Legal issues for startups in India
Establishment of a successful e-commerce business is not limited to merely putting an idea onto a website. There are many more issues that must be addressed by StartUps before his/her venture becomes a successful one. These include legal issues as well that range from e-commerce compliances to brand protection. StartUps are fairly easy to start if you have the guts to face uncertainty, and even easier to crash and burn even if you have a killer product or service to offer.
It would be such a pity if a great business idea, support from family and friends and good amount of capital investment all goes for a toss for nothing but legal matters that you did not care to notice or avoided just because they seemed plain boring to you or you were not aware of certain laws.
While established companies like Bajaj,Reliance,Maruti, Infosys, L&T, etc. spend huge amount of cash just to sort out their legal hassles and issues with the regulatory bodies and judicial systems, you have probably just started or are about to start with your new business and cannot afford spending that much of amount just on legal bills!
Customizing Legal documents and employing a CA for the company is not possible until and unless the company starts generating some handsome revenue. However, if you look at the larger picture, the costs aggravate much more when legal issues start cropping up. With this article we are going to have a bird’s eye view on the various legal aspects that an entrepreneur needs to know about.
Choosing a legal structure
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.
Related Article:Incorporate Company in India
Once you form your startup management team, it’s time to create co-founder legal agreements to record your legal relationship to the corporation, to each other and to the venture’s other participants. You and your best friend, co-worker, Internet buddy or whoever are going to give entrepreneurship a shot. Before you venture off into the wilds of business, you need to figure out what the deal is between you and your partners? The agreement between you and your partners is the most critical agreement you will do. It basically sets the stage for how you will run the business. Without a clear understanding of how you will work together, things can get messy quick.
Intellectual Property rights Ownership- Copyrights,Trademarks
The ownership of your business and all the legal documents supporting that is mandatory for you to take any decisions in favor of the company and even if you plan to sell it later. From tax registrations to trade licenses to Shop and Establishment Registration to even Labour and Employment registrations, you will have to go through a lot of legal documents to obtain licenses in India which are many with respect to a business in India. Investors are also pretty careful and vigilant on license issues before they enter in any kind of pact with a company so to keep investments coming in and growing each day, it is necessary to take care of the licenses.
Related Article: Advantages of Trademark Registration
A lot of businesses completely fail on this point and many founders face massive fines, possibility of imprisonment and highly unproductive lawsuits and criminal cases with respect to tax bills, simply due to negligence and ignorance, usually both combined. 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.
Related Article: Common tax & legal mistakes that most startups make!!
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!
Different Types of Contracts with Vendors
Depending on the type of business you acquire, you also need to sign contracts with different vendors and as there is a variety in the vendor list, so is there a variety in the contracts signed with vendors. Whenever you opt for outside assistance for product or service design and development, contract management becomes essential whether it be content-based agreements, ad contracts, distributorship pacts or franchisee contracts.
It may surprise you, but doing almost any business in India, or even running any kind of office or establishment requires several licenses. Some licenses are simple tax registrations. Some businesses just need a trade license or Shops and Establishment Registration. For some specific activities like manufacturing and export-import you may need a bunch of licenses. For employing more than 10 employees you may need various labour and employment related registrations. Not having these things in order when you are growing fast can be fatal and slow down investments as investors will ask you to first sort of license issues before they put in money. These things are seriously looked into during any legal due diligence before investments are made.
Also, not following licensing norms lead to fines, costly legal suits and even business shutdown. If you are a business owner in any sector, you better have a sense of what licenses are essential. You should also know what are the important license conditions and ensure that these conditions are not being violated in course of your business.
Online Terms, Conditions, Policies and Laws
So you have your ecommerce website up and running, and you wonder if you need any specific terms and conditions to govern transactions on your site. The answer is yes. Because if a problem should arise, having terms and conditions may help resolve that problem in your favor.
Prior to the customer purchasing anything from you, make sure they check a box agreeing to the terms and conditions. This will bind the customer to any reasonable and legal terms. The purpose isn’t to trap or trick a customer but rather to enable both the customer and company to agree in advantage to terms. Every organization should be very careful while applying terms and conditions for the electronic transaction for Internet users. Privacy and security policies not only reflect the organizations practice but also the rules and regulations for doing business with the company.
If you do not want to get trapped in the legal pitfall, then following these tips before the issues arise will help you triumph in your entrepreneurial venture at the end!
In case of any query, feel free to ask them.⇓