GOODS AND SERVICES TECH

A legal startup is doubling its business helping other startups navigate the GST

Quartz india
Quartz india

It began in June with a stream of panic calls from small-business owners who had just heard that the goods and services tax (GST) was actually kicking in. All they had were a few weeks to become GST-compliant, which meant moving to a new online tax-filing system, leaving them desperate for help.

Vakilsearch, an online legal services platform that serves over 300,000 entrepreneurs and small businesses, had received a few odd requests earlier. This spurt in GST-Mayday calls, though was different. The six-year-old firm helps small business owners with just about any professional service—from incorporating the business and legal compliance, to winding up if unsuccessful. Its clients include Indiaproperty.com and Housing.com, among thousands of others.

But since the GST kicked in, revenues from tax-related services alone have grown from single digits to nearly half of Vakilsearch’s overall business. For this Kalaari Capital-backed firm, India’s biggest tax reform has opened up a goldmine.

India has nearly 50 million small and medium enterprises (pdf), and any business with a turnover of over Rs20 lakh must comply with the GST. Many of these entrepreneurs have neither enough knowledge of the GST nor the in-house capability to turn GST-compliant. So, they are low-hanging fruits for firms like Vakilsearch.

“The GST is going to digitise taxation…digitisation is definitely going to drive a lot of demand to online services and we are in a good place,” said Hrishikesh Datar, the 29-year-old CEO of Chennai-headquartered Vakilsearch.

Making legal services simple

Vakilsearch traces its origins to Datar’s time as a final-year student at the National Law School of India University, Bengaluru. During long hours spent with people from entrepreneurial hubs like the Indian Institute of Management Bangalore, he realised that startups often had trouble dealing with government agencies, lawyers, and accountants. “A lot of people there needed high-quality, straightforward, affordable legal services,” Datar explained.

So, he started Vakilsearch as a marketplace where lawyers could offer their services. But quality turned out to be a major issue, prompting Datar to turn into a legal services provider, offering vetted lawyers, chartered accountants, and experts as consultants.

“Let’s say you want to start a company…you must register it as a legal entity to be eligible for certain benefits…that’s where we step in,” said Niraj Patadiya, Vakilsearch’s chief business officer. A team of 140 people help with incorporation, trademarks, tax filing, regulatory compliances, preparing a memorandum of understanding, drafting non-compete agreements, and more. Even if a startup needs help with preparing a pitch deck for investors, Vakilsearch does that for them. And if the venture fails, they help with closing down, too.

“Most of our customers are first-generation entrepreneurs starting up after college, or (they’ve) quit a job and they’re starting up,” added Patadiya. “They usually don’t have an idea on how to go about registering a company and trademark, and how to protect myself with the legal documentation or founders’ agreements.”

All of this is done online, using technology built in-house on the back of two rounds of funding from Kalaari Capital and a Chennai-based boutique fund. Vakilsearch operates an online dashboard where customers can upload documents and have them processed, which the company insists ensures quality and efficiency, reduces errors, and brings down costs.

For a service like, say, company incorporation, a chartered accountant at a traditional law firm would charge between Rs25,000 and Rs35,000, but Vakilsearch does it for around Rs15,000. Similarly, for trademark registration, one of Vakilsearch’s most sought-after services, it charges Rs2,000. Elsewhere, it can cost up to Rs20,000. This kind of pricing works because of the scale, Datar explained.

Digitisation bumper

Now, with the GST bringing thousands of small businesses into an online taxation system, companies like Vakilsearch have the opportunity to further increase the scale of their operations.

Small businesses that seldom used technology for their business processes must now migrate to an online system to file taxes, besides ensuring that their vendors or business partners also do so. The registration process involves signing up on the GST online portal with the company’s registration documents for approval, and receiving a goods and services taxpayer identification number (GSTIN). It might seem simple, but for small businesses not digitally-savvy, it could be daunting, given the range of exemptions and options available to choose from.

“There is a lot of confusion right now,” said Patadiya, “So we get a lot of calls from our clients asking (questions like) ‘what is input credit’ and ‘how does it work’ and ‘what do I do’.”

Vakilsearch helps its existing and new customers register under the GST regime and with the filing process thereafter. To cater to non-metros, it has launched a Hindi version of its website and partnered with larger corporates such as ICICI Bank.

In the process, the firm’s tax-based services division, once among the smaller revenue streams, has become a major cash cow. Datar expects growth to double by next year, driven mostly by the GST businesses and other digitisation initiatives of prime minister Narendra Modi’s government.

“If you look at the MCA (ministry of corporate affairs) site, they register 6,000-7,000 companies a month, so that’s how big the market is,” Patadiya added. Vakilsearch does only about 500 of these a month. Rivals, including LegalRaasta or ClearTax, also hold a small share of the market, with the majority of the business still being handled by traditional accounting and law firms. One reason for this is that legal services are often customised, making it difficult for online players to build big businesses around this, said Abhishek Jain, a partner at consulting firm EY who focuses on taxation.

Datar, though, isn’t particularly concerned. “I think the customer mindset (has) totally changed,” he said. “Today they are more than willing to try legal services online.” And the GST seems to have opened the floodgates.

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