Legal considerations for every startup business

 According to Merriam-Webster Dictionary, Start-up means “the act or an instance of setting in operation or motion”.

Here’s a quick guide for startups to know the basic incorporation and other legalities involved.

 

Registration of a start-up:

It is very important for a start-up to be in a legal form of business. It can be a one-person company, private limited company, partnership firm, limited liability partnership or sole proprietorship.

The whole point here is to analyze what can be the best option for your start-up considering the budget of the organization:

A single founder looking to start a Private Limited Company can choose One Person Company initially which mandatorily gets converted into private limited company subject to fulfillment of certain conditions as laid down in Companies Act, 2013.

Single founder or multiple founders having individuals or businesses as customers and amount involved in a transaction is high, should choose between private limited company, LLP or one person company.

Single founder or multiple founders who are not confident enough about their start-up should stick to Sole proprietorship or Partnership respectively.

Labour Laws:

Human resources related laws or employment laws in India do not stem from any single legislation and there are over 200 laws at the federal level and the state level. Essentials one include:

Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

Maternity Benefit Act, 1961

Equal Remuneration Act, 1976

Payment of Bonus Act, 1965

The Payment of Gratuity Act, 1972

Employees’ Provident Funds and Miscellaneous Provisions Act, 1952

Employees’ State Insurance Act, 1948

Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959

Financing:

Venture Capital investment is the most formal way. Despite the young age of the start-up, the investor will usually conduct a due diligence on the Company.

 

Obtaining a License:

Licensing depends on the nature of business. One should contact their counsel for details regarding the same as ignorance of law is not an excuse in legal matters.

 

Contract Law: 

Contracts are indispensable tools of entrepreneurs. Hence, basic knowledge of certain fundamental principles of contracts certainly helps. Contract Law in India is governed under the Indian Contracts Act, 1872.

 

Ways of Dispute Resolution: 

Disputes are inevitable in today’s business world. Knowledge always helps whether it is about the formal (how court cases work) and informal (arbitration, mediation, conciliation, etc.) ways of dispute resolution.

 

Accounts and Taxation:

Indian Tax laws are divided into two types: Direct Taxes, as the name suggests, are taxes that are directly paid to the government by the taxpayer. It is a tax applied on individuals and organizations directly by the government e.g. income tax, corporation tax, wealth tax etc. Indirect Taxes are applied on the manufacture or sale of goods and services.

 

Risk Management:

A start-up should keep in mind, the risk involved in the day to day regime of their work:

For an e-commerce/internet based company:

The minimization of the liability of the start-up on the internet largely depends on the nature of representations made by the start-up on its website, like Terms of Use, privacy policies, and the usage agreements.

The IT Act, 2000:

With the computerization of the Ministry of Company Affairs, digital signatures have gained significance as a convenient way for foreign companies to conduct their Indian operations. This act recognizes such transactions.

Content Regulation:

Laws primarily applicable include the Indian Penal Code, 1860, the Indecent Representation of Women (Prohibition) Act, 1986 and the IT Act itself, amongst others.

 

Intellectual Property Laws:

 

There are broadly five types of Intellectual Property Rights (IPR’s) that a startup needs to protect to leverage its intellectual property, which are: (a) Patents, (b) Copyrights, (c) Trademarks, (d) Designs, and (e) Trade Secrets.

The information provided in the article is a general overview on how a Start-up should be legally ready. One should always consult a Lawyer and other professionals for customized service according to the Start-up’s requirement.