Starting a new company can be both an exciting and overwhelming experience. There exists immense excitement in taking an idea and turning it into a legal business venture that also comes with a considerable amount of planning and thought. Incorporating a business is not simply a matter of filling out forms and obtaining a name for the company. Incorporating a business signals the start of the process of establishing a legitimate legal foundation for the corporation as it pertains to future employee engagement, expansion of the business, and compliance. Business owners often go through incorporation without understanding the nuances of the process, and inevitably, the business owners face some legal, financial or operational challenges, subsequent to the formation. It is also helpful to recognise what things to do and what not to do before creating a new corporation.
This blog will provide an organised description of the dos and don’ts prior to incorporating a new company, allowing aspiring entrepreneurs to make educated choices and begin their entrepreneurial journey correctly.
Do’s Before Incorporation
1. Undertake Extensive Market Research
Before starting a business, it is critical to be knowledgeable about the market landscape. If you do not conduct extensive market research, you will not know who your target market is, evaluate the competition, or ascertain whether your proposed products or services will be sold. Conducting extensive market research will confirm your business premise and aid you in devising reasonable structures for marketing and pricing based on concrete evidence. Establishing a solid research foundation will mitigate the risk of failure in the early life of a business, as well as provide a rationale for your envisioned use of the business idea in the future.
2. Choose the Right Business Structure
The business structure you establish for your new company, be it as a sole proprietor, partnership, limited liability company or private limited company (Pvt Ltd). Each structure has ramifications from a legal, tax and compliance perspective. E.g. Private limited companies (Pvt Ltd) offer reduced liability protection for owners, but have a higher compliance burden than a sole proprietor.
3. Create a Comprehensive Business Plan
A business plan is the roadmap for your company. It develops goals, plans, and financials. A solid business plan is helpful for internal clarity. It is equally important to demonstrate to investors or banks. Your business plan should include sections on marketing, management, funding, and growth. You want to start your business with a clear purpose and journey, and a business plan containing realistic plans will help.
4. Ensure Legal Compliance Prior to Incorporation
Legal compliance is one of the most critical concerns before incorporation. This simply guarantees that your name is not already used or otherwise is not usable. Another factor in legal compliance is creating the incorporation documents, such as your Memorandum and Articles of Association. Using a corporate lawyer or a company secretary will ensure that all legal materials satisfy the requirements of governing regulations. Complying with the law avoids conflict or penalties, so it is vastly important to conduct legal compliance properly.
5. Obtain Adequate Financial Resources
Inadequate financial resources are one of the most common reasons Startups fizzle. You should consider your estimated start-up costs and operating costs before the start of the business, before you even file a corporation. You should also think through your financing options, whether it’s personal savings, VC funding, angel investors, or a bank loan.
6. Protect Your Intellectual Property
If your business concept includes a unique product, logo, design, or technology product, you need to protect the intellectual property. You should register a trademark, patent, or copyright before filing any documents for incorporation to prevent competition from taking advantage of your innovations. Having that type of protection offers additional credibility to your company and greater value to investors if you’re seeking this method of financing or partnership with an existing company.
Don’ts Before Incorporation
1. Don’t Rush to Register
Many entrepreneurs are eager to get things going and rush through the registration without being prepared. As a result, they often submit incomplete documents, misfile their very important registration form, or forget to check the balance of the compliance requirements prior to filing the registration. A rush may also adversely impact a name or a structure selection process. Understanding each registration process along the way will help ease the incorporation and potential costly consequences later.
2. Don’t Skip Planning Financially
Not thinking about your finances prior to incorporation is the most common mistake the budding entrepreneur may make. After all, without knowing your expenses, revenue forecast, and break-even point, your company may run into cash flow difficulty immediately after getting established. Budding entrepreneurs should also consider ongoing costs, including taxes, annual filings, and any other regulatory filing fees. This will help build realistic expectations and strategies. Ideally, getting a financial advisor or accountant before incorporation is best.
3. Be Mindful of Local Laws or Tax Issues
Each region or country will have different corporate regulations or taxation rules. Not understanding these can lead to issues or sanctions for your startup down the line. As an entrepreneur, you should make a point of understanding labour rules, tax registration, and annual reporting as they pertain to your industry and workplace.
4. Don’t Copy Competitors Without Context
Competitor analysis is helpful and part of good research, but to jump into copying its various strategies without knowing the reasons will be detrimental. What works for one company may not work for you based on discrepancies in the target market, budget, or business model. Instead of mimicking their approach, stay creative and implement something that is different from them. Consumers and investors are often looking for authenticity or originality.
5. Don’t Forget Documentation and Record Keeping
Documentation and record keeping are often overlooked but are critical to a company’s long-term stability. All agreements and financial records, as well as any legal documents, should be maintained accurately from day one. Failure to recognize these practices can complicate an audit, a new round of funding, or any dispute that arises.
Conclusion
Company Incorporation is an important milestone for entrepreneurs, and it involves more than just passion. It requires strategic thought, financial discipline and an understanding of legal responsibilities. By undertaking the right do’s, such as completing market research, writing a business plan and ensuring compliance with the law and avoiding the critical don’ts, such as not completing a financial plan or rushing the registration, entrepreneurs can set a solid foundation to start a new venture.
A little planning and preparation prior to incorporation can go a long way toward preventing expensive mistakes and also teach investors, partners and clients to trust you. Ultimately, planning and preparation can set your incorporation up for sustainable growth, compliance and long-term success in the business environment.
