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Administrative Challenges of Running a Start-up in India

Posted on Posted in Startups

Challenges of running a start-up in India: India ranks around 130th in the world bank rankings of world bank’s ease of doing business Index. It makes India one of the hardest places to do business. It’s shocking but true. The rules and regulations in India are very subjective, non-transparent, old, and involve lot of unnecessary paperwork. This makes an entrepreneur’s job harder; when it’s difficult to run a new business as it is. You must get reasonably good lawyers, accountant, company secretary, consultant etc. for various administrative processes. I am recapping some administrative work you may need to go through in setting up your company and on an ongoing basis:

 

1. You need to choose the company setup structure. Firm, Partnership, Proprietary, Limited Liability Company, etc. You must get a good consultant / accountant / CS and discuss at length what your business plan is and then chose the most appropriate setup Assuming you chose a limited liability company,

 

2. You need to register with ROC (registrar of companies), reserve a name for your company, etc.

 

3. You will need to create Articles of Association, Memorandum etc. (your CA / CS / Lawyer / Consultant can help in this)

 

4. You may need shareholders agreement (if you have various partners / stakeholders / investors), and various other legal agreements on an ongoing basis. You can consider creating additional legal documents like preference shares or options program, client agreements, and various other contracts depending upon the nature of your business.

 

5. Depending on the kind of business you have, you may need to register and get

– Certificate of Incorporation

– VAT registration (if you are selling any products)

– Service tax registration

– If you are importing / exporting, you will need an IEC (import export code)

– You will need to report all shareholders details with investment holdings to ROC

– If you have overseas investors (individuals or institutions), you will need to report their investments to RBI

– Overseas client revenues would need to be reported to RBI through Softex

– If you are a software related business, you may chose to setup under DTA (domestic tariff area), or SEZ (special economic zone) or STPI. They all have different pros and cons that you need to weigh before deciding. In 2012, SEZ carries some tax benefits but you must have at least some export oriented business, STPI    benefits have been reduced over time and are not significant currently.

– Provident Fund / ESI registration (depending on team size and salary)

– You will need to do regular Tax filings (monthly TDS (tax deducted at source)),   Service Tax, VAT, PF, ESI, Income tax, ROC, RBI / SEZ / STPI (if applicable),   etc.

 

6. You may need to get lots of vendors to help in the operations setup process,

– Telecom providers for corporate mobile / phone connections

– Internet providers

– Office space providers

– Bank

– Other equipment (like furnishing, accessories, computers, and other machinery as appropriate)

 

The above list maybe be fairly concise and look simple, but ít’s got the challenges of its own when it comes to executing it.

1. It takes hours of preparation of these regular filings. More often than not, it’s not clear how to provide the appropriate details on various of the documents. Also when it comes to financial matters, its challenging as many tasks would fall in grey area. For example, if you are a software company, selling software products to clients in India, it’s not yet clear if the you need to apply and charge service tax, or vat (value added tax) or both on the sale price. India being a country known for software services and products since decades, has not yet understood and clarified the software pricing from taxing perspective.

2. The preparation of above documents may not follow a rational logic, but some pre-set criteria as set historically by the administrative bodies in India. They have not evolved over time and do not use technology (online processes) enough to ease the burden on businesses, and have not rationalized and simplified any processes for the business owners.

3. Various officials will openly ask you to bribe them. Or else they will delay your work, cause unnecessary hurdles into different processes etc. It is really a tough business / ethical call for you to either wait for weeks to months to do these administrative processes (which will definitely delay your business activities), or you just bribe quickly and move on.  

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