Planning to Incorporate a Company? Here are the things that you should do.

 I have previously posted about 5 things a startup should do. This one is a bit similar to that, but a 10 pointer. But, this also addresses to other aspects. Think about these things, plan accordingly, and then structure your business.

1. Get a Good Legal Consultant.

You might think that this is an unnecessary step and a company means just the idea and legal matters are limited to the documentation. But you are wrong. The reason would become clear to you as you read through this post. A company is a legal entity and its relationship with legal field starts much before it is incorporated and never ends, as long as it is in existence.

2. Get it Incorporated ONLY IF it is required.

Not all businesses require to be structured as a company. I repeat – not every business requires to be structured as a company. With all the news about how startups are getting so many advantages and tax deductions and how they do not require labour law compliance etc. etc. – don’t let that fool you. Remember, even if you get all these advantages, you still have a lot of compliance requirements and it is a costly affair. Running a company is not an easy task at all. Moreover, the initial three years shall wear off and you will be stuck with a company, even though you don’t need it. Although, you could transfer your business to a different kind of entity, but that is troublesome as well. So, if your business model doesn’t require a company, then don’t incorporate it. Currently, even limited liability partnerships are allowed to take investment (even foreign investment under the automatic route). Although investors are keener on investing in companies, it doesn’t always mean that nobody would invest in an LLP if it has potential. Also, not all type of business requires investment, necessarily. Moreover, most of the benefits available to the startup companies under the Startup India Action Plan are also available to other registered or incorporated entities of similar nature as well. The benefits are not limited to just the companies. Now, how would you know if you should structure your business as a company? Check point number 1. Your consultant will guide you.

3. Adopt Customized Charter Documents.

Get customized charter documents. Be it an LLP or a Company or a partnership – do not go for those generic documents that serve every entity to some extent. Get it done separately according to the need of your entity. The lawyers today, are not just lawyers. They provide customized solutions to the needs of the clients. So, go back to point number 1 and with their help, get your charter documents drafted. I think I have mentioned this in my last post about startups.

4. Keep in Place a Co-founders’ Agreement.

Don’t dodge this. Don’t even think about dodging this. No matter with whom you are starting your company, keep the co-founders’ agreement in place. Housing.com faced this problem back in 2012, again now in 2016, whereby one of the co-founders is ready to leave and start a new business. In most of the cases, the promoters do not intend to leave the company. But in the process, they might realize that there’s no future, or they might fall out. What happens then? What if once the company starts commencing its business, all of the promoters are interested in marketing and none of them want to take product development? What if someone suddenly leaves the company and decides to start a business with the same idea in the same area? You don’t have any written document to stop such person and even though the idea might be yours, he might just end up misusing it. This is why co-founders’ agreement is absolutely essential for every promoter, no matter with whom they are starting a company.

5. Ensure Proper Representation.

After the incorporation, what do you need? You need business. And there will be several agreements and arrangements and although, the technical terms would be known to you, you still need representation. A written agreement is a dangerous thing if you go unrepresented, as it is the proof of the arrangement. Words can be very tricky and it is not possible for you to understand all the understanding. Even the definitions of the agreements play a valid role in understanding the arrangement and I myself have used so many different types of words to restrict the rights of the other party. How would you represent your side properly? I would say, again, through your consultant. It is better if your entity has a single consultant or team throughout, as the understanding is sound. As long as they are protecting the interest of your company, keep them happy.

6. Give Attention to the Management and Marketing Team, but ALSO to the Quality.

It is needless to say that if you want your company to be successful, you need to develop your ideas, manage your company well and market it properly. Build a strong management team. Invest well in the marketing. But, most importantly, maintain the quality. Let’s take the example of Pulse Candy. There was absolutely no marketing for the product (except to a very little extent). It became so popular only because of the quality, of course. The founders had no clue that suddenly one product would generate Rs. 50 crore revenue all of a sudden. Now, this happens only on certain cases. The marketing strategies and the quality of the goods matter in the long run, to establish a reputation. So, whatever your idea is, develop it in a manner that would be acceptable to the consumers.

7. Register the Intellectual Properties.

With every passing day, intellectual property rights are gaining more importance in India. It shall continue to be so. As soon as you incorporate your entity, make sure to register all the intellectual properties in the name of the company and even if the company is using some intellectual property belonging to you, make sure you register it and assign it properly. The brand name and other intellectual properties pay a vital part in the business.

8. Get the Necessary Licences.

Don’t dodge the licensing part. Don’t think that “Oh we’re still small and we might just ignore it”, because, it’s just a matter of time when your company starts growing and the last thing you’d want is to be served a notice by any authority for non-compliance of licensing requirements. Remember the Uber Delhi case when the court found out the non-compliance? Even a large company like Uber had to face a lot of trouble. Who would help you with licensing requirements? Who else than your legal consultant!

9. Grow the Business.

Well, I don’t have much to say on this. But you should be able to grow your business to a certain extent so that investors become interested in your company or that customers start recognizing your brand. Moreover, once your business grows, your power to negotiate with the investors also grows. Look at Flipkart – it binds even investors with exclusivity obligations. The idea is to create a sound management on the basis of which you would let your company grow and capture a larger market share with time.

10. Look for Investors.

If you have a really good idea, investors may even come before your company grows a good reputation. If your ultimate goal is to attract investors to let the company grow to a national level, you got to find investors. They would provide the necessary cash flow. If however, your company has grown a good reputation, the investors would themselves be interested in investing in the company. But then again, investors would ask for a lot of rights and even if you have the idea and you shall be running the company, they would get most of the benefits. So, again, go back to point number 4 and I repeat, don’t get into an investment transaction without proper legal representation. I have seen so many startups doing great, yet, just due to insufficient representation, they have failed miserably to put their point forth at the time of negotiation.

Now that you know the basics, get on to it!! Good luck with your new venture.