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Starting a business can be intimidating for entrepreneurs who have limited knowledge about the legal aspects of a business. A startup founder should be aware of all the legal compliances to avoid unnecessary expenses and future disputes.
Mon Aug 8, 2022
"Success in business requires discipline, hard work, and adherence to principles." — John Carmack
Every business needs law and order to avoid any unacceptable behavior, to ensure stability, and a proper mechanism for its smooth running. A company can hire a lawyer anytime but they are the experts who are needed during legal matters.
They can only advise entrepreneurs and form documents. In the end, entrepreneurs have to make the final decision and asses the situation between their clients, vendors, or customers.
Sometimes, a startup cannot afford a lawyer. Therefore, a founder should prepare himself/herself to handle such legal issues by having basic knowledge regarding law and agreements.
As a startup founder, you must decide the nature and type of your business. To decide this, one should be clear with their goals and vision. There are generally four types of business structure:
Read More: SWOT Analysis
Preparing a founder and co-founder/shareholder’s agreement is crucial for a startup to define the roles and responsibilities of each member, exit/operative clauses, and other executive functions in a company.
This agreement also mentions the number of shares each member would have. There are a few clauses such as no founder should be in direct contact with any of the competitors, restrictions imposed on share acquisitions and transfers., etc.
These agreements are made to avoid any disputes or confusion between founders and shareholders.
Read More: How to find a co-founder for your startup?
Taxes are an integral part of any startup, and different industries comply with different tax laws. Thus, every new entrepreneur needs to be well-versed in accounting and taxation laws.
There are certain laws such as state tax, central tax, transportation tax, commodity tax., etc that a founder should know. Governments in different countries introduce tax exemptions to boost the startup’s growth.
For instance, the Government of India has exempted tax for partnership firms, LLP, or private limited company which is not more than 7 years old (10 years for biotech) and whose turnover is not more than 5 crores.
A startup founder can avail of many benefits regarding taxation if they are updated on current tax laws. They should also maintain accounting books properly to identify the profit or loss of their firm and the reason behind it. These books also help in applying for loans as well as provide safety against any accounting discrepancies.
A startup should have a well-defined employee policy to hire talents and provide non-toxic work culture. These laws help in boosting employees’ morale and productivity in your firm and protect you from wrong suits or defamation charges. Labour laws are generally related to the following aspects:
Before starting your business, a founder should understand the type of license required to avoid any legal battles. These licenses are different according to the nature or structure of your business.
Licenses such as the ‘Shop and Establishment Act’ is needed for new businesses. For an e-commerce company, VAT registration, service tax registration, professional registrations., etc are required.
While launching any innovative product or service, you need to patent it or build a trademark to prevent others from using it. It gives you exclusive rights and protects your idea from being stolen or copied. Patents, Trademarks, and Designs come under the protection of intellectual property (IP) rights.
The panel of facilitators at the “Controller General of patents, trademarks, and designs” assists you in filing out the patent application.
There are schemes launched in different countries for issuing such rights. For instance, Startup India Programme has a scheme called ‘Startups Intellectual Property Protection (SIPP)’ to protect and commercialize new businesses.
Read More: Interesting Startup Statistics
THE 7-STEP STARTUP SUCCESS FORMULA
I am not the only Business Coach around. There are many distinguished business coaches and gurus out there. At the end of the day, our aim is not just to give you knowledge and jargon.In this book, I have mentioned 7 defined steps to reach your startup milestone, condensed with my 25 years of experience.
___ by Anu Khanchandani
Contracts are essential for the smooth running of an enterprise as it binds agreements in legal form. According to the Indian Contract Act, 1972, all agreements will be considered contracts that are made with lawful consideration for a lawful object and are not declared void.
A startup founder should enter into contracts with clients, vendors, or employees to reduce any kind of risk in the future. Contracts such as a Non-disclosure agreement (NDA) is a legal binding between two or more parties to keep sensitive information confidential. Some pieces of information are not meant to be disclosed to outsiders.
A startup has three types of NDA to select from:
This insurance policy is a kind of savior for any startup. It protects your business from financial loss caused by any unexpected situation like flood, fire, or theft. It is necessary to have insurance for your business as it forms credibility in the market, and certain Government agencies or clients don’t want to work if your company is not insured. A few business policies are given below that a startup should consider:
The advancement in technology has also increased certain threats and risks in the IT sector. Thus, knowing these laws has become mandatory for startups involved in online business or trading through online platforms.
Laws and regulations regarding e-contracts, cloud computing, and digital signatures protect your data and privacy from potential hackers.
No one would think about closing their business even before stating it. But there is no harm in preparing for the worst and hoping for the best as the winding-up process is complicated and involves certain procedures.It has to be done through proper planning and in a systematic way. There are three ways to shut down a business.
Laws and regulations are made for the people only to ease the process of living. They are an essential part of any kind of business.
Thus, every startup founder should try to have a basic understanding of these laws beforehand for avoiding any major problems later.
One of the best methods to secure a company is by having any professional member or legal counsel by your side who can advise and monitor you in these situations.
Read: Top FAQs for Startup
Dr. Anu Khanchandani
With over two decades of experience in the software technology arena, having worked in multinational and SME companies in India, USA and Singapore in the capacity of programmer to CTO - I felt now was a good time to give back to the world what I have learnt in this journey. Even if it ends up benefitting a few of my readers by giving them insight or solving a technical issue, I think I will have achieved my mission!
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