FAIP 2021 Week 7: Startup Legal, Regulatory & Compliance Environment

Scalable and sustainable businesses are premised on streamlined operations, effective cashflows management, actionable strategic growth plans and compliance to laws and regulations within the jurisdictions where they operate. In Week 7 of the Fie_Labs Agri-Incubation Programme (FAIP), we focused on the last component and dived into the specifics therein from a Kenyan context.

The goal for FAIP Session 7 was to unpack the legal, regulatory and compliance requirements for startups; and support the participating startups to start working on their complaince. We covered a wide array of business formalization matters in this session including business structuring & registration, acquisition of requisite licenses & permits, taxation & statutory deductions as well as standard operating procedures for businesses.

Under the business structuring and registration, we explored the basic forms of businesses allowed under the Kenyan law including sole proprietorships, general partnerships, limited liability partnerships, private limited companies and public limited companies. We dived into the pros and cons for each and identified the requirements that need to be met when one registers their business under each form of business. Key take away from this segment was for founder to start with a less complex business structure to help you gain legitimacy as a startup while you build your traction. Later on you can change the business structure based on the unique requirements within your sector or the growth stage of your business.

Business permits and licenses are often overlooked by startups who operate informally, yet they are very crucial in running your day to day transactions. Acquisition of the requisite permits and licenses should be prioritized at the beginning of every year so as to be compliant with local and national regulations; as well as avoid instances where the local authorities storm your business and close it down. The fines imposed on non-compliance are in most cases exorbitant and can easily cripple your startup. In the long-run compliance is cheaper than non-compliance.

Borrowing from the foundation we had laid in Week 6 when discussing Financial Planning & Management; we further explored taxation and statutory deductions from a compliance perspective. Under this segment we dived into the various taxes and statutory deductions that a startup operating in Kenya needs to file and remit depending on the type of business they run. The emphasis here was on understanding the different types of taxes and the legal ways to minimize the tax burden for the startup without engaging in tax evasion. To help the participating startups develop their tax & statutory plans, we outlined all the relevant statutory and tax rates, their due dates for filing and the penalties for non-compliance.

Finally, we had a discussion on streamlining systems and processes within the business through the development and implementation of standard operating procedures (SOPs). Most founders know what needs to be done on a day to day basis and they are able to run with their operations without any manuals for reference. However, this limits the growth for their startups, since they lack a structured way of standardizing their operations across their businesses as they scale.

In this last segment of Session 7, we emphasized on the need to have SOPs that document the business operations for ease of reference by your employees and other stakeholders who interact with your business. The assignment for the participating startups was to start with simple guidelines in bullet points format; then add more content to them over time as their businesses grow and become more complex.