Startup is a company or an organization that is in its early stages of business being in nature of high risk but high potential for growth. This is usually a unique business model which offers products or services in a unique way. This creates a risk but possess significant returns.

Newly launched startup owners or entrepreneurs are usually busy in focusing on product development along with funding their resources but end up ignoring the most important aspects of the business that is the legal structure/entity of the business, securing the Intellectual Property rights, important documentations (such as contracts & agreements) and Accounting/Taxation.

Business Structure

In order to operate the business, the startups or newly launched businesses must get themselves registered with the relevant authorities which means to establish a legal entity for their businesses. A strong legal foundation or structure is indeed helpful and the benefits of each type of business structure depends on the goals and vision of the company. In Pakistan, we have the following modes of business structure.

1. Sole Proprietorship
2. Partnership (Association of Person)
3. Limited Liability Partnership (LLP)
4. Single Member Company (SMC Private Limited)
5. Private Limited (Pvt Ltd)

Sole Proprietorship

This type of business is the most basic and easiest to form. Proprietorship business are registered only with the Federal Board of Revenue (FBR) on the name of the business owner. Any liability of the business remains recoverable from the business owners.

Partnerships

Partnership business are formed between 2 or more partners. The responsibilities, rights and share of profits/losses amongst the partners are laid down in a partnership deed to avoid any sort of legal complications in future. This business is registered with the Federal Board of Revenue (FBR) along with the Registrar of Firms department. Any liability of the partnership business also remains recoverable from the partners of the firm.

Limited Liability Partnership/Private Limited/Single Member Company

All the above form of businesses are regulated by the Securities and Exchange Commission of Pakistan (SECP) along with the FBR. Features of each form of businesses may vary but the common attribute is that they all are highly regulated through the instructions of the SECP.

Startups who tend to take funding and investment from external investors other than the angel investors are advised to register their businesses under the above mode of business. This makes the investor comfortable and feel secure on his/her investment. They are limited by liability in nature.

For a detailed information of the above heads separately, click here.

Intellectual Property

Apart from the legal structure and foundation of the business, one of the key assets to the enterprises are their Intellectual Property (i.e., Trademarks, Copyrights, Patents, etc.)

Intellectual Property Asset may also be termed as “creations of mind” which may include logo, inventions, unique designs, symbols, literary and artistic works which makes the business stand out amongst the competitors and creates it own brand value for the customers as well as other stake holders.

Securing the legal rights over the Intellectual Property of the business is not mandatory but is highly advisable in order to safeguard from any third-party influence and reputational damage. It helps the business to secure their interests, create goodwill value and build brand image in the market.

Managing the Intellectual Property effectively, controlling it and licensing your intellectual property also opens up different revenue streams for the business.

Important Documentations (Contracts and Agreements)

After the registration of the enterprise and securing the legal rights over the Intellectual Property, the most important aspect of business operations in terms of legality are the contracts and agreements amongst the stake holders of the business.

It helps to clearly communicate policies and procedures, ensures compliance with laws and regulations, and aids in decision making and problem solving. The rights and responsibilities of all the parties, helping the startups grow, needs to be clear and documented in order to secure the interest of the business and create a legal binding. It might be contracts with silent partners, investors, supplier partner, or any other stakeholder involved in business operations. Conclusively, good documentation can help the businesses to protect from legal liabilities and disputes. Furthermore, is also ensures the smooth operations and growth of the business.

Accounting and Taxation

Apart from above, maintaining the business records or finance holds the equal importance as compared to any other aspect of the business. It provides the following benefits to the enterprises.

1. Keeping a good financial track on the business activities. This helps to take informed business decisions such as expansion of business, investing in other operations (such as buying new machinery, etc.) or hire additional staff. Furthermore, it also helps the businesses in financial planning and budgeting.
2. To monitor the business operations against the goals and take corrective measures if required.
3. Reporting to all the relevant stake holders of the business such as partners, founders, investors or lending institutes. Any lending institute or investor wants detailed information of the business finance to monitor the success of the business or the potential growth and return.
4. To comply with the government and tax authorities (in Pakistan, FBR, SECP, etc.). This helps to maintain proper accounts in compliance with the government rules and regulations which ultimately helps to file the tax returns accurately.

In the early stage of the business the startups may find it difficult to manage accounts themselves. This may be possible that they might possess better skills in their own field rather than in finance. Also hiring a full-time accountant can be expensive. In order to cater this issue, the startups can hire Freelance accountants, online book keeping software’s and other various options available.

Syed Muhammad Suleman Jawed

Tax Executive and Legal Researcher

Jawed Aijaz & Co.