Basic legal compliance that prospective proprietors and entrepreneurs should know before starting a startup

basic legal compliance for startup (2)

In recent years, social platforms and technologies have aided startups to boom. Either it is Flipkart, Swiggy or Urban Company have made directly accessible at your fingertips by simplifying the tedious process.

New age startups and their contribution to the Indian economy are celebrated on the occasion of National Technology Day. So, it is equally significant for us to gain knowledge about the provision of the legal system supporting of Startups.

There are numerous questions that we must know like the laws that need to be followed, registrations are required or not or having websites and apps are enough and about the special govt. Schemes for startups.

To create an awareness about it, we have come up with some of the legal compliances and regulations so that you can turn your adept ideas into business as startups.

Choose the type of business

Importantly, understand the type of business you are starting – a sole proprietorship or a partnership firm or a limited liability partner or a private limited company.

Each structure has its own set of rules and regulations that decided whether registration is required or not, how much tax a company must pay and what kind of license is needed. For instance, sole proprietors do not require any registration whereas partnership firms have this as an option, but it is mandatory for LLPs and private limited companies.

Under Indian law, the following companies can only be considered as startups

– private limited company

– Partnership firm

– LLP

Register your startup

It is mandatory to register your startup as a legitimate business before commencing operations. As per the type of company you are starting, follow the required registration process such as acquiring the certificate of incorporation or partnership registration if required.

Register with Startup India

Startup India was launched in Aug 2015 by our Govt. To promote innovation and robust status ecosystem in the country. Registering with this provides many benefits that can be claimed easily such as tax exemption that could help to boost your startup in the early stages.

Here are the following eligibility criteria to register with Startup India

  • Your business can either be incorporated as a private limited company, registered as a partnership firm or a limited liability partnership in India.
  • Its incorporation or registration must be less than 10 years ago.
  • Either Incorporated or registered, its turnover for any of the financial year must not exceed Rs 100 crore.
  • It must be working towards innovations, development, or improvement of products/processes/services. Otherwise, it must be a scalable business model with a high potential of employment generation or wealth creation.

Note that any entity formed by splitting up or reconstruction of a business that already exist do not consider as a startup.

Founding agreements and employee contract

It is always advisable to prepare a founding agreement if your business is in partnership. This must have the roles and responsibilities of each founder along with operational details – compensation, non-compete, contingency plans in case of disagreement and the like one. Such agreements would help to have clarity in management and permitting you to scale your business.

Usually, in the early stage, it is common that people employ to their closed one and seen neglecting into employee contracts. Therefore, it can lead to jeopardy in the future. So, make sure to enter into contracts with all the people working for you.

It is notable to outline all the terms of employment such as remuneration, work outputs, and other related details in a written contract in order to avoid any complications.

Know your labour laws

You must know the responsibilities as an employer viz ensuring compliance with all requisite labour regulations. It is an important aspect while starting your business. Labour regulations include following laws on payment of wages, provident fund and gratuity, workplace sexual harassment, maternity benefits, etc.

While registering your startup with Startup India, you can attest a self-declaration for the first one year front the date of incorporation or registration of partnership and can be exempted from inspection under the following laws:

  • The Industrial Disputes Act, 1947
  • The Contract Labour (Regulation and Abolition) Act, 1970
  • The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
  • The Employees’ State Insurance Act, 1948
  • The Industrial Employment (Standing Orders) Act, 1946
  • The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979
  • The Payment of Gratuity Act, 1972
  • The Trade Union Act, 1926
  • Building and Other Constructions Workers’ (Regulation of Employment and Conditions of Service) Act, 1996

Under this initiative, you can even file a self-certified return for the second and third year to continue to be exempted. But certification does not mean you can evade from following these labour laws.

Under the said laws, you are liable for providing safe workspaces for your employees and it will be your responsibility for any kind of derogatory.

Protect your intellectual property

Legally, intellectual property is your innovation that forms the basis of your startup. Under Startup India initiative, registering a trademark, patent or copyright become easier and affordable, otherwise, it is often a complex process.

Startup India initiative also provides financial schemes to support MSME (Micro, Small and Medium Enterprises) and technology startup units in filing international patents. Basically, it is to encourage innovation and recognise the value and capabilities of global intellectual property alongside capturing growth opportunities in the ICTE sector.

Hence, these are a few important legal compliances that you must know before starting your startup. There are many more regulations to comply with, that depends as per the nature of your business. Therefore, it is better to consult a lawyer or an accountant who can assist you in these processes.

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