Legal Guide To Start Your Business

Read the amazing article about a legal guide to start your business.

4th Mar 2020
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Starting a business of your own is not an easy job, it involves a lot of planning and fulfilling of criteria laid down by the government for new business set up in India. For a start-up to be successful, it is imperative that the entrepreneur is passionate about the business and focused on providing unique solutions to the consumers. Customer satisfaction is crucial to the success of a business endeavour. While strong focus on the product and the market is vital for a business to succeed, it is equally important to have a clear understanding of the laws so that there are no roadblocks in the business operations.


Understanding the basic laws and adhering to those laws is critical to the smooth functioning of the business. Entrepreneurs should be aware of the latest applicable laws before venturing into a new business.

Business Structure, Founders Agreement and Incorporation

The first thing you need to do is to decide on the type of business structure you want to have. Basically, there are five types of business structure permitted in India-sole proprietorship, partnership, limited liability partnership, private limited companies and public limited companies. Depending on your company’s long term vision and goal, and its needs and requirements, you have to decide what type of structure you want. Each structure has its own advantages and limitations. For instance, if you wish to raise foreign capital in the future, private limited structure would be more suited to you.


After you have decided the structure, you need to incorporate your company by registering it with the Registrar of Companies.


Given the dynamic nature of the start-up ecosystem, it is strongly advised that a Founders’ Agreement be drafted to avoid any future conflicts. This agreement basically specifies the roles and responsibilities, compensation, profit sharing, voting rights, exit clause, etc. 


License and Permits


Depending on the nature of the business, various licence and permits would be required to run the business. Operating your business without requisite licenses may land you in legal trouble. Though types of license vary across industry, obtaining a licence under the Shops and Establishments Act is mandatory for all businesses that operate from physical premises. There are many other regulatory authorities that issue licenses and permits, and you must be aware of all the necessary legal requirements to run your business smoothly.


Taxation and Accounting


The government, both central and state, imposes different types of taxes on businesses. Tax rates and tax slabs vary across industries and sectors. Taxes may also vary depending on the type of products and services being offered. Tax rates are regularly revised by the government, and it is extremely important that you keep yourself updated on this front to avoid any future complications.


With the purpose of promoting start-ups, the Government of India has recently launched the “Startup India” initiative. This initiative provides several incentives, tax benefits, and exemptions to the start-ups. It is important that you are aware of this initiative to derive maximum benefits from it. You must maintain a proper book of accounts and get them audited periodically. Accounting and tax compliance is of utmost importance.


Labour Laws


Irrespective of the size or structure of the organization, adhering to the labour laws is compulsory. When you establish a business set up in India, it is natural that you will hire employees to run the business. When you have employees working for you, your company automatically comes under the purview of various labour laws. These laws aim to protect and safeguard the interests of the employees. Various aspects, such as minimum wages, bonus, provident funds, weekly holidays, sexual harassment, among others, are covered under the labour laws.


Start-ups under the Startup India initiative have been provided many exemptions in labour law compliance. 


Protection of Intellectual Property


Intellectual property is the most valuable asset of a company. Start-ups, especially the technology driven ones, bank on new ideas and innovations that they have developed to lead them to success. These ideas and innovations come under intellectual properties and need to be protected from infringements. If these intellectual properties are unlawfully used by others for commercial purposes, then the owners or creators of these properties would lose their competitiveness in the market. Start-ups can avail the “Scheme for Startups Intellectual Property Protection” to protect their intellectual property. Another option is to file your application directly with the Controller General of Patents, Trademarks, and Design. 


Contracts and Agreements


Contracts form a vital part of every business, be it employee contracts, vendor and supplier contracts, or consumer contracts. Another important contract is the Non-Disclosure Contract (NDA). In course of their business, start-ups have to share vital company information with their employees, business associates, or investors. The NDA legally bar these people from sharing this information with others, mainly business rivals. You must ensure that all contracts and agreements are professionally managed.


Before you start your business, you must carefully take into account all the points mentioned above. It is critical that you are aware of and adhere to all the regulatory requirements when you establish a business set up in India.

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