This is a rather late post for last week, but I think it’s better than skipping it totally. Now, I know that some of us entrepreneurs especially the start-ups, are sometimes reluctant to do the formalities regarding legal and statutory including regulatory matters. In some countries it’s quite difficult to even start a business and operate without those formalities, yet in others people start and operate small scale enterprises even for years without those formalities. Being an entrepreneur, you need to know that several interest groups or stakeholders take concern about your statutory and legal compliance.
Even so, can one operate a good enterprise without these considerations? I don’t think so. Isn’t it a bit strange that some of us enjoy illegalities, and informality? Possibly it could be an effort to stay beyond the radar of the tax guys and other regulatory restrictions and requirements, but is it really worth it? This I think is a question that we should consider as entrepreneurs launching out. The size of the business also matters. If you have got big plans you simply can’t afford to be informal and illegal. Can you? So, why should an entrepreneur avoid ignoring legal and statutory matters?
- For several reasons within local jurisdictions, the local authorities including town councils, municipalities, etc require some information regarding business enterprises and other organisations operating in their areas. This helps in generation of local revenue such as licenses etc. The local planning authorities might also require other statistical data that help guide planning and development of the areas. So Mr. Entrepreneur, such entities may come over to you for such reasons. Don’t you think you need to co-operate early enough?
- Beyond the local guys there are the national tax authorities. I guess you know very well that the cost of governance is largely funded by tax revenue. Yes – and any form of value creation and addition is ideally taxed. You wouldn’t want to be found avoiding paying society what you owe it, do you? I see taxation as a way of paying society what you owe it – the services provided for you such as the infrastructure you use etc without monthly levies, are eventually paid for in form of taxes etc. You know what, the national tax guys have lots of laws and power in their favour, and can even compute interest – simple and compound – for the years you avoided tax, and you can just imagine what this can tantamount to? Additionally, when you don’t co-operate they can just get an order to control your bank account. Is it really worth it to get to this level? I don’t think so Mr. Entrepreneur. You can do better than that. Occasionally there could be misunderstandings and possibly some overzealous tax guys who don’t listen – but there are many ways out. It’s good to ensure early compliance. Don’t you think so?
- How about the associations that might relate to your industry eg food industry, transport industry etc. Now, these might not be focused on taxation but largely help streamline the operations of enterprises operating in such sectors. They also do a lot of negotiation on your behalf, with other higher regulatory authorities. These might determine policy guidelines, development plans etc. Economies of scale could also come handy through these associations. Don’t you think you do well to co-operate with these, in your own interest? It’s your choice. I know some people don’t like associations naturally, and prefer to be loners in almost everything they do. I believe that interdependence is more valuable than independence.
- Again, the way the government works, you will find other statutory and regulatory compliance requirements for certain kinds of businesses such as limited companies. I think generally the bigger your business plans the bigger the expectations required from you. One of the reasons for this is that big investments have greater impacts on the economy, society, environment etc and hence cannot just be left to operate anyhow. Issues such as health and safety concerns for the public come into focus. Quality standards and other issues also come into focus. When you start raising capital for your enterprise expansion, say from financial institutions and the public, then there is more government interest in what you are doing Mr. Entrepreneur. Do you know that even failure to file returns of directors in your company could lead to penalties? Do you know that your company could be deregistered for inability to file annual statutory returns?
- What about the ‘learned friends’? Do you know that some entrepreneurs only approach the lawyers when there is trouble coming? Now, this is not a smart thing to do if you really want to build and grow your enterprise. Don’t you agree with me in this matter? Legalising your existence and operations is a starting point. As you craft agreements, contracts etc for supply of services and goods and other business matters, I think you do well to consult so that you avoid silly mistakes that could cost you a fortune. Remember that the business world also has sharks. There are also some species of humans who enjoy getting free things from others – and of course you don’t want to be so dumb and lose value. Some people avoid the lawyers as much as they can, but I think this is uncalled for. Just like a visit to a dentist – you might not like it but it helps a lot. Isn’t it?
- Your enterprise stability, continuity and risk management also to a great extent depends on good management of legal and statutory matters in the business. I know you can list some entities that were forced to discontinue operations due to total disregard for the laws. Good business flows with compliance as the whole word today is very highly regulated.
I guess it’s time to go. I do hope that you have got something good from this article. There is the common saying that forewarned is forearmed. You can’t blame anyone for your ignorance or inaction. Can you? Beyond avoiding problems in your business, don’t you think you do well to assist the authorities do some planning? You make your money from society, and it’s only fair and just I think if your business adds value to society through such compliances.
The Wise Entrepreneur