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Startup Guide - Legal Checklist for Starting Business in India

When the start-up is founded by more than one entrepreneur, the co-founder arrangement becomes important and the tasks, obligations, positions and share of the company of all the co-founders need to be formulated. Many start-ups also waive and continue on the terms of a verbal arrangement with this essential legal document. However this is unwise, since in the case of a disagreement, it would be difficult to prove the terms of a verbal arrangement and could also slow down the company's activities and lead to losses. The founders should sign a co-founder agreement as a necessary step in the start of their business in order to prevent the risk of bitterness and any negative impact on the company from conflicts between the co-founders.

It's only half the battle won for entrepreneurs to come up with an idea for a start-up and secure sufficient funds to get their business off the ground. Before their business is truly up and running, entrepreneurs still have a long road ahead of them and clear all obstacles regarding the legal aspects of Startup in India.

Entrepreneurs must consider the legal upshot and are sure to run into problems in doing business unless they secure their start-up with solid legal support. That is why preparing a checklist of things that need to be done to ensure compliance with laws and regulations and avoid costly and lengthy lawsuits is crucial for entrepreneurs. The legal checklist for Startups in India are :

The Consensus of the Co-Founder

When the start-up is founded by more than one entrepreneur, the co-founder arrangement becomes important and the tasks, obligations, positions and share of the company of all the co-founders need to be formulated. Many start-ups also waive and continue on the terms of a verbal arrangement with this essential legal document. However this is unwise, since in the case of a disagreement, it would be difficult to prove the terms of a verbal arrangement and could also slow down the company's activities and lead to losses. The founders should sign a co-founder agreement as a necessary step in the start of their business in order to prevent the risk of bitterness and any negative impact on the company from conflicts between the co-founders.

Formulating your business

In several cases, a start-up can be organized and a lawyer can advise the entrepreneurs on which structure will better fit their business. Common options for structuring an organization include Sole proprietorshipLimited liability partnership, Partnership and Private limited company. Seasoned attorneys would recommend a private company structure to ensure the development of a business as it allows for the fastest possible way to collect funding. This is because entrepreneurs have a strong incentive for investors to invest by having the option to sell a share of the business in return for investment, and can thus raise funds reasonably easily. Moreover, when a corporation operates as a separate and autonomous legal body, this arrangement often shields an individual founders from legal action taken against their company. The independent legal identity of a corporation also allows the founders the right to understand the full potential of their tax advantages and finances.

 

Raising Fund

At the start of the venture, the start-ups look to their family members/friends as a source of money. Of all the sources of finance, this is one of the most stable and promising. The fund may be accepted in the form of equity as well as a loan. In the first phase of the business, this is very helpful. Entrepreneurs may propose raising funds from angel investors, venture capitalists, private equity funds, family offices and other businesses, depending on the point their company is at. For entrepreneurs, it is advisable to include legal experts with thorough knowledge of the sources of financing that companies can consider and how an investment, whether debt or equity, can be structured.


 

The Non-Disclosure Agreement 

The importance of requiring concerned parties to sign a non-disclosure agreement or an NDA has begun to be realized by start-ups. When entrepreneurs negotiate with investors or contractors, as part of the deal, they disclose confidential business information such as pricing, trade secrets, proprietary software data, client lists, etc.

To avoid any misuse of this sensitive business information, an NDA is a must. This is because an NDA allows entrepreneurs to hold an NDA party responsible for the misuse of sensitive business data as such an action amounts to a contract breach. It can give entrepreneurs a variety of rights to counter a breach, including the right to injunctive relief and damages, depending on the way an NDA is drafted by a legal professional.

Records on Books of Accounts

In order to ensure that the representation of the financial position is updated in a timely manner and without any error, start-ups should retain the habit of maintaining proper accounting records. This will surely help in the development of business.

The Intellectual Property Rights

Intellectual Property Rights are the company's most priceless asset and should therefore be maintained to the best degree. Intellectual Property Rights consist of the logo, name and brands of the company, together with the trademark. Registration of patents and copyrights is highly recommended as well. If disregarded, the rivals will seize the opportunity and take advantage.

Compliance with Employment Laws

A company needs to comply with the standards of employment and labor in its place of business. It is necessary for the startup to sign the employment agreement, gratuity, provident fund, etc. in amounts to composition of labor laws. It is important to ensure compliance with all relevant employment laws.

Privacy of Website and Apps

Most start-ups in information technology create websites or applications, and start-ups must ensure that these platforms are adequately protected as competitors or unscrupulous players can profit from the content on the website or mobile application of a start-up. That is why it is essential to engage a legal practitioner to draft terms and conditions that can regulate the use of the product or service being offered.

PAN and Goods and Service Tax Registration

Today, PAN and GST are an essential part of the identity of the start-up, and without PAN and GST registration, a business can not fully function. In addition, every time the company engages in any form of transaction worth INR 2.5 Lakh or more, PAN registration proof has to be produced. Notably, the GST registration requirement is triggered if the turnover of a start-up is greater than INR 20 Lakh (INR 10 Lakh in North-East states) and if the start-up wishes to benefit from government schemes.

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