Artha Shastra is an ancient scripture that listed out the importance of compliance and governance in every business. The Government has announced that Startup will have a new policy. In the last few decades the forms of business that any Shastra or Law for an entrepreneur which existed was a sole proprietor, partnership or a limited liability company and more recently a limited liability partnership (LLP). The new policy seems to be a little far fetched as there will be yet another policy policing business in India. Among various other legislations, if any entrepreneur can be monitored and regulated it is through Companies Act, 2013 (the Act) or an LLP Act, which is the regulations that register birth and solemnizes death for an entity.
There was no reason to include provisions relating to birth or death of a startup in the startup policy that will disrupt the existing laws and force the regulators to create separate provisions for startup. In the highlights of the policy there are three issues that seem to be justifying this disruption, among other things. An analysis is made on how good a startup, each of these three proposals will make in the startup policy:
a. Mobile app to start a startup in a day – Companies Act & LLP Act to be redrafted
b. Self-certification based compliance – who will certify the self-certification
c. Easy Exit – a company takes 5 to 7 year to wind up
Starting the Business - Mobile app to start a startup in a day:
In India it normally takes a while to incorporate any form of entity. Since August 2013 as professionals we have been struggling to understand Companies Act 2013, a draconian Act that has not ensured ease of doing business in India. All of a sudden a policy to set up a startup in a day seems to be far fetched. It can also suggest that all companies that require registration can get classified as a startup to get started in a day.
The Government has proposed to come out with a Mobile app to start a startup in a day. I wonder if the bureaucrats have advised the prime minister on how many amendment and notifications are required to make to the existing laws to make this proposition a reality.
Recommendation: An app that can fail to get a startup started – a risky startup.
Self-Certification based compliance:
The Companies Act and the regulators have ensured that forms like MGT 14 & MGT 7 require extra smart brains to fill up the details. A pre-certified form by a professional itself is a cause for concern, not on account of the capabilities of a professional but the ambiguity and irregularities of the contents of these forms. It seems the Government has not thought through the process of making this self-certification by the entrepreneur a reality before releasing the idea.
Recommendation: Self-certification seems to be a good idea but it may result in bad delivery – an average startup.
The exit mechanism of any company or LLP in this country will highlight the lack of harmonization among various laws and the lack of co-ordination between ministries. A Company form of establishment that has done business for 3 years takes almost 10 years to wind up in the normal course without any assets to dispose off. In fact a LLP form of establishment that has not done any business after incorporation requires few years to wind up. Before winding up the law requires the LLP to obtain all registrations and even file NIL returns with Income Tax and NIL annual returns with Registrar of Companies before applying for a wind up. The Government should amend laws to facilitate winding up the startup entities before recommending in the policy.
Recommendation: Exit will not be easy with present laws – a bad startup
From Artha Shastra to No Shastra
But the announcements for startup are already made. The regulators will have to start drafting or amending these laws. This is not a good startup story but a chicken and egg story of a startup policy. The government has again hurried through the process to facilitate the startup revolution. Now the government will have to amend laws at the same speed that it has brought in the startup policy failing which the startup will not know whether to bring an idea and start a startup or to start a startup and bring an idea.
Are we heading towards a regime of no Shastra or no laws for startup?