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A Primer on Startup Laws in India: All an Entrepreneur Needs to Know

In my last article in this series, I had highlighted on how and why it is important for all the entrepreneurs to have at least some basic legal knowledge. In this post, I am going to dive deeper into the legal seas – throwing light on what exactly are the laws that deserve every entrepreneur’s attention. In this post, I am going to have a bird’s eye view on the various legal aspects that an entrepreneur needs to know about. All the specific elements will be dealt in detail separately in the upcoming articles in this series. Read on!

  • Structuring the Business – Choosing a Business Vehicle: At the initial stages of setting up any organization, every entrepreneur is faced with this major challenge of choosing a Business Vehicle for his/her venture. Choosing the most appropriate business vehicle for one’s venture goes a long way in affecting the viability, visibility, sustainability, suitability and profitability of one’s organization. Hence, whether you want to have a private limited company, public limited company, partnership firm, or a limited liability partnership (more on these in the subsequent articles), all depends on the kind of your venture, and your long-term goals, vision, and objectives. Every such form of business is governed by a separate set of laws, so care has to be taken to see to it that all the intricacies in the existing legal frameworks have been complied with. Otherwise, hefty sums will have to be paid to the government in the form of fines! So it’s always better to keep yourselves informed.
  • Tax Laws and the Basics of Accounting: Every organization in the world, be it involved in any business, has to pay some or the other tax(es) to the Central, State and/or local/provincial government(s), as the case may be. So, it goes without saying that all you entrepreneurs will be immensely benefitted if you keep yourselves abreast of the basics of accounting and the way taxation works. Especially, the tax laws are known to be a bit tricky. Also, the kinds of taxes applicable to different sectors, geographical regions and/or products vary greatly. Hence sector and area-specific knowledge of taxation would do good in maintaining the financial & legal health of your organization.
  •  Securities Laws & Business Finance: Knowledge of Securities Laws becomes essential only if you want to list your company, now or in the near future. The Securities market is meticulously regulated by the Securities and Exchange Board of India (SEBI) and it issues various regulations periodically. Hence, having a good working knowledge of all these laws would smoothen the process of listing. And, business finance refers to the management of all the financial needs arising during the various stages of business life cycle, wherein you will have to look for options for fund raising. Hence, knowledge of avenues like crowd funding, venture capitals, angel investors, foreign direct investment, or even joint ventures (as a part of strategic decisions), would help increase the profitability of your organization.
  •  Employment & Labour Laws: When you start an organization, it is obvious that you will have employees working for you. You may also have independent consultants and contractors working with you. Or, you may have outsourced your work to agents. All these complex professional relationships are governed by many labour legislations, flouting of which would not only be a financial burden on you, but would also harm your goodwill, even before it’s built! Hence, treating your employees right and keeping them happy, which is nothing but complying with all the labour legislations, would go a long way in increasing productivity and employee morale, and hence, the profitability of your organization.
  • Intellectual Property Law: If you are an organization that codes, or designs, or programs, or does research, you could have a wealth of intellectual property (IP) with you, and not legally protecting your IP would tantamount to leaving behind your bag full of diamonds unclaimed on the roads! Hence, going for timely IP audits of your organization, and also filing the right patent/trademark/copyright claims, would increase the profitability of your venture manifold.
  •  Information Technology Law: When you establish your organization in today’s highly digitalized world, you inadvertently would need digital signatures, and would enter into e-contracts. You would also be making use of many cloud computing services and would also be internally generating a lot of data. Sometimes, all the IP you generate may be embedded in the IT you use. Hence, protecting yourself and your data from any infringers or hackers, protecting your privacy electronically, becomes quintessential. Knowledge of IT law in this case, comes to your rescue.
  • Corporate Governance: Though you are just a startup and not a huge organization, though you are small in size, lessons from corporate governance and management can take you a long way in managing your organization effectively.
  • Contract Law: Contracts are indispensable tools of entrepreneurs. It wouldn’t be an exaggeration if it is said that no organization would come to existence without the use of contracts, in some way or the other, at some stage or the other. Hence, basic knowledge of certain fundamental principles of contracts certainly helps!
  • Ways of Dispute Resolution: Disputes are inevitable in today’s business world. It is one thing to be reactive to disputes, and a completely different thing to be proactive and to see to it that all disputes are prevented, or at least minimized. You like it or not, legalities do creep in and things do get messy and out of control when disputes arise. Hence, you as the Captain and the CEO of your organization, would fare extremely well in regaining the reins in your hands, if you know a bit about the formal (how court cases work) and informal (arbitration, mediation, conciliation, etc.) ways of dispute resolution.
  •  Knowledge of Public Procurements: The Government of India is the largest spender in the Indian economy. Hence, private players like you have wonderful opportunities of bidding during public procurements. This avenue can be a gold mine as far as creating a steady flow of revenue is concerned, because government always orders in bulk, and getting a government contract would also boost your goodwill in the market.

Thus, these are some of the important legalities about which any entrepreneur should have a decent knowledge about, in order for him to sail his ship smoothly in the tempestuous seas of the modern economy! We would be covering each of these 10 points in detail in our upcoming articles. Please feel free to drop in your queries as comments below!

(P.S.: The framework of this article is based on the Course Contents of a Course called the Diploma in Entrepreneurship Administration and Business Laws, administered by iPleaders, in association with the National University of Juridical Sciences, Kolkata.  The Course teaches these laws to entrepreneurs and consultants who work with startups and SMEs. You can have a look at the Course Contents here.)

Happy Start-uping!

 

 

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