This is a guest column is authored by Archit Gupta, Founder and CEO, ClearTax.in
Is setting up a company worth the effort? The short answer to this question is–Definitely, yes! A longer answer to the question will help us understand why.
There are many advantages that you get when you set up a company. The expenses that are incurred to run a business can be claimed to save taxes at the time of filing income tax returns. These include expenses like depreciation on assets, office rent, traveling expenditures and even business meals and entertainment expenses. A company, irrespective of its form, can claim these expenses.
Furthermore, the expenses that are incurred at the time of incorporating a company can also be claimed as tax-deductible expenses. And of course, setting up a company always has the psychological benefit of earning an income as a business. Having a name, a logo, an office and other such things will make you work harder and in a more enjoyable way to expand your business. These things also help attract the finest talent to work with your business.
While the benefits of setting up a company are many, a lot of entrepreneurs shy away from it because they think it is too much of a hassle. However, that is not the case. Setting up a business is a fairly easy process. What is difficult is selecting the type of company that you should go for.
Typically, while setting up a company, the choice is between a One Person Company (OPC), Limited Liability Partnership (LLP) and Private Limited Company (Pvt Ltd). Most entrepreneurs get confused between these three company types. The ambiguity can be put to rest if you’re looking to get external funding into your company. If that’s the case, go for a Pvt Ltd registration. This is because most angel investors and venture capitalists prefer to put their money in a private limited company.
A limited liability partnership would work well for you if you’re launching your company with someone else. An LLP registration will ensure that the negative influences of any of the partners does not have a major effect on the company as it limits the liability of the partners to as much is their contribution in the company.
If you’re starting out by yourself and want to get a registration done quickly, then a one person company would be the way to go. An OPC works for anyone who will not require funding to begin with. Of course, an OPC or an LLP can be turned into a private limited company later on if required.
No matter which company type you choose, setting it up does not take a lot of time. With the right guidance, you can set up a company in a couple of weeks to a month’s time at most. But before you select a company type and get the registration process started, there are some pointers to keep in mind.
- You can begin with a smaller company type and move to private limited if the requirement arises
- The number of compliance and expenditures increase as you would go from OPC, LLP to Pvt Ltd
- As a startup, your priority should be on building a great product or service. Overheads and compliance issues should be secondary, albeit not completely ignored
- Outsource your taxation and compliance requirements, if possible
- Keep a tab on your overheads and interest outflow as they have a direct impact on your working capital
- Always have an emergency fund to keep cash on hand for crunch situations
- Maintain a calendar to ensure you don’t miss any regulatory compliance
Tips on how a startup needs to sustain their business
- Get the best people to work for you. Invest in people who will drive the company by taking ownership and bringing innovation in what they do.
- The entire team needs to focus on a collective objective. Individual team goals have to map the company goal.
- Build a product or service that people need, which won’t need a lot of effort to generate revenue from. For example, Oyo Rooms saw an empty space and filled it.
- Act faster on smaller decisions. They don’t have major repercussions if they’re wrong, but sitting on them for long can hurt the growth of the company.
- Make sure each version of your product or service is better than the previous. Take the example of Apple. Their OS only gets better with each new version
Mistakes that startups make and how they can overcome them
- Copying a business idea or model. What has worked for someone else might not work for you.
- Biting more than they can chew. If you try doing too many things at the same time, you won’t excel at any one of them.
- Poor choice of location. To get the best talent in the country, you have to set up at one of the major cities.
- Focusing on the glamour. A startup cannot afford to get carried away by the media attention they get; it needs to focus on its core business.
- Not defining a target audience. If you don’t know who is going to be using your product or service, you won’t be able to build a great one.