taxes and essential registrations

There are Central level and State level authorities that make policies and regulate business operations. Businesses are required to get registered under the legislation of relevant authorities.

It is a common sight to see that entrepreneurs ignore the applicability of certain registrations and eventually have to pay huge fines and penalties for not registering under relevant authorities.

Some of the various government registrations are as follows:

1. Shop and Establishment License– You may be required to get shop and establishment license for your business locations such as for registered office, branch office etc.
2. IEC– Import and Export transactions is possible only if you have the Import Export Code.
3. GST Registration– GST Registration should be obtained by those engaged in the supply of goods and services in India.
4. Professional Tax– It is payable when a person is self-employed or works under an employer. It is deducted and collected by the employer. Moreover, it is applicable only in some states.
5. EPF– Those establishments with more than 20 employees fall under the ambit of EPF (Employee Provident Fund) Act^[1].

• Lone Founder

If you are the only founder of your start-up and planning to continue your business on your own, then you should rethink this ploy. As you move forward, you may need expert advice, capital and enterprise skills thus, you may choose for the entity structure that allows multiple people to join you in your business. Remember that in case of OPC business structure, there can only be 1 member but multiple directors.

• Delay in launching business

In case you have a business plan and if it is actionable, then get it registered under appropriate framework and get legal protection also. Delay in launching your business could be a mistake that you would want to avoid. It can also delay the benefits that you are about to experience therefore, you should kick start the business if you got a business plan and if it’s actionable.

Conclusion

If you are getting started with your young business, then ensure that you avoid these biggest registration mistakes. If you can avoid these mistakes, it will help you in moving ahead with your start up journey. Taking the help of legal professionals before start-up registration can also contribute to streamlining of the entire process.

Read our article:Registration of Start-ups under DPIIT: Eligibility and Benefits