Blog Details

Author: Advocate Faris Ahmed and Associate Nupur Mehrotra

A Startup is a budding company initiated by young entrepreneurs or founders. These startups are evolved with an aim to launch a product or service which is believed to be different and new in the marketplace or which is expected to have a broader scope in the market. They are initially financed and run by a few or one individual. The concept of entrepreneurs and startups are similar to a large extent. Any startup or entrepreneurship activity comes with high risk, thus the founder(s) must be prepared to handle the risks successfully.

LEGAL BASICS FOR STARTUPS

Any startup can be a success only if it is carried out with focus and ensure it's protected legally. While it's important to understand the market requirements, it is also necessary to know the rules and legal regulation to engage in startups smoothly. It is important that the entrepreneurs are aware of the change in the day to day laws. Below are a few legal basics that all entrepreneurs must abide by before starting any business venture.

• FORMALIZING STRUCTURE OF BUSINESS AND FOUNDERS AGREEMENT- The first and the foremost step is to identify the type of business and its nature. The entrepreneurs have to incorporate the business into a specific type of business such as a sole proprietorship, partnership or limited liability. All these different types come with different legal requirements so special care should be taken for the incorporation to the startup. A private limited company is the best option if the entrepreneur is looking to raise external fund as it provides the much-needed flexibility for investment and stock of the company. A founders agreement is the next basic step.It is a document involving a company with two or more founders, specifying the details of the development of the company.
• REGISTERING FOR BUSINESS LICENSES- Business licenses are an integral part of the business as they are the legal documents which help in the smooth running of the business without any penalties and lawsuits against it. Different businesses have the applicability of different licenses. Shop and Establishment license is generally applicable to all business classifications.A different license may be required by restaurant startups like Food Safety License, if it is e-commerce it may require VAT etc.
• COMPLYING TO LABOUR LAWS-Any startup small or big must comply with labor laws as it hires people to work for them. Few laws supporting the leave, minimum wages, holidays, maternity benefit to the woman workers, sexual harassment at the workplace, etc. will need attention.
• PROTECTION OF INTELLECTUAL PROPERTY
  Any business must ensure that its various trademarks are protected. Thus it is essential to safeguard the designs, logos, codes, etc.
• PROPER UNDERSTANDING OF TAXATION AND ACCOUNTING LAWS
  Taxes like a central tax, state tax or other local tax might apply to different startups. With the introduction of Startup India to promote startup, many exemptions have been given. A startup may take advantage of such exceptions of income tax for three years and also exemption from gains from capital and investment above market value. There are few conditions that the startups must qualify;

1. The startup must not be more than seven years old from incorporation date
2. Turnover should not have exceeded more than 25 crores in any year
3. Any existing business should not have been changed into any startup by splitting it.
4. It should be incorporated as a Registered Partnership, Limited Liability or Private Limited Company.

Also, it must ensure that the proper accounts are maintained and timely auditing is done so that taxation rules are followed.

• EFFECTIVE CONTRACT MANAGEMENT SHOULD BE ENSURED
  It ensures proper functioning of work and procedures are followed lawfully. It ensures free consent of the parties and saves time from legal battles. Adequate formation for the contract will protect the theft of ideas in the world of stiff competition.
• WINDING DOWN THE BUSINESS
  Before shutting down any company the employees, stakeholders, vendors, and customers need to be informed ..Fast track exit mode, Court of tribunal route and Voluntary Closure are the three different ways to shut down a business. All these ways should be adequately analyzed and then implemented.

Complying to these legal requirements forms a necessary step for any startup, and this ensures the smooth running of the business. "While it's tempting to dig into the vision for your company and start making your idea into reality, it is important that founders pause and cover their legal bases” Matthew Faustman.

• GROWTH OF BUSINESS
  The growth of business seems to be the most difficult and challenging situation for any entrepreneur. For any startup to be a success it is essential for an entrepreneur to focus on the positive and negatives point of business. He/she must understand the limitation that their startup seems to have and work on it and also accurately observe the performance.

If these strategies are applied to any startup it will surely respond in a positive way. The approach should be always made with hard work, passion, and most importantly patience. As any strength and growth come only through continuous efforts and struggle.