What is a Startup?
Startups is a newly established company founded to develop or bing a unique product or service to market and make it irresistible and irreplaceable for customers.
What is an MSME & Its classification ?
MSME stands for Micro, Small, and Medium Enterprises. The criteria for the classification is as follows -
A. Micro Enterprises: Investment in plant and machinery or equipment does not exceed Rs. 1 crore and the annual turnover is up to Rs. 5 crores.
B. Small Enterprises: Investment in plant and machinery or equipment exceeds Rs. 1 crore up to Rs. 10 crore and the annual turnover is between Rs. 5 crores and Rs. 50 crores.
C. Medium Enterprises: Investment in plant and machinery or equipment exceeds Rs. 10 crores up to Rs. 50 crores and the annual turnover is between Rs. 50 crores and Rs. 250 crores.
Compliance specific to MSMEs
Section 9 of the MSMED ((Micro, Small and Medium Enterprises Development) Act defines specific companies for which MSME Form 1 is a crucial compliance. These companies submit MSME Form 1 once every six months to the Ministry of Corporate Affairs (MCA).
The listed companies are required to submit an annual return of outstanding payments of MSMEs to the Registrar of Companies (ROC) every year, which includes information on the amount due for payment and the reason for the delay. These companies can file MSME Form 1 only if their outstanding payment to MSME suppliers has exceeded 45 days.
MSME Form 1
The MSME-1 is a half-yearly return that the specified companies need to file regarding their outstanding payments to the MSME. In this manner, the ROC can keep track of the companies that have outstanding dues towards MSMEs and the MSME suppliers who need to receive payments.
Specified companies are companies-
- That have obtained goods or services from the MSME.
- Whose payments to the MSMEs exceed 45 days from the date of acceptance or deemed acceptance of the goods or services.
Compliance with legal, financial, and regulatory requirements forms the very foundation of the long-term sustainability and growth of any startup or MSME. These certifications establish customer trust and show commitment to meeting industry standards and regulatory requirements.
Below is a list of compliance requirements for both Startups & MSMEs
1. Business Registration and Licensing Company Formation
Proper registration under the appropriate form, whether proprietorship, partnership, LLP, or a private limited company. The Companies Act, 2013 and the Limited Liability Partnership (LLP) Act, 2008, govern registrations in India and require startups to submit several documents, including the company’s Memorandum of Association (MoA), Articles of Association (AoA), LLP Agreement, proof of identity and address of the directors/partners and details of the registered office address. The registration process can be completed online through the Ministry of Corporate Affairs (MCA) website.
A. Trade License: It means a trade or professional license that is required for the business by its nature.
B. Industry Specific Licenses: These would correspond to the particular industry regulations addressed by restaurants, for instance, food safety aspects, or the environmental clearances required for a manufacturing unit.
Registration specific to MSMEs -
A. Udyam Registration: MSMEs must register on the Udyam Registration portal to obtain an MSME certificate, which is necessary to avail various government schemes, subsidies, and benefits. This replaces the earlier system of Udyog Aadhaar.
B. Classification: Ensure your enterprise falls under the correct category (Micro, Small, or Medium) based on investment in plant & machinery/equipment and turnover.
2. Tax Compliance
A. Income Tax: The concerned entity has to register itself for income tax and continue to comply with its provisions by filing returns on time and paying advance taxes.
B. Goods and Services Tax (GST): If the turnover is more than the threshold prescribed under GST, then there will have to be registration under it. Timely filing of GST returns and payment of taxes.
C. Other Taxes: Depending upon the business, there may be requirements of compliance in respect of other taxes such as excise duty, customs duty, or state-specific taxes.
3. Labour and Employment Laws
If there are 20 or more employees, ensure compliance regarding employees -
A. Employees State Insurance: Get registered under Employees State Insurance if it employs more than 10 employees and ensure medical benefits as required.
B. Employees' Provident Fund (EPF): Organisation with 20 or more employees must register for PF. However, smaller establishments can also register voluntarily to provide benefits to their employees.
C. Minimum Wages Act: A minimum wage as concerned and prescribed by the law shall be provided to employees.
D. Employment Contracts: All employees shall be provided with formal employment contracts. Every employee shall have an employment contract that requires clearly stated working hours, leaves, and discharge conditions in compliance with labor laws.
4. Intellectual Property Rights (IPR) Trademarks
Branding and logos are intellectual property and, hence should be registered as trademarks.
A. Patents and Copyrights: If applicable, register innovative products or processes under Patents and original content under Copyright.
B. Confidentiality Agreements: Use non-disclosure agreements to protect sensitive business information.
5. Environmental and Safety Regulations Environmental Compliance
Ensure compliance with the environmental regulations on waste management, pollution control, and obtaining environmental clearances. Comply with the regulations at workplaces concerning fire safety, hazard management, and health of employees.
6. Financial Reporting and Audits Statutory Audits
Conduct an annual statutory audit under the statute and ensure filing the financial statements with the regulatory authorities in a timely manner.
A. Internal Audits: Develop internal audits to track the financial health and also adherence to the internal policies.
B. Accounting Standards: Follow accounting standards laid down by the regulating bodies either under the Institute of Chartered Accountants of India or under the International Financial Reporting Standards.
7. Data Protection and Privacy Data Protection
Data protection is becoming increasingly crucial for businesses in India. As a business, it is essential to implement data protection measures, such as secure storage of customer data and complying with data protection regulations such as GDPR, CCPA etc.
8. Anti-Money Laundering and Know Your Customer AML Compliance
Put in place anti-money laundering policies and procedures, particularly in financial services. KYC norms for Customer Identification and Prevention of Frauds.
9. Corporate Governance Board Meetings
Hold Board Meetings and compliances related to the Minutes of Meetings. Holding of AGMs and compliances related to Shareholders' Rights and Obligations. Certain categories of companies are required to appoint a qualified Company Secretary to look after compliance.
10. Sector-Specific Compliance Healthcare
Compliance related to Health-related Regulations, Licensing, and Patient Confidentiality Laws.
11. Compliance with Foreign Direct Investment FDI Norms
Adhere to the FDI norms while taking foreign investment, which inter alia, includes reporting requirements and sectoral caps.
12. Consumer Protection Laws Fair Trade Practices
Comply with the Consumer Protection Acts that ensure transparency and quality with fair pricing.
13. Corporate Social Responsibility Compliance with CSR
If your business has a net worth of ₹500 crore or more, a turnover of ₹1,000 crore or more, or a net profit of ₹5 crore or more, comply with CSR obligations, including spending on social activities and filing CSR reports.
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