The Biggest reason That is considered for the failure of a startup is Lack of Funding and Lack of Management. But here I would like to point out to you that if you are not taking care of Legal formalities and Complying with legal requirements of the country then it could also result in failure of Startup company. So In this article, I will provide you a list of Legal mistakes or Legal blunders that is committed by the Indian startup companies that you need to pay attention to in order to Ensure that your startup business does not shut down.
10 legal mistakes that are made by Indian startups
Top 10 Legal Mistake done by Indian Startups
1). Not choosing private limited company or LLP as a legal entity for business
For any Startup company in India, It is Advisable to Register your Startup company as a Private Limited company or a Limited Liability Partnership. But If you take the case of Most Indian Startup companies, They opt for Sole Proprietorship as a legal entity, As one can open a sole proprietorship firm without registration.
Here I would Like to Point out to you that for any business to be recognized as a startup in India, it is essential that Startup company should be registered as Private Limited company or LLP. Because If it is not then It would not be able to get Benefits or advantages that are provided by the Government of India such startup India loan scheme, Tax holidays, The Venture Capital Assistance Scheme, Raw Material Assistance, MSME Market Development Assistance, Atal Incubation Centres (AIC) and Startup assistance Scheme etc. Also, I would like to tell you that most of The Investors prefer to invest their money in private limited companies or Limited Liability Partnership.
2). Not opting for partnership registration and no formation of partnership deed
If you have started a Startup company as a partnership Firm Then you must get it registered or form a Partnership deed so that your partnership firm will have a proper corporate structure as All the Terms and conditions will be laid out and Will be noted with the registrar of Firms so that any conflict whether legal or Business related can be dealt with properly and accurately. And also online registration of partnership firm will help in getting Startup recognition in India.
3). Delay or neglect of licenses that are required by the startups
Sometimes some startup companies Delay or Neglect to get Shop Act Licenses, FssaI License, Health Trade License or Any other state License that is required to Conduct a Business. Make sure That You are aware of all The Licensing That is required in your state and Country where your business is Located.
4) Register under Taxation Laws
No Company or Business is off limits to radar or Taxes. Startup companies are also taxed and startup companies should also get Tax registration such as GST registration and Startup company Should get Pan Card in The Name Of the company to file income tax return. Startup company should Gst Return Filing and income tax Return.
5). Not complying with Security Laws
As a Startup Company, you should Be familiar with Laws That are set up by the SEBI or Securities and Exchange Board of India, As Sebi Updates Security laws on Periodical Basis.
6) Not ensuring compliances with IT and Cyber laws
The Privacy Policy statement should be formed and displayed on your website and app. In your Privacy Policy statement you should mention how much personal data will be collected and How you will use user Personal Data. Also, your Company should get SSL certificate for App and website.
7) No formation of company policy and procedure
Your Company should Have Proper Policies and Procedure laid out and Policy and procedure statement should Clearly state terms and conditions that will guide in Management of the company.
8) Lack of knowledge of Labour laws prevailing in the country
As a startup company you should be aware of the labour laws such as The Industrial Disputes Act, 1947,The Trade Unit Act, 1926,Building and Other Constructions Workers’ Act, 1996,The Industrial Employment Act, 1946,The Payment of Gratuity Act, 1972,The Contract Labour Act, 1970,The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 and The Employees’ State Insurance Act, 1948 etc .
9). Not obtaining Trademark and Patent registration
As a Startup company if you have developed any innovative and New Product, business model or a Technology, to protect it From Getting copied by The rival companies you are required to get a Trademark or Patent registration but due to tedious process of Trademark Registration, many startup companies disregard getting a Patent or Trademark which prevents them to take action on company that has copied there product or service.
10). Now hiring professional legal counsel
Sometimes to save cost and expenses Startup companies hire Inexperienced legal counsel who is friends or relatives or provide discounts which lead to many Legal problems for the company. Therefore, I would like to point out that A startup company seeks the service of a competent and Professional Legal Service Provider.
So above are the Top 10 mistake which happens with the Indian Startups.
