Understand Legal and Location – Fourth Step to Start a Business

Rightfully so, we discussed the third important step to start a business which revolved around building a ‘Prototype’ for your product. We learned how a prototype helps in getting a fair idea of various factors involved in the manufacturing process of a business and also provides a better insight into the product to make sure that the revised and corrected model of the product can be obtained. On the same note, let us now discuss the fourth important step, and that is to ‘understand the legal aspects and choosing the right location’ for your business, both of these are detrimental to the success of your business.

Legal Obligations

Every business is primarily a legal entity with certain obligations that are attributed to the kind and size of business, its business structure, location and several other parameters. Starting a business is accompanied by proper planning and legal guidance that helps a great deal in making the entire process smooth and hassle free. It is important for a business owner to conduct sampling of a few legal concerns that you might want to address with your attorney before kick starting your business. In some cases, hiring an experienced attorney can be useful to gain insights into drafting contracts, reviewing your lease and understanding the right business structure.

1. Licences

Most businesses require a license to operate legally in its chosen location that varies according to different states and countries the business is operating in, and also on the type of business. For instance, in India, licensing a private limited firm for real estate dealing will cost you INR 50,000 while licensing a proprietorship firm for the same thing will cost you INR 25,000. As business owners, we tend to undermine the need to go for licensing resulting in imposing of fines or other penalties, sometimes a court case or imprisonment for five to six years as well. At the least, a business might need a business license and tax registration.

In addition to a business license, one also needs to get additional licenses depending on the type of business and local laws and regulations. Businesses also need to be licensed in order to manufacture and sell specific products such as liquor, firearms etc. And so, before starting a business, it is extremely crucial to research all licenses that are applicable in your region where you plan to operate your business.

2. Registration

In order to efficiently start a business, every country has its own specific rules for the transaction. And so, as a business owner, it is important to comprehend the legal structure and entities for your business. For example, in the US, most companies opt for Inc. while in India, companies choose PVT LTD or LLP. All of these structures come with their own set of advantages and disadvantages. Each business entity comes with a different set of tax implications, forms of business governance and legal and procedural requirements.

Once the legal structure of your business has been selected, the next thing to do would be to register your company with the jurisdiction that you choose. Also, the registration will have to be renewed each year to ensure that your company is complying to the legal laws and is lawfully in existence. Also, you will have to take care of the fact that the business name that you have chosen is not already in use by any other business owner. A business logo is extremely crucial as well that is a true representation of your brand that needs to be considered at this stage. Once you have considered that aspect, you can reserve the name with the local authority for a considerable period of time while you prepare for articles of incorporation, articles of organization or a partnership agreement and several other formalities.

If you want to know all the registration process and legalities of starting a business in India then you can Click Here.

3. Founder’s Agreement

In the wake of getting a new organisation established, there is no denying that a clear agreement amongst all the founders involved is essential that can encompass all the plausible key issues that are critical to the efficient functioning of the company and to ensure that the operations remain profitable and the future of the company is secured. However, quite surprisingly, a majority of founders fail to understand the importance of a founder’s agreement. A founders’ agreement comes particularly handy in cases where at a later point in time, any additional investment in the company from a new party, or a founder needs to be approved and to grant any equity rights convertible into the company’s equity to any party. In some cases, when a situation comes where one of the founders is not performing up to the best of his ability or is quitting the company, then the founders’ agreement rules can be adhered to highlighting that the founder is eligible for shares in proportion to his performance only.

A founders’ agreement is a platform where all founders can think through the solutions for the future of the company and address any possible business issue that can arise at any point in time. In the case of any dispute later, founders can refer to the agreement and avoid any dispute amicably. A well-framed founders’ agreement enlists all the roles and responsibilities of each founder that paves way for a cohesive and unified environment at the workplace that protects them from facing any legal actions in cases where founders decide to split. In some cases, it also highlights allocation of equity ownership and vesting amongst the founding team. And for these reasons, the resourcefulness of a founders’ agreement cannot be undermined in any way.

4. Association with Outside Parties

In scenarios where a business is in the stage of setting up financing or entering into various contracts with suppliers, business founders should consider signing confidentiality and non-disclosure agreements with clients and dealers involved. This is because these outside parties will be granted access to some inside business information that might run the risk of getting leaked so you might want to keep their privacy intact.

Consider for example the case of a giant automobile company like Volkswagen. Assuming that your startup revolves around manufacturing and supplying bumpers for their cars and you have been approached by Volkswagen to supply, let say, 5000 pieces of bumpers for their new and upcoming model. Then, as a supplier, with a business model that is much smaller as compared to a giant company like Volkswagen, you would want to sign an agreement with Volkswagen to make sure that they do not cancel such a big order at the last hour because by that time, you might have purchased raw materials, hired labor and other expenses too that can result in heavy losses for your company. And so, these agreements become more and more important to secure the confirmation of order and protect the rights of small businesses in particular.

Location

The choice of an ideal location plays a pivotal role in the success of a business. No matter how efficient your products or services are, or how robust your business model is, if the location is not chosen carefully, it can result in adverse effects on your entire business. While the first thought that crosses the mind of every business founder is to set up the base of his business in his or her homeland, one also needs to take into account certain plus points for setting up their business in other regions as well. For different types of business, laws differ from state to state so these need to be adhered to while choosing the location.

1. Where to Take Office

Selecting the right location to establish your business headquarter marks the onset of a viable business plan and this choice should be made meticulously considering all possible aspects involved. A location should be such that it gives utmost ease and comfort to the customers and employees both. Factors like adequate parking facility, road connectivity, and access to public transport and good visibility to clients are some of them that need to be considered while picking out a location for your office.

Some startups also choose to operate their business from the comfort of their home, depending on the initial budget allocated and availability of funds. Also, the location should be such that it is properly zoned for the type of business that one plans to operate. Rules for setting businesses in different locations might change periodically so one needs to be updated at all times to avoid any inconvenience that may arise at a later stage. For instance, large industries that release industrial wastes that pollute the environment are set up on the outskirts of big cities to make sure that lives of inhabitants, flora and fauna are not affected.

2. Rent Variables

Rent variables play an important role in choosing the right location that can ultimately determine the success mantra of your business. Some businesses might demand locations that have a high rent involved while for some, choice of location is just a mere prerequisite and these businesses can thrive even in places with a nominal rent. Hence, it is for the business founders to determine what sort of location would be best suited for their business and they can choose these locations with rent accordingly.

For instance, for Food and Beverages Companies, while their corporate office can be set up in remote locations with an affordable rent, but the choice of food outlets need to be made carefully keeping in mind the demographics of the location and food preferences of the people in the vicinity. You might want to choose a premium and high rent location if your food brand intends to target premium customers while if it is more about ‘to go’ food outlets, one can consider location with more prominence of youths like setting up stores around colleges and universities or in the vicinity of shopping arenas to entice more customers. For instance, brands like Subway have their food outlets located in different prominent locations in cities while their corporate offices are usually in remote locations from where they operate all the major operations of their brand.

3. Amenities

Availability of sufficient amenities is a yet another important aspect that needs to be considered while choosing a suitable business location. After all, when your employees are not happy and comfortable in their workplace, their productivity is bound to go down. As an early stage startup, you might be inclined towards bartering high-quality laptops with cheap ones, but if these laptops tend to slow down intermittently, the overall productivity for the entire day or month can drastically go down, draining you of the potential revenue and profits for your business as you expected.

Hence, providing basic amenities to the employees like A/Cs, good quality laptops, good meals during lunch hours etc. play a major role in uplifting the spirits of your employees and they are geared up towards working hard for the overall success of your company.

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