Insights · Compliance

The compliance mistakes of the first three years

None of these are exotic. They are the ordinary errors of a business moving faster than its administration, and each becomes expensive at a predictable moment.

Applicable for FY 2026–27  ·  Reviewed 21 September 2026  ·  Reviewed by CA Mitul Thakkar

When each one stops being free
→ Mixed personal and business accounts Becomes expensive at the first diligence or loan → Equity promised verbally Becomes expensive during a funding round → TDS missed on unusual payments Becomes expensive at the first audit → Input tax credit never reconciled Becomes expensive when the claim window closes

The timing is not coincidence. These are the moments when somebody finally looks.

Early-stage compliance failures are rarely deliberate. They happen because the founder is doing eleven jobs and administration is the one with no customer waiting. The pattern is consistent enough to be listed, and each item has a moment when it stops being free.

1. Business and personal money in the same account

The first and most consequential. It makes the real margin unknowable, complicates every tax position, and becomes genuinely difficult to unpick years later.

Becomes expensive: at the first diligence, the first loan application, or the first assessment. Separating from day one costs nothing; separating in year four costs weeks of reconstruction.

2. Equity promised verbally

"We'll sort out your shares later" to an early employee, a co-founder who left, or an adviser who helped in month two.

Becomes expensive: during a funding round, when the person's leverage is at its maximum and the deal depends on a clean cap table. Document every equity conversation the week it happens, including the ones that came to nothing.

3. Registrations obtained and then ignored

A registration taken because someone said to, then never filed against. A dormant registration still carries filing obligations, and nil returns not filed accumulate fees.

Becomes expensive: when the accumulated late fees exceed what the registration was ever worth, or when cancellation itself requires bringing filings current.

4. TDS not deducted on the unusual payments

Salary and the main contractors get handled. Professional fees to a one-off consultant, rent to a relative's property, a payment to a foreign supplier, these get missed.

Becomes expensive: at the first audit, when disallowance of the expenditure is added to interest and fees.

5. Input tax credit never reconciled

Credit claimed from purchase invoices without checking what suppliers actually reported.

Becomes expensive: at the point the time limit for claiming a year's credit passes. Before that date it is a recoverable difference; after it, it is a cost.

6. Statutory registers never opened

For a company, registers of members, directors and charges are a legal requirement, not a formality. They are frequently first created the week before a diligence, in one sitting, which is visible to anyone who has seen a genuine one.

Becomes expensive: the moment a buyer's lawyer asks for them.

7. No contracts with the people who matter

The biggest customer on an email thread. The developer who wrote the core product engaged as a friend, with no IP assignment.

Becomes expensive: when the customer disputes scope, or when a buyer asks who owns your product and the honest answer is a contractor.

8. Related party transactions undocumented

Money moving between the company and entities the founders control. Common, frequently legitimate, almost never documented with approvals and commercial rationale at the time.

Becomes expensive: under any scrutiny, because an undocumented transaction between connected parties invites the least charitable interpretation.

9. The year-end scramble as a system

Not one mistake but the condition that produces the rest. Everything done once a year, fast, under deadline, by whoever is free.

Becomes expensive: continuously, in errors and in senior attention, and invisibly, because the monthly numbers that would inform decisions never exist.

The fix is smaller than it looks

Four things remove most of this:

  1. A separate bank account from the first rupee
  2. A compliance calendar with every due date and one named owner
  3. A monthly close, books reconciled within two weeks of month end
  4. A rule that nothing material happens without a document, including conversations with friends

None requires expertise or much money. They require the decision to treat administration as part of building the business rather than as a distraction from it.

The underlying point

Every item here is cheap to prevent and expensive to remedy, and each one becomes expensive at exactly the moment you are trying to do something important, raise money, sell, borrow, or win a large customer. That timing is not coincidence. Those are the moments when someone finally looks.

General information only. This article sets out general information as understood at the review date above and does not constitute professional advice. Tax and regulatory provisions change, and their application depends on your specific facts. No reader should act on this without taking advice on their own circumstances, and reading it does not create a professional engagement or client relationship.
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