Definition

Compliance refers to standards set by an authority to ensure actions remain in line with legal or ethical requirements.

Description
 

Business compliance and policy compliance are synonymous. These ensure that every entrepreneur or startup follow the same set of regulations. It is about ensuring that all actions within a firm or organisation adhere to the set parameters, which may be legal regulations, industry standards, or internal policies. 

Consider it as keeping everyone on the same page, ensuring that everyone understands what is expected of them and that they are all following the same playbook. Compliance promotes order, uniformity, and integrity in the business environment, ensuring that operations function efficiently and ethically.

How important is it to follow business compliances?
 

Compliance enables entrepreneurs to avoid legal penalties, create trust and reputation, decrease company risks, access funding and investment possibilities, and negotiate complex regulatory frameworks. Startups that prioritise compliance can lay the groundwork for long-term growth and success. Every organisation should have a Compliance Calendar to be aware of any related compliance.

Let us now read why business compliances are important:

Aids in avoiding legal penalties and fines: Business Compliance with laws and regulations is required to avoid legal penalties and fines. Failure to comply with regulatory obligations can lead to significant fines, legal conflicts, and reputational harm. In particular, startups may face more substantial noncompliance risks due to limited resources and a lack of experience negotiating regulatory environments.

Builds Credibility: it's about building trust. When startups adhere to industry standards and regulatory requirements, they demonstrate a commitment to ethical business practices and a responsible approach to conducting business. This not only helps them attract and retain customers and employees but also makes them more appealing to investors, paving the way for future growth and success.

Reduce business risks: Compliance also helps to mitigate company risks. Startups can prevent legal problems and reputational damage by following laws and regulations. Compliance also aids in the identification and mitigation of possible risks before they escalate into significant difficulties.

Helps access funding and investment opportunities: Compliance is often a requirement. Investors and lenders may require startups to demonstrate compliance with regulatory requirements as a condition for providing financing. Compliance can help startups meet these requirements and access the funding and investment needed to grow their business.

Navigating complex regulatory frameworks: Startups frequently encounter complex regulatory systems that might be challenging to navigate. Compliance with rules and regulations assists startups in understanding the requirements and obligations necessary to conduct business in a specific industry or jurisdiction. This can help startups avoid costly mistakes and stay within legal limitations.

Pre funding policy compliance checklist for startups

Compliance with the Registrar of Companies (ROC):

Under the Companies Act 2013, Private Limited Companies may issue shares to raise funds within or outside India through the Preferred allocation process.

The preference share grant issues share to a group of investors selected by a private company. This is one of the fastest ways to raise money and increase your company's equity capital.

Conducting Board Meeting

Please send invitations to all board members at least 7 days before the meeting. The meeting will address the following:

• Valuation Report
• Opening a bank account at a Scheduled bank to receive funds
• Finalizing the draft offer letter.
• Determine the date and time for the extraordinary general meeting (EGM).

Conducting Extraordinary General Meeting (EGM)

An extraordinary general meeting will be conducted to approve a special resolution on private placements. Investors and beneficiaries will receive the required Ministry of Corporate Affairs (MCA) papers.

Issuance of Offer Letter

• Once most board members approve the proposal, the company must send offer letters to investors in the prescribed formats.
• Within 30 days of distributing the offer letters, the firm must submit a comprehensive record of the Preferential Allotment to the Registrar of Companies (RoC).
• Only after completing this step will the company be able to collect funding from investors.

Intellectual property

Startups must safeguard their intellectual property, including patents, trademarks, and copyrights. Patents are issued for novel, practical, and not apparent inventions. Trademarks are issued for words, phrases, symbols, or designs that indicate the origin of goods or services. Copyright is granted to original works of authorship, such as books, music, and software.

Here are some extra tips for meeting the pre-funding requirements:

• Seek advice from a lawyer or accountant familiar with the Indian startup scene.
• Start early and allow enough time to finish the necessary papers.
• Stay organised and keep track of all your documents.
• Communicate with your investors and keep them informed about your success.

Post funding compliance checklist for Startups

Let us now look at the post funding compliance checklist for startups:

• Allotment of Shares

The Private Limited Company collecting the funds must issue the security to the investor within 60 days. The allocation must be made through a resolution from the board of directors. In addition, the reimbursement of the allocation must be submitted to the Registrar of Companies (RoC) within 30 days of the allocation of the security.

This grant statement includes all shareholders' names, addresses, percentage of shares allocated, and other essential details.

• Issuance of Share Certificates to Investors

Issuing share certificates is a necessary and crucial post-funding compliance procedure. These documents confirm the designated investor's ownership of the company's shares, a critical step toward becoming a shareholder. After receiving this certificate, investors will have physical documentation of their investment and position in the company.

• Other optional Compliance

If a new investor requests a seat on the board, he must also approve the option to add more directors.

In addition to these requirements, even if not required by law, some documents are required. It is essential to have a good understanding of the documents needed to find startup funding.

Emerging trends for business compliance 

Harnessing Automation for Efficiency: Get ready for a wave of using artificial intelligence (AI) and machine learning to take care of compliance tasks. This means humans can focus on more strategic work, letting the machines handle the nitty-gritty stuff. It's like having extra hands to help out, allowing teams to do their jobs more efficiently and accurately. Plus, it will enable people to tackle more significant challenges and make more impactful decisions.

Adapting to the Shifting ESG Landscape: It's becoming clear that sticking to Environmental, Social, and Governance (ESG) standards isn't just an option anymore—it's a must-do. Companies face tighter rules and growing pressure from folks caring about sustainability and social issues. The world says, "Hey, we need to do better for the planet and our communities." So, businesses must step up, making changes to meet these higher expectations and show they're serious about doing right by people and the environment.

Geopolitical Tensions Shaping Compliance: With trade tensions and geopolitical changes stirring things up, it's like navigating through a maze with new twists and turns at every corner. To stay ahead of the game, companies need flexible compliance programs that can roll with the punches and adapt to whatever curveballs come their way. It's all about being nimble and strategic, ready to adjust course immediately to ensure compliance and success in the global arena.

Example

An Indian brand that stands out for its commitment to doing things right is Tata Group. They make sure to follow the rules and play fair, sticking to high ethical standards and good governance in everything they do. Whether it's taking care of the environment, making sure their supply chains are responsible, or being open about how they operate, Tata Group shows they're serious about doing business the right way. And because of that, they've earned a lot of trust and respect from the people who count on them, like customers, investors, and communities.

FAQ

What exactly is compliance law? 

Compliance law is like the playbook businesses and individuals need to follow to ensure they're doing things the right way. It's a set of rules and standards by governments and regulatory bodies to keep everything running smoothly and fairly. These laws aren't just about staying on the right side of the law; they're also about doing what's morally right and looking out for everyone involved, from customers to employees and the wider community.

What exactly do we mean by compliance requirements? 

Compliance requirements are basically the to-do list for businesses and individuals to ensure they follow the rules. These are the specific tasks and responsibilities laid out by laws, regulations, and standards that need to be checked off. These requirements can cover many things depending on what kind of business you're in and where you operate. It could be anything from protecting people's data, ensuring financial reports are accurate, or even ensuring the workplace is safe for everyone.