(This article was first published in BW Disrupt.)
Ideas are abundant, but it is the execution of these ideas where most of them fail. Almost everyone of us comes with business ideas every now and then. But most of these ideas remain just that because we don’t know how to go about turning the idea into an actual business.
To be honest, setting up a company is not as difficult as it may seem. Here is a 7-step guide on turning that seemingly ground-breaking idea into a company.
Selecting a company structure
Ideally, a startup should be set up in the private limited company structure because angel investors and venture capitalists prefer to put their money in private limited companies. However, one can even begin with a Open Person Company or Limited Liability Partnership and then later get a Pvt Ltd registration done if external fund is required.
Getting the documents in place
To set up a company, there are a number of documents that are mandatory. These include ID proofs of the director(s), residence proofs, specimen signatures, self-declaration of directorship, documents related to the registered office, etc. Most of these documents are fairly easy to furnish and wouldn’t be much of a hassle to put together.
Registering for TAN
TAN stands for Tax Deduction Account Number. This registration is required for any company that needs to deduct tax at source (TDS) on the salaries and payments it makes. TAN is also mandatory for companies that collect tax at source. TAN is a 10-digit alphanumeric number that is issued by the Income Tax Department.
Service tax or VAT registration
If your company provides a service, you need to register for service tax. In case you deal in the sale of physical goods, you require a VAT registration. There are certain threshold limits that need to be touched before these registrations are required. But a company should make sure they get the correct tax registration so as to avoid unnecessary compliance hassles.
Trademark and copyright registration
This may not be applicable to every startup, but in certain cases the company may need to get a trademark or a copyright on the business idea. It is often the case that business ideas or business names that are being developed get copied by someone else. To avoid such circumstances, trademark and copyright registration is something a company can consider even at the nascent stage.
PF registration and payroll
Any company that employs 20 or more people is mandated by law to get a Provident Fund registration and contribute to the employees’ PF accounts. A company should also set up payroll to ease the process of paying out salaries and compensations of the employees.
Following a compliance calendar
There are not a lot of income tax computations and return filing that need to be done at the time of starting up a company, but all of these will come up as the financial year progresses. A company has to file TDS returns every quarter and income tax returns & ROC returns once a year. There will also be service tax return or VAT return once the threshold has been breached. Setting up a compliance calendar will help in making sure none of these are missed and penalties are avoided.
Typically, these are the 7 steps that you need to follow in order to set up a company. We have not mentioned the basics like having a current bank account and PAN for the directors. Most of these taxation and compliance requirements can be outsourced by the startup as indulging into them would be a complicated and tedious process. After all, you want to focus at building the product or service and hiring the best talent to help you with that.