Law Basics Every Startup Owner Must Know

In recent years, there has been a boom in the number of startups. The Government of India had introduced a program called Startup India to catalyze startup culture. Around 50,000 startups got recognition in 2021 under this scheme. 

But to make a startup successful, you need to be aware of all the rules and regulations related to it. In other words, you need to understand the law on startups in India. In this article, you will understand the standard rules for startups in India.

Legal Basics For Startups

Some of the legal basics that every startup, as well as an entrepreneur in India, should be aware of before starting a business have been discussed below:

Deciding the Structure of Business and Prepare Founders and Co-Founder’s Agreement

As an entrepreneur, the first thing while planning a startup is to decide the type of business. You must be clear about your short and long-term goals and visions. Then decide about the company’s incorporation, i.e., sole proprietorship, public limited company, private limited company, LLP, etc. 

Once you are clear about what type of company you will incorporate, then understand the registration process for your company. You must research which kind of company will best suit your needs. A private limited company is the best option for a startup willing to raise funds as it can help you raise external funds. 

An entrepreneur should also prepare a Founders and Co-Founder’s Agreement. This agreement will help define the roles, responsibilities, exit clauses, operative clauses, and executive compensation of the company’s founders. The founder’s agreement reduces the chances of disputes in case of any disagreements between the founders.

Apply For All Important Licenses Related To The Business

The best method to start a business is to get appropriate business licenses. Different types of permits are applicable in India, depending on the size of the business. Failure to obtain requisite business licenses can lead to unwanted lawsuits. Registrations and agreements of a company also rely on business licenses. Government agencies can shut down businesses running without licenses. Some standard licenses include Shop and Establishment Act, FSSAI Registration, GST Registration, etc. Business licenses also vary from industry to industry, and you must understand how to register your business legally.

Get Clear Knowledge About Accounting And Tax Laws

Taxes are an integral part of any business. There are many types of taxes, such as state tax, central tax, etc. The Government of India has introduced many exemptions for startups, such as tax exemptions, for three years. Businesses can also get tax exemptions from investments and capital gains above the Fair Market Value. To avail of the given benefit, businesses need to qualify the conditions mentioned below:

• From its incorporation date, the startup should not be more than 7 years old, 10 years for biotech.
• It should be registered as a Partnership firm, LLP, or a Private Limited Company.
• The turnover of the company should not exceed 5 crores.
• The startup must not be a result of the splitting of an existing business.

Startup businesses must also ensure that proper books of accounts are maintained. This will help in the timely payment of taxes as well as will protect against accounting discrepancies.

Maintain The Labour Laws And Codes As Specified

Every startup business needs new employees. Labour laws cover every employee-employer relationship. Breaching these laws can harm the reputation of your business as well as cost you a hefty amount. 

Companies that have been incorporated under the startup India program have to make a self-declaration to be exempt from the labour inspection under nine statutes.

Protection of Trademark, Designs And Other Intellectual Property Rights

If you have discovered an algorithm in this high-tech world, you first need to apply for protection under the Patent Law. A startup can benefit from the ‘Scheme for Startups Intellectual Property Protection’ as per the Startup India program.

• This scheme will protect and commercialise all your intellectual property.
• The panel of facilitators empanelled by the Controller General of Patents, Trademarks and Design also provide advisory services to assist you in filing and disposal of the patent application. This will be done at a minimum charge in addition to other services.

Management Of Business Contracts

Contracts are crucial for any business. To ensure that the business functions smoothly, you need to check on the various aspects of contract management. According to the Indian Contract Act, 1872, all agreements will be considered contracts provided it is made with lawful consideration for a lawful object and is not declared as void.

While venturing into a business, you need to enter into a contract with your vendors, new employees to reduce risks in the future.

Businesses must also draft a non-disclosure agreement or NDA to protect the organization’s privacy while disclosing any information with outsiders. This will help protect your business ideas.

Clarity About Winding Down, Exit, And Other Rules Of The Startup Business

It is complicated for any entrepreneur to shut down a company. While shutting down a business, a startup must inform the vendors, stakeholders, employees, and investors in advance. You need to plan the whole winding-up process to make a smooth exit for everyone.

There are three ways to shut down a startup business:

• Quick exit mode
• Court as well as tribunal route
• Voluntarily closing the business

Conclusion

Compliance with the law is essential for any business. If you are an entrepreneur willing to start a small business in India, you must understand and adhere to all the applicable laws for its smooth operation and functioning. The best method to secure your company and avoid legal problems is to get professional advice and services. At PayU, we offer advice, monitor your organization’s needs, and keep legal documents safe as a partner to your firm.