Successful start-ups in India are run by passionate entrepreneurs focused on creating unique solutions that deliver customer delight. While it is very important to have a strong focus and knowledge on customers and the market, it is equally important to have a good understanding of the basic laws that apply for the smooth operation of the business in order to keep a distance from the failures of start-ups.
Reason for Failures of Start-ups in India
Listed below are the reasons of failures of start-ups in India, which are as follows:-
Failing to Choose the Right Business Structure
We have seen businesses struggling to choose the right business structure that suits their needs. Each business structure has different implications. There are mainly three business structures that can be registered in India.
The Businesses can be registered, a body corporate under the Companies Act. The following are possible:-
It gets established when the business is owned by a single person and includes minimal compliance. Although registered, it is eligible to be a legal entity and remains an informal structure.
It is a business structure created by a group of people for profit sharing. There are 3 ways to do this; Limited Liability Partnership (LLP) or a general partnership where the former body acts as a body granting all legal rights.
Choosing a structure includes considering the size as well as the type of your business & how you envision its growth. Generally, a sole member may prefer a proprietorship firm or OPC. However, to take advantage of other structures, some founders rely on family members or friends to meet structural needs.
Some businesses require a license to start as a part of mandatory compliance. For example, FSSAI license for food businesses. Start-ups in India needs to be careful in complying with licensing requirements because the consequences of not doing so can put businesses at great risk of facing lawsuits.
Ensure that your start-up has all the necessary and optional licenses or registrations such as Udhyog Aadhar -MSMEs to increase fundraising opportunities.
An ideal way is to consult business professionals and ask if your start-up requires a license. Be sure to prepare and apply documents if necessary. An important document is the business incorporation certificate, on the basis of which necessary licenses can be sought.
Read our article:Benefits of Startup India Registration in India
Accomplishing Contracts & Agreements
Such functioning dependencies will effect in an agreement that includes work policies and employment criteria set by the start-up.
An employment contract includes work commitments, deliverables, and salary details along with ESOP details if offered. If you are starting up, you must gain clarity on such aspects and having a contract helps. Ultimately, this will reduce the risks of uncertainty to help scale effectively.
Although vendor agreement is not compulsory compliance, it is also best for those people to be abided in order to keep a distance from failures of start-ups. This is to promote long-term synergy to secure business transactions and to equate symbiotic demand and supply relationships.
Also, there is a trend among start-ups India these days wherein a co-founders’ agreement and shareholders’ agreement is done. Such an agreement would help demarcate the business-specific roles and responsibilities of co-founders and others.
Safety Works & Minimum Wages
The Ministry of Labour & Employment has laid down certain safety, health, and environmental regulations for the workplace. If your start-up works with a hazardous substance or if workers are exposed to certain chemicals, then adherences to such standards are compulsory. Do not endanger your business by avoiding such set standards.
There is also the Payment of Minimum Wages Act, 2005 which increases the minimum wage payment as per industry norms. Again, start-ups that undertake labour for diverse tasks must meet those criteria to keep themselves obedient. The reason for this is that a start-up is responsible for the health and safety of its employees while they are at work.
A risk assessment is recommended to perform so as to help and identify potential hazards and measures to deal with them.
Intellectual Property Protection
Intellectual property is one of the most valuable assets of any business. Start-ups must take appropriate steps, especially to keep them safe. The below mentioned are the most common intellectual property protection that an entrepreneur can devote efforts to his business in order to keep a distance from failures of start-ups.
A patent protects the products/processes that are inventive, novel, and usable. For example, a software company will have to file for a patent if they have created a unique and new computer program.
Trademarks protect brand names, logos, signs / slogans, etc. For ex., if companies like Apple had not applied for their famous logo, they would not have created a billion dollar company.
Copyrights are very important for start-ups in India that have businesses related to creative, artistic works. A multimedia company should register songs / movies made by it.
Importance of Intellectual Protection
- It provides maximum protection from infringers and is a legal weapon that prevents others from using the brand.
- This prevents start-up security from maximum theft and prevents any counterfeit product from entering the market.
There are a lot of other things that start-ups in India should not ignore when it comes to being obedient. Maintaining a compliance partner onboard is the best way to start so you can focus on doing business and keep distance from the failures of start-ups. Taking care of statutory compliance on a monthly basis, from company registration to day to day tracking of business, all this needs to be done properly. The main aspect is to relieve you from such burden and perform the business activities without reinventing the wheel for branch out an altogether new department. Kindly associate with the CorpBiz expert to know more about the reason of failures of start-ups in India.
Read our article:What is the Procedure for Start-up Registration India?