Startup

Legal compliances for an Indian Start-Up

With recent social and technological advancement, start-up culture has become the new normal. Start-ups have simplified the tedious processes by making it directly accessible to you at your fingertip. Their contribution to the Indian economy has been tremendous. But have you ever thought about what legal compliances they need to follow? In this article, we are discussing just that.

What do you mean by Start-ups?

A start-up refers to a young company founded by one or more entrepreneurs to develop a unique product or service and bring it in market. Start-ups are rooted in innovation, addressing the deficiencies of existing products or creating new categories of goods or services. It tends to disrupt entrenched ways of thinking and doing business for industries.

Some of the prominent examples of Indian start-ups include Unacademy, Pine labs, Cars24, dailyhunt, etc.

Choosing the business structure

To begin with founders would be required to incorporate the business as a specific business type, i.e., sole proprietorship, private limited, partnership firm, or a limited liability partnership. Having clarity at the beginning itself is critical for the overall business goals. 

Get business licenses

Licenses are necessary for running any business. According to the nature and size of the business, several licenses are applicable in India. Knowing which licenses to apply is critical. Functioning without relevant license can lead to costly lawsuits and unwanted legal battles.

Common licenses that apply to all businesses is the Shop and Establishment Act which applies to all premises where trade, business, or profession is done. Other licenses may vary from business to business.

Registration with start-up India

The Indian Government had launched a scheme called the Start-up India to promote innovation and a robust start-up ecosystem in the country. Registering with this initiative permits you to claim benefits such as tax exemptions that can help your business in its initial stages.

If your start-up satisfies the following conditions, then only it would be able to register with government initiative:

• It should be incorporated as private limited company or registered as a partnership firm or a limited liability partnership in India.
• Its incorporation or registration was less than ten years ago.
• Its turnover for a financial year since incorporation or registration hasn’t exceeded 100 crore rupees.
• The start-up should be working towards innovation, development, or for improvement of products or processes, or services.

It may be noted that entities that was formed by splitting up or reconstruction of business already in existence don’t count as start-up.

Agreements and contracts

 If you are planning to start a business with other partners, then consider having a founding agreement that lays down the roles and responsibility of every founder along with other details. These agreements will help companies to have clarity and allow you to up your business.

It is equally vital that you enter into contracts with those working for you. To avoid complications, outline all terms of employment such as remunerations, work outputs, and such other details in the contract.

Company based legal compliances

All start-ups registering their business as private limited company should follow the following company based legal compliances under the Companies Act 2013:

• AGM

The annual general meeting should be held within the jurisdiction of the Company’s registered office. There should be one annual general meeting every year, and there should be a maximum gap of 15 months between two annual general meetings.

• Board meetings

The first board meeting of the Board of Directors has to be held in 30 days from the incorporation.

• Auditor appointment

The first statutory auditor is appointed in 30 days of the company’s incorporation in first board meeting. For subsequent auditors, the appointment is done for 5 years.

• Other Compliances

According to the Companies Act 2013^[1], every company should prepare a board report wherein details of the state of the company, net profit, its operations during the year, and its compliance with financial, accounting and CSR policies.

IPR based legal compliances

As stated above, start-ups aim to work for innovation, development and commercialization of new processes, services or products, driven by technology or IP (Intellectual Property).

 The primary step for a start-up is to evaluate and prioritize the Intellectual Property rights involved in the business. Sometimes Intellectual Property rights are the only asset available with a start up. It can be protected through timely registration or by having policies in place to protect it. Start-ups can leverage the scheme for start-ups intellectual property protection under the start-up India initiative.

Legal compliances under labour laws

Businesses may be required to follow several labour laws regardless of their size. Labour laws such as minimum wages, PF payment, gratuity, etc., need to be complied with. In this case you may consult a legal professional to know the laws that apply to your start-up.

In respect of labour laws, start-ups registered under the Start-up India initiative may fulfil a self declaration within a year from the date of incorporation and get an exemption from labour inspection.

Conclusion

When a start-up is dealing with hazardous product or process it may require environmental clearance, and if it deals in real estate it may require RERA sanction. So there are a number of legal compliances that need to be completed by a start-up before it comes into existence or during its existence. For more accurate information on such compliances you may contact a legal professional.

Read our article:Registration of Startup in India: A step by step Guide