Paytm Payments Bank has recently been slapped a penalty of Rs 5.49 crore by the Financial Intelligence Unit-India for violations of its “obligations under the PMLA” rules, while edtech major Byju’s was late in reporting its earnings for recent few years to regulators. While the two companies are currently undergoing a tough period, experts say startups and companies need to step up their compliance to avoid such a situation.
Mathew Chacko, partner at Spice Route Legal, said startups in India, buoyed by some adventurous investors that encourage this behaviour, are loose on compliances and they carry this forward even after they become much larger.
“This generates a large level of suspicion amongst the regulators and enforcement authorities. Startups would be well advised to consider legal and regulatory compliances as a regular part of their mandate — focussing on building companies and products that last — as opposed to those that play the venture capital game,” Chacko said.
Sandeep Agrawal, director and co-founder at Teamlease Regtech, said ensuring startup compliance is not just a legal obligation, it’s a strategic imperative for entrepreneurs in India. Beyond avoiding penalties, compliance fosters trust, a cornerstone for any business. It signals our commitment to ethical practices, building a reputation that resonates with customers and investors alike.
“From company registration under the Companies Act, 2013, to complying with tax laws like the Income Tax Act, 1961, and the GST Act, 2017, startups need to dot their i’s and cross their t’s. Safeguarding intellectual property through patents, trademarks, and copyrights is another critical step, as is adherence to employment laws, providing benefits like provident fund and gratuity,” he said.
Necessary Compliances for Startups
Highlighting key areas of compliance for startups in India, Bhuvan Rustagi, co-founder and COO of Per Annum, said compliance is important for startups to avoid penalties, protect assets, build trust and credibility, and for smooth operations and growth.
Company registration: Choosing the right business structure and registering with relevant authorities like Registrar of Companies (ROC).
Tax compliance: Adhering to tax regulations, including filing returns and paying taxes on time.
Labour laws: Following labour laws regarding employee benefits, wages, and working conditions.
Intellectual property: Protecting your intellectual property (IP) through patents, trademarks, and copyrights.
Data privacy: Complying with data privacy regulations like the Personal Data Protection Bill (PDPB) when collecting and storing user data.
Industry-specific regulators: If you’re a fintech business then you will be regulated by either RBI or SEBI or both; if you’re an e-commerce platform then the IT Act and the Ministry of Commerce and Industry are the institutions overseeing that; if you’re into food and beverages then you have to answer to FSSAI which comes under the Ministry of Health and Family Welfare. These are just some examples and startups must look into all the regulations which may apply to them to ensure utmost compliance.
An expert also said that startups also need to comply with financial reporting with the regulator on a regular basis.
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