Basic legal compliance that every startup should know

Many social and technological advancements in recent years are owed to the boom of the startup culture. Be it Flipkart, Swiggyor even Urban Company, tech-based startups have simplified tedious processes by making them directly accessible at your fingertips.

On the occasion of National Technology Day, as we celebrate these new-age startups and their contribution to the Indian economy, it is important for us to know the provisions of the legal system supporting the same. What are the laws that need to be followed? Is having a website or an app enough or does the same have to be registered? Are there any special government schemes available for startups?

If you have a great idea and are leaning towards materialising your own startup dreams, here are some of the legal compliances and regulations that you need to be aware of.

Choosing the type of business

To start off, it is important to understand the type of company you are starting. Is it a sole proprietorship, a partnership firm, a limited liability partnership (LLP), or a private limited company.

Each of these types of structure has its own set of rules and regulations that determine registration, taxation, licensing, etc. For example, registration for sole proprietors is not required, it is optional for partnership firms, but mandatory for LLPs and private limited companies.

Please note that under the Indian law, only a private limited company, partnership firm, or LLP can be considered as a startup.

Registering your startup

Before commencing operations, it is important for you to register your startup as a legitimate business. Depending on the kind of business you are setting up, you must follow the required registration procedure like obtaining a certificate of incorporation or partnership registration, as the case may be.

Registering with ‘Startup India’

The Government of India launched a scheme called ‘Startup India’ for the promotion of innovation and a robust startup ecosystem in the country. Registering with this initiative allows you to claim many benefits like tax exemptions that could help you boost your business in its initial stages.

Your startup would be eligible to register with this government initiative if:

• It is either incorporated as a private limited company, 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 any of the financial years since incorporation or registration has not exceeded Rs 100 crore.
• It is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.

Entities that was formed by splitting up or reconstruction of a business that was already in existence do not count as a startup.

To know more about the Startup India initiative, please visit https://www.startupindia.gov.in/

Founding agreements and employee contracts

If you are starting a business with other partners, it is advisable to make a founding agreement that has details of the roles and responsibilities of each founder, along with other operational details such as compensation, non-compete, contingency plans in cases of disagreements, etc. Such agreements help companies have clarity in management, allowing you to scale your business.

It is also important to ensure you enter into contracts with all the people working for you. At times, at the start of a new business, it is common for people to employ those close to them and in the initial excitement, they neglect to enter into employee contracts. This can prove to be very dangerous in the long run.

To avoid any complications, it is best you outline all the terms of employment like remunerations, work outputs, and other related details in a written contract.

Knowing your labour laws

An important aspect of starting a business is knowing your responsibilities as an employer, viz. ensuring compliance with all requisite labour regulations. This includes following laws on payment of wages, provident fund and gratuity, workplace sexual harassment, maternity benefits, etc.

If your startup is registered with the Startup India initiative, for the first one year from the date of incorporation or registration of partnership, you can sign a self-declaration and be exempted from inspection under the following laws:

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

For the second and third year, you can file a self-certified return to continue to be exempted under this initiative. However, please keep in mind that self-certification does not mean you can evade from following these labour laws. You are responsible for providing safe work spaces for your employees, and any derogation from it will hold you liable under the said laws.

Protecting your intellectual property

It is important to protect your innovative ideas that form the basis of your startup. These new ideas are legally referred to as your intellectual property. While registration for a trademark, patent, or copyright can often be a complex process, there are government schemes in place under the Startup India initiative that make these processes easier and affordable. For more information, read this government handbook on IPR Facilitation for startups.

Under Startup India initiative, there is also a scheme in place to provide financial support to Micro, Small and Medium Enterprises (MSME) and technology startup units in filing international patents. This aims to encourage innovation and recognise the value and capabilities of global intellectual property along with capturing growth opportunities in the ICTE sector.

Conclusively, while there are many more regulations to comply with, some depending exclusively on the nature of your business, above mentioned are few important legal compliances that you must ensure in the initial days of setting up your startup. It is advisable to consult a lawyer or an accountant who can assist you in these processes accordingly.