Basic Legal Aspects of a Startup in India

 

An entrepreneur needs to have an understanding of numerous business elements before launching a new company. 

 

The legal system is one such component. 

 

A business may be subject to several laws, including those pertaining to corporations, retail businesses, professional taxes, provident funds, the Goods and Services Tax (GST), the Customs Act, and others. 

 

Not all of them will apply to every type of business, so you must determine which ones do for yours and make sure your company complies with them to avoid future legal issues. 

 

Let's examine the legal requirements that apply to a new company in India.

 

 

Selecting the Appropriate Business Type

 

The first choice to be made is what kind of company you should register as. 

 

Depending on the type of business, the long-term goals, as well as other variables like scale and finance requirements, the structure may vary. 

 

The best business structure you can go for: - 

 

• Private Limited Company Registration Online
• One Person Company
• Limited Liability Partnership
• Sole Proprietorship 
• Partnership Firm

 

The visibility, sustainability, and profitability of a venture are significantly impacted by selecting the best business model. 

 

Thus, your long-term objectives and vision will determine the brand you choose. 

 

You must choose a specific set of regulations for each sort of organisation while keeping the current legal frameworks in mind.

 

 

Local Laws

 

A company needs a registered office address. In India, there are 29 states and 7 union territories. 

 

If your company is registered in one of these states, you must also abide by any state regulations that may be relevant to your industry. 

 

State-to-state variations in the Shops and Commercial Establishment Act, Employee Professional Tax Act, Stamp Act, and Labour regulations are possible. 

 

To create a partnership firm, for instance, you will need to pay stamp duty in Kerala as opposed to Karnataka or Tamil Nadu.

 

 

Intellectual Property (IP)

 

For your business, copyright, patents, and trademarks are crucial. 

 

Every company is distinct and is led by individuals who do not share the same opinions or produce the same goods. 

 

It is crucial to copyright your content, protect your brand, and patent your invention. 

 

You must submit the appropriate patent, trademark, and copyright claims. 

 

That will stop the infringement.

 

 

Tax Laws

 

Whether you like it or not, taxes are something you can never escape. 

 

Therefore, it's crucial to know which taxes are applicable to your company and to pay them on time. 

 

It is also crucial to remember that some tax regulations only apply when your company reaches a particular turnover; in this instance, you are exempt from paying when it is not necessary. 

 

For instance, in some circumstances, the GST is only applied if the company's annual revenue exceeds Rs 20 lakhs. 

 

Following the law of the land can help you save money by not paying taxes when they are not necessary and by making mandatory payments on time to avoid fines.

 

 

Book Keeping

 

Maintaining your accounting records on a regular basis will help you examine the costs associated with each division and boost your business' success. Making crucial decisions with the help of financial data at the proper moment can boost profitability and cut costs.

 

The company will also have to comply with governing bodies such as SEBI, RBI, IRDA, ICAI, ICSI etc depending on whether your business activity is governed by such bodies.

 

Labour Laws

 

As with every business, labour is provided daily to ensure appropriate and effective operation. There are numerous labour regulations, such as the Minimum Wage Act, gratuities, Provident Funds Payment, Paid Holidays for Employees, Maternity Benefits, Harassment at Workplace, Bonus Payment, etc.

 

Even the government has granted a startup an exemption from labour inspection if they consistently follow all nine of the primary labour regulations in the nation for the benefit of their employees:

 

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

 

 

Foreign Investments

 

There are rules for foreign venture capital investors to encourage foreign investment in startups (FVCI). 

 

Investments are governed by Schedule 6 of the Foreign Exchange Management Act (FEMA), which was amended three times between 2000 and 2016.

 

Any investor from outside India may invest 100% of the startup's cash in any activity or business covered by Schedule 6 of Notification No. FEMA. 

 

A company can issue equity or debt instruments instead of receiving payments from outside.

 

 

Business Contract Management

 

The Indian Contract Act of 1872 is used to determine which contract is legitimate. 

 

The requirements in Section 10 of the Contract Act must be met in order for a contract to be considered genuine. 

 

The employment contract is the first contract that should actually be made in a business. 

 

It is important to correctly address the remuneration, stock options, nature of the work, etc.

 

The non-disclosure agreements would also be advantageous for the company because, in order to set up, the startup host must communicate ideas about how things would function with investors, suppliers, and consumers.

 

Therefore, nondisclosure agreements aid in limiting the dissemination of information.

 

 

Winding Up of Business

 

The regulations governing winding up must be known before doing company registration online because no one can predict when the worst may happen. 

 

Fast track exit, court or tribunal route, and voluntary closure are the three ways that the winding-up process can be completed in a systematic manner.

 

In the fast-track exit, the firm should have no remaining assets or liabilities, and no past business must be taken into consideration during the winding-up process. 

 

The name of the company can then be deleted from the register of companies after that (ROC).