Legal Considerations..

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Legal Considerations while starting up!

“The critical ingredient is getting off your butt and doing something. It’s as simple as that. A lot of people have ideas, but there are few who decide to do something about them now. Not tomorrow. Not next week. But today. The true entrepreneur is a doer, not a dreamer.”  –Nolan Bushnell, Entrepreneur

Setting up another business is frequently seen as a legitimate minefield. As a general rule, while there are critical legitimate commitments that each new little entrepreneur must satisfy, they are a long way from unconquerable. For whatever length of time that you’re mindful of your obligations and you take adequate insurances to guarantee that you are dependably on the right half of the law, you don’t have anything to stress over.

So what are the main legal considerations that entrepreneurs must comply with?

The first one would be to determine the incorporation /Legal structure.

There are basically four legal structures:

  • Sole proprietorship,
  • Public company,
  • Private company and
  • LLP or Partnership

Once you have made up your mind on which type of legal structure you would work on, get your company registered. However, we at would recommend you to look up the disadvantages and advantages of any type of legal structure you choose. Let’s say you want to set up a private company. For this you need a minimum of two persons as shareholders and a minimum of two directors, at least one whom is a resident director who has stayed in India for not less than 182 days in the previous calendar year. Also in this type of company, you cannot ask the public to subscribe for your shares, debentures or deposits. Thereby, one could decide on these issues whether to work on it or not.

After this what you certainly need to do is sign a contract between the directors/ promoters laying down the terms and conditions. Though the Indian Contract Act, 1872 accepts unwritten agreements but it is always better and advisable to have a written contract to avoid future conflicts.

Contingent upon the division in which you are working, and the way of your business, you might need to apply for a license. This is especially regular in commercial ventures where your activities could bring about danger to individuals from the general population, or where you are managing risky materials. For example, if you run a liquor business you require a license from the state authorities. There are additionally different permit necessities for music and amusement.

The other important point while incorporating is having a general and basic understanding of the prevalent tax laws in your country. In case of Value Added Tax every dealer whose turnover crosses the threshold limit according to the relevant state VAT statute has to get itself registered under the statute. If you are working on Limited Liability Partnership (LLP) then it can be much cheaper in terms of tax bills, and good for service, family, lifestyle businesses etc., especially when you don’t plan on raising any investment in the near future. If you are going to raise money anytime soon and give ESOPS to hire high quality talent for cheap, you can still incorporate an LLP.

At the point when picking an organization name, it’s critical to do some exploration to offer you some assistance with avoiding trademark encroachment or area name issues. You might be encroaching somebody’s trademark if your utilization of an imprint is liable to bring about perplexity among clients as to the wellspring of the products or administrations. Do a hunt on or other name enlistment centers to check whether the space name you need is accessible. In the event that the “.com” space name is taken, this is extremely risky and a warning. You might need to have your protected innovation legal counselor do an expert trademark look.

Next we come to complying with Securities laws which is carefully regulated by the Securities and Exchange Board of India (SEBI) which aids in easing out the process of listing. Foreign direct investment, angel investors, crowd funding, venture capitals and even joint ventures are areas that a new entrepreneur must be aware about. Let’s take the case of Venture capital (also known as VC) which is a type of private equity capital typically provided to startup companies with high-growth potential in the interest of generating a return through an eventual liquidity event such as an IPO or trade sale of the company. These investments are generally made as cash in exchange for shares in the invested company.

Investment is most appealing for new businesses with constrained working history that are too little to bring capital up in general society showcases and are excessively juvenile, making it impossible to secure a bank credit or finish an obligation advertising. In return for the high hazard that investors accept by putting resources into littler and less develop organizations, financial speculators stock in the start-ups generally get huge control over organization choices, notwithstanding a huge bit of the organization’s proprietorship (and hence esteem). This is an especially burdened time for the promoter as it frequently requires him/her to surrender a significant quantum of stock in the start-up.

Basic documentation is a crucial part of legal agreements. Keeping in mind the end goal to do business with third parties, a standard privacy and non-revelation understanding format must be prepared. This can be utilized by the startup to go into preparatory exchanges with outsider merchants, experts, temporary workers and so forth whilst guaranteeing that fitting assurance is given to the startup and its thoughts. Certain documentation identifying with the enlistment of workers must be placed set up counting however not restricted to layout offer letters what’s more, business assertions, NDAs and development task understandings.

Keeping up with Intellectual Property Laws is a must as you don’t want to get caught in a legal suit as soon as you start with your business. It is better to comply with Patents, Trademarks and Copyright Acts than ending up with same trademark being used. For a better understanding, look up my previous article on Intellectual Property.

The other points to deal with would be coming up with a great standard form contract in favor of your company, having a good Terms of Use Agreement and Privacy Policy for your website, having the right legal counsel and government regulations.

(The opinions expressed by the author in the articles are only be used for reference purposes. Please seek appropriate legal advice from a duly licensed attorney .The author shall not be liable for any wrong interpretations of the reader.)


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