Legal basics startups must know:- www.deekpay.com

The number of start-ups in the country has grown rapidly in recent years. The Government of India has launched the "Startup India" programme to catalyse the formation of a startup culture, and by 2021, about 50,000 startups will be recognised under the programme.

However, for a startup to succeed, you need to understand all the rules and regulations pertaining to it. In other words, you need to understand the laws for startups in India. In this article, you will learn about the standard rules for startups in India.

Legal Basics for Startups

Here are some legal basics that every startup entrepreneur should know before launching their business in India:

Determine the corporate structure and establish agreements for founders and co-founders

As an entrepreneur, the first thing you need to do when planning your startup is to determine the type of business. You must define your short and long term goals and vision. Then decide on the form of company formation such as self-employed, limited company, limited liability company, limited partnership, etc.

Once you have clarified the type of company you want to form, you have to understand the process of incorporating the company. You must research which type of company will best suit your needs. For startups looking to raise capital, a private limited company is the most suitable option as it can help you raise external funds.

Entrepreneurs should also develop a founder's and co-founder's agreement. This agreement will help to clarify the roles, responsibilities, exit clauses, operating terms, and compensation of the company's founders. A founder's agreement can reduce disputes in the event of disagreements between the founders.

Apply for all business-related licences

The best way to start a business is to obtain a proper business licence. In India, different types of licences apply depending on the size of the business. Failure to obtain the necessary business licence may lead to unnecessary litigation. Company registration and agreements also depend on business licences. Government agencies can close down an operating business that has not obtained a licence. Standard licences include the Shops and Commercial Premises Act, FSSAI registration, GST registration, etc. Business licences also vary from industry to industry and it is important that you understand how to legally register your business.

Knowledge of accounting and tax laws

Taxes are an important part of any business. There are various types of taxes such as state tax, central tax etc. The Government of India offers many tax exemptions for startups, such as tax exemption for three years. Businesses can also get tax benefits from investments and capital gains in excess of fair market value. To avail these benefits, a business needs to fulfil the following conditions:

It should not exceed 7 years from the date of incorporation for start-ups and 10 years for biotechnology enterprises. It should be registered as a partnership, limited partnership or private limited company. The turnover of the company should not exceed Rs. 50 million. The start-up should not be the result of demerger of an existing business.

Startups must also ensure that their books of accounts are properly maintained. This will help in timely payment of taxes while preventing accounting discrepancies.

Compliance with labour laws and regulations

Every startup needs new employees. Employment laws cover all employee-employer relationships. Violating these laws can damage the reputation of your business and can cost you significant fines.

Companies set up under the Start-up India scheme are required to make a self-declaration to be exempted from labour inspections under nine regulations.

Protection of trade marks, designs and other intellectual property rights

If you have invented an algorithm in this hi-tech world, the first thing you need to do is to apply for protection under the Patent Act. Startups can benefit from the Startup Intellectual Property Rights (IPR) Protection Scheme, which is part of the Startup India programme.

The programme will protect and commercialise all your intellectual property rights. A team of consultants comprising the Controller General of Patents, Trade Marks and Designs also provides consultancy services to assist you in completing and disposing of patent applications. This will be done for a minimal fee in addition to other services.

Management of commercial contracts

Contracts are vital to any business. To ensure smooth running of your business, you need to check all aspects of contract management. According to the Indian Contract Act, 1872, all agreements will be considered as a contract provided it is made in accordance with the law for a lawful purpose and on condition of lawful consideration and has not been declared null and void.

When starting a business, you need to contract with suppliers and new employees to minimise future risks.

Businesses should also draw up a non-disclosure agreement or NDA to protect the privacy of the organisation when disclosing any information to external parties. This will help protect your business idea.

Clarify liquidation, exit and other provisions for start-ups

Closing a company is a complicated matter for any entrepreneur. When shutting down a business, startups must notify suppliers, stakeholders, employees and investors in advance. You need to plan the entire liquidation process to achieve a smooth exit for all.

There are three ways to close a startup:

Rapid Exit Model Court and Arbitration Route to Voluntary Closure of Operations

reach a verdict

Compliance with the law is vital for any business. If you are an entrepreneur looking to launch a small business in our country, it is important that you understand and comply with all applicable laws to ensure its smooth operation and functioning. The best way to keep your company safe and avoid legal issues is to get professional advice and services. At PayU, we provide advice, monitor your organisational needs and act as your company's partner in securing legal documents.