Legal and compliance problems faced by the start ups



Being New to the business the startup faces initial legal compliance trouble as there are many laws which are applicable in a company. Below are few of the problems faced by startups:

  • Generally startups incorporate company without proper guidance. The founder does not have idea what type of legal entity they should incorporate and it creates problems in the future.
  • Once the company is formed, the technology based startups requires entering into lots of Agreements like NDA, Confidentiality Agreement, agreements with Developers and vendors, Terms and conditions, privacy policy to name few. Mostly startups cannot bear the cost of getting them drafted by experts and ends up in finding the drafts from internet and then suitably altering them to their needs which does not serve the purpose and creates trouble in the future.
  • A Startup has to bear lots of cost at the time of Incorporation, cost of regular compliance for a company with government departments and cost of initial business setup before even having surety for getting investment.
  • Further issues of shares for the investment made in the Start-Up by any investor by way of private placement, is time consuming and costly affair for both investor and Start-Ups and thus it restricts many Start-Ups to get the investments in time.
  • Many investors have their pre-drafted agreement for making investment in the company, startups sometimes do not have much of say in the same and ultimately they are left to approve everything what is written in the agreements.

How a law firm is helping start ups

For raising funds it is very important for startups to be professionally organized. Many of the startups who approach any consultant or law firm,  firstly gets guidance as to what type of entity they should form, what shareholding patterns and terms and conditions  to follow between founders and Investors.

The initial guidance is provided on pro bono basis by the firm and then the startups are connected with the industry experts / mentors so that they can be groomed and made ready for seed funding. Following points are very well imbibed in the business of the startups.

  • Innovative manner and different products & Services which are not yet explored by others will attract investors and give added benefit of uniqueness to startup.
  • The startup should have the asset light and inventory less model. The investors would be more interested in such startups which are technology driven and not the traditional office set up.
  • Startup should be fully technology driven and startup should focus on lesser or none human interference in operation of the startup to avoid or eliminate human errors.
  • Business model of startups should be highly scalable so that investor can foresee the expansion and better returns for his investment. The Startups shall focus to operate in not only its domestic state but to whole of India without any geographical limitation.
  • One of the main aspects that startup needs to focus on is good backward and forward logistics integration.
  • The Startup in initial days is only recognizable by its founder and founder is the face for the startup, so the founder has to be passionate enough that he can stand out in crowd. Every investor and Venture Capital looks for the person in whose company his investment is going and whether he would do justice with the investment or not. The founder is the only person that can build trust among the investor and can fetch the right amount of funding at the right time.
  • As the startups go beyond seed round the investors look up for the team of founders and their capabilities. It is the duty of the founder to get the right team in place and at better cost. The founder can manage to get the first round of investment but in further stages the investor is willing to analyze not only founder but its whole team.
  • The startup has to focus on getting itself legally compliant and professionally managed from the start, during the investment and after the investment. It does create the sense of reliability and trust among the investors. Getting professionals engaged will give start up business an edge to outperform and manage to get higher return for their investors.
  • The startup should be able to take the maximum benefit of ever changing consumer behavior and for this the startup should concentrate on providing easy accessibility to consumer through mobile and other movable devices. Everyone wants easy excess and in the present scenario when mostly people do their work from their phones it is very important for startups to attract customers via Mobile apps and like things.
  • One should always think of innovative manner of keeping low budget and high impact market strategy.
  • Startups always come across people and organization that influence their business in positive way; one should always try to build cordial and long lasting business relation with their influencer. It is helpful in keeping the company socially active and strong.
  • Startups should know how to package and market their business matters. An average product that is represented in a more appealing, attractive, and unique way will always have an advantage over its competitors. This may seem to be superfluous, but it does affect buying preferences of customers.
  • Last but not the least, customer today is very adaptable to change. So the biggest challenge is to constantly reinvent yourself and come up with new strategies and services to be able to match up customer expectations.

About the author: Mr. Sameer Rastogi, Managing Partner, India Juris and Chief Advisor Venture Catalyst