5 Legal Aspects of Beginning A Startup In India

A Startup is a unique and innovative idea introduced to society for fast-growing businesses to cater to new services. A Startup Company (Startup or Start-up) is an entrepreneurial venture. It is typically a freshly started, fast-growing business. Entrepreneurship aims to meet the requirements of a marketplace with an innovative product, process or service. It can be in the form of a small business, a partnership or an organisation created for faster business growth.

The inception of a startup or entrepreneurship ideas requires some legal responsibilities. Although, a Startup, usually in partnership doesn’t have to follow a strict and sophisticated work culture. However, a Startup’s legal responsibilities or legal aspects of the business are the same as that of a company. As a result, they both have to follow their legal responsibilities seriously.

Legal Aspects of Setting up a Startup, Business in India

1. Startup name should be legal and must not violate the legal rights of others.

It means the Name you give your Startup should not infringe the rights of an already existing business. To ensure everything goes well consulting a professional startup lawyer is the best suitable way to create a legally sound startup. It helps in being ready for the legal pitfalls. Look for the conduct of a no-conflict, free trademark search to check the name availability and that it is not a registered trademark.

2. License to practice a particular business also requires the license to operate a business at a particular city or locality as per the legal aspects of business in India

Primarily, it depends on the type of business, city or location. However, it may be required to have one or more business licenses or permits from the State, Local or even from the Central Government. Furthermore, these licenses cover general business operation, land use permits, sales tax, health department, occupational and professional licenses.

3. Company name has to be ‘Trademarkable’

Trademark means a mark graphically represented to distinguish the goods or services of one from another. Hence, it may also include the shape of goods, packaging and combination of colours. Moreover, a registered trademark is beneficial to:

a. Guard the commercial goodwill of the company or business

b. Advertise Goods and Services

c. Identifies the origin of goods and services

Although it is not mandatory to get Trademark Registration in India it is advised for the safety of your intellectual property rights including Trademark.

4. Gather Information related to labour laws in India

In brief, getting accurate knowledge of employment laws helps understand the legal rights and liabilities in different situations. One needs to know the law before beginning to work under it. However, inspections by labour inspectors are exempted for up to 3 years on self-declaration of compliance to the nine labour laws by the startup in India. However, startups can be inspected based on a written complaint filed for violation and it should be approved by at least 1 level senior to the inspecting officer.

Based on the exemptions, a startup is defined as follows:

  1. An entity incorporated or registered in India for less than 5 years, with an annual turnover not exceeding rs Twenty Five Crore in any preceding financial year.
  2. Innovating, developing, deploying or commercializing of new products, processes or services based on technology or intellectual property.
  3. The Startup in question should not be formed by splitting up or reconstruction of an existing business.
  4. An entity will cease to be a Startup if the turnover exceeds 25 crores in the preceding financial years or has been incorporated for more than 5 years.

Startup Mobile Application for easing Legal Aspects of Business or Entrepreneurship in India

Startup in India must self certify compliance using a mobile application. Generally, it includes nine labour and environment laws compliances.

Below is a list of Labour Laws providing an exemption under the current scheme:

  1. Building and Construction Workers’ (Regulation of Employment & Conditions of Service) Act, 1996
  2. Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979.
  3. Payment of Gratuity Act, 1972.
  4. Contract Labour (Regulation and Abolition) Act, 1970.
  5. Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
  6. Employees’ State Insurance Act, 1948.

Below is a list of Environmental Laws providing exemption under the current scheme:

  1. Water (Prevention & Control of Pollution) Act, 1974.
  2. Water (Prevention & Control of Pollution) Cess (Amendment) Act, 2003.
  3. Air (Prevention & Control of Pollution) Act, 1981.

5. Important Contracts for a Startup or Entrepreneurship in India

  1. Operating Agreement: Helps avoid conflicts among founding parties. However, all co-founders must sign a comprehensive operating agreement. Also, it helps in defining the relationship between the founders and co-founders.
  2. Employment Agreement / Contracts: Made for hiring new employees includes the following:
    • Terms of employment
    • Reporting structure
    • IP ownership of work
    • Required commitments
    • Share vesting
    • Company policies
  1. Similarly, the Non-Disclosure Agreement or NDA protects ideas and conversations between founders and investors or any other possible persons.
  1. Finally, Bylaws cover office Code of Conduct, department distribution and working procedure in the company, including other important aspects.

Consequently, the legal compliances are very crucial in setting up a Startup or entrepreneurship. Also, there are experts in the domain who help you with startup formation and legal compliances. Moreover, it helps safeguard the ideas and business processes.