Increasing awareness to flourish in the business industry.
“Tax and regulatory strategies deserve equal attention for two reasons. First, for effective planning and second, to make the most of your business.”
~ Suraj Malik
Understanding and Comprehending startup laws may not be a piece of cake but they are surely on all of our checklists. These laws are not only essential for anyone who wishes to survive in the business industry but they are also useful for general awareness.
To help you get through these numerous laws and strategies, Headstart recently held a Halloween special workshop on “Trick/Treat – Tax and Regulatory Strategies for Startups.” We had the honor of hosting Mr. Suraj Malik, Partner, BDO India LLP, M&A, and tax. He has diverse experience working and mentoring startups and is actively involved in building the startup ecosystem in India.
To make sure the session is interactive and engaging, Mr. Suraj entertained questions from the audience throughout the session. Even though the blog cannot cover all the numerous topics that he informed us about, this is our attempt to provide a summary and convey the flow of the workshop.
The workshop began with a discussion on Legal Entities. It was a comparison between an LLP and a company. There are various parameters to be considered, objectives to be decided; you will have your answers once you figure out the various technicalities of your business. It was helpful to learn about the advantages and disadvantages of both a company and an LLP, ultimately guiding us in deciding which ones better. ESOPs for Employees, Listing, Headline Tax Rate, Distribution of Surplus Cash, Loan from Non Residents and Issuance of Debt Securities were some of the parameters that were discussed and compared in detail/
“Every car needs fuel, every startup needs capital.” One factor that is common amongst all business is Raising Capital. What is needed is to get a deeper knowledge of the sources from which we can raise capital and to also understand that Debt and Equity are not the only options we have. Sources, Benefits, and Key Considerations of the following sources were discussed in detail –
- Equity- This is perhaps the most costly mode where we feel we have no obligations and the only expectation by the investors is value creation.
- Debt – Even though the chances of risk are slim and investors are not too concerned with value creation, there are a lot of obligations.
- Hybrid – A combination of both Equity and Debt, based on the revenue growth of your company.
“Do not dilute too much too soon” is one of the growth hacks of raising capital. You will need to go to investors occasionally and if you are not left with enough stakes, you will face challenges and hardships.
Deposits are not an easy nut to crack. You need to be careful of loans that you can take and ones you cannot. For this, you need to have a good knowledge of your business venture and the industry that you are operating in. Moreover. Mr. Suraj also gave us a fair idea of permitted sources, ones that are not considered as deposits. The good news is that there is a relaxation for startups. Even though it comes with a few limitations, you can take loans from the members of your company for the first 10 years.
Convertible Notes should be used by all startups these days. If raising capital is becoming a hurdle for you, these notes can come to the rescue. Since keeping in mind the eligibility conditions to be on the safer side are important, they were discussed in depth along with a few of its benefits. One of the major drawbacks of this process is that investors have an option to ask for repayment at any time that they feel unhappy or dissatisfied.
Preferential Shares Allotment Process is another strategy that entrepreneurs are often confused about. The process takes place when investors are asking for shares right after you have participated in a capital raising round. Mr. Suraj gave us clarity on the steps that are to be followed and how essential it is to pay attention to small, specific details. For the first, the audience focused on what businesses can do wrong and land in a soup to make sure these mistakes are not repeated again.
The benefits of Startup Registration are ample, what is lacking is its knowledge. In fact, these days the conditions are not that difficult to adhere to. Post-2016, they have become comparatively easy to fulfill. The best part is that these days innovative and creative ideas are given priority and preference.
Equity Linked Compensation Plans (ESOPs) were a huge part of the regulation strategies. Its benefits opened our eyes to new opportunities and instant ideas that we could utilize. Since it is important to know what our obligations and responsibilities are, Mr. Suraj discussed Tax and Accountability Considerations for both employees and employers.
The last 30 minutes were dedicated to a Q&A session where all the pre received concerns of the audience were catered to. His expert opinion and advice on every participant’s personal business venture made the workshop worth it. He made it a point to not only provide detailed answers but also discuss more than one aspect of each issue at hand. We can say that this was one of those sessions where everyone got their doubts on the topic cleared!
In a nutshell, Mr. Suraj treated us to a fulfilling delight of all there is to know about business laws!
A huge congratulations to Mr. Suraj for helping us smoothly sail through a topic almost all of us keep putting off every time. We look forward to hosting more such detailed, in-depth, and interesting workshops for you in the near future.
It was truly a SpookTacular Evening!
A Volunteer at Headstart