Lawyers from VakilSearch Show you the WayThe e-commerce industry inIndiais one of the fastest growing in the world and a bright star in the India Inc. story. Many hot new startups are mushrooming in the e-commerce space, to cash in on the convenience, scalability and cost advantages the web provides.
Just to put some numbers on the table, the e-commerce sector has crossed the Rs. 10000 crore mark and although a bulk of that comes from online travel, other sectors such as retailing online are growing fast too. It is a matter of time really before people start looking for everything online, even more so because of the Android proliferation.
So let us look here at some of the core legal things that you as a e-commerce venture should look at:
- Starting up: e-commerce can be done even by a proprietorship, which can be one man (or woman) in his garage painting and selling paintings online. A proprietorship needs no registration, just a bank account in the name of the firm (or even just a personal bank account). A Partnership needs a Partnership Deed, which you have to prepare, and a Company and an LLP need to be incorporated.
- Copyright and Trademark protection: Absolutely recommended. Online, you are one of the millions of undifferentiated sellers. The only thing that differentiates you is your trademark and logo / slogan. So protect those.
- Registered office: A company needs to have a registered office, because this is mandatory in Form 18 (while incorporating the company). A Partnership can be based in the homes of one of the partners, and a proprietorship can be a classical garage start-up before the funds come along to make the transition.
- Making the transition: An oft asked question is how (and whether to convert to a Company format) from a proprietorship / partnership. This is a difficult question to answer but there is one rule of thumb that you can follow. Incorporating a Company is expensive, and can cost your business Rs. 25000 to Rs. 35000. Can you afford that? Is your monthly revenue at least that much? Or do you expect it to be in the near future? If the answer to any of these questions is yes, go ahead and form that Company. Else wait it out till the time is right.
- Taxation: If you are selling products online, you may need to register with the VAT authorities or for CST. If you are providing a service, you may need to get Service Tax registration. Note that there is a monetary limit below which these registrations are not necessary. This limit ranges from Rs. 5 lakhs to Rs. 10 lakhs, and may differ from State to State.
- Patent protection: Patent protection is recommended only for technology startups that have something that they believe will be very valuable if only they have the right to use it. What do we mean? The whole basis of patenting something is to enjoy exclusivity. So if you have created something that can bring great financial rewards if you were the only user of the technology, patenting is recommended. Just remember that it can cost between Rs. 1 lakh and Rs. 2.5 lakhs to get something patented, and it takes 4-7 years and a lot of your time to get it done. So take the plunge if you thing it is worth it, and ask your lawyer before you do.
- Capital: Keep your e-commerce setup as lean as possible, and if you are getting funds, show them as a loan on your balance sheet with 0% interest (if they are from your family, friends or other benefactors). If you are on the verge of being funded, discuss the treatment with the angel or the VC funding you. Keeping it lean is essential for tax purposes as well.
- Contracts: Every company will need to enter into multiple contracts, and a great error would be to draft those in a hurry. Be careful, study the situation and draft agreements that suit you. What’s more, enter into Non-Disclosure Agreements with your suppliers, vendors and affiliates. They are a cheap and temporary fix to your confidentiality needs. If needed, also enter into non-compete agreements but remember that inIndia, non-compete agreements are slightly difficult to enforce in a Court of law.
This article is brought to you by VakilSearch
VakilSearch is India’s leading online legal services provider for businesses and individuals. As the official partner of the Confederation of Indian Industry (CII) and knowledge contributor to Sulekha.com, the Hindu Business Line, Entrepreneur Magazine and the All India Rubber Association, VakilSearch reaches out to thousands of businesses, entrepreneurs and individuals on a regular basis. So when you visit vakilsearch.com, you can be assured of quality legal guidance and comprehensive documentation for your business and personal needs, at affordable prices.
Read VakilSearch’s previous article on “How To Register A Trademark”
