Comprehensive Checklist Of Legal Requirements For Startup Business Registration

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Comprehensive Checklist Of Legal Requirements For Startup Business Registration

Among all the economies in the world, the Indian economy is considered the fastest-growing economy. In this, startups are contributing 5% to the country’s GDP in the next five years. This is not a small number, last year India’s GDP was $3,737 trillion, and 5% of that is 186,850,000,000 or around $186.85 billion. It’s a crazy number.

India is the third-largest start-up ecosystem in the world. As per the data, the number of startups in India increases to 86,713 in 2022 from 445 in 2016. However, startup business registration is important to run business activities in India. Several legal requirements should be fulfilled for startup registration. Check the comprehensive checklist below before starting a startup.

Government Legal Requirements for Startup Business Registration

The Indian government has realized the importance of startups for the growth of the Indian economy that’s why the government launched - startup India initiative in 2016.

Similarly, Startup India Seed Fund Scheme was launched in January 2021. It has been launched to support the early-stage enterprises, its total budget was Rs. 945 crore. 

Under this initiative, startups have to fulfill the following eligibility criteria:

• The startup should be registered as a private limited company, partnership firm, limited liability partnership, or sole proprietorship.
• Turnover must be less than Rs. 100 Crores in any previous financial year.
• The entity must be considered a startup for 10 years from the date of its corporation.
• The startup should be working towards an innovation/ improvement of a new or existing product, and services. Also, they must create employment and generate wealth

Note: An entity that is made from the splitting up or reconstruction of the existing business, should not be considered a ‘Startup’.

Legal Requirement Checklist for Startup Registration

Setting up a startup is not an easy process, you have to follow various legal compliances, and other needs to establish a business. Also, the founder must be aware of the updated government laws, and the market. Below are the different legal compliances and regulations for startup business registration that a startup must follow:

1. Type of Business

Choosing a startup structure is the first legal requirement that should be fulfilled. Here are four business structures that offer different advantages based on the startup size and aim.

Sole Proprietorship:

In this type, only one person will be responsible for the taxes and liabilities. However, this is the most affordable structure, as it shows that you and your business are one legal entity. Although, it can put your personal assets at risk.

Partnership: 

In this, the ownership is divided between you and one or more business partners. With this, the liability, workload, and profits are also shared. Its substructure like LLC provides extra security against the liability for the actions of a business partner.

Limited Liability Company (LLC): 

An LLC protects the business owner from the personal liability. If in any case, your business gets sued or bankrupt, then your personal assets such as your home and vehicle are not at risk. As an LLC you can show the business income as a part of your personal income but for that, you have to pay self-employment tax.

Corporation: 

It is a legally separate entity from the owner(s). As compared to all the other business structures, corporations provide the best protection for personal assets. However, this is the most complicated and expensive form of business to make. Separate income tax has been filed based on profits.  

2. Registration/ Incorporation of Startup

The incorporation of a startup includes two steps, first the incorporating the startup. In the case of a partnership, it must be registered with the registrar of firms. Firstly, for LLP or private companies it should be registered with the registrar and all the partners must have a DIN and DSC number. Further, a startup has to register with the startup initiative of India. The entire process is simple and can be done online. 

3. Business License 

A business license is crucial for a startup to run a business. And, it depends on the nature of the business, and based on that type of license change. For instance: a restaurant requires a Food Safety License and Health Trade Licence.

4. Intellectual Property Right Certificate

An intellectual property rights certificate is a way for companies to protect their work, especially for tech-centric businesses.  The IPR covers copyrights, patents, trademarks, inventions, and industrial design. However, an IPR certificate is important to set the startup apart from its competitor. 

5. Non-Disclosure Agreement

For a startup non-disclosure agreement works best in the competing market to provide unique products or services. A non-disclosure agreement is a written contract between the two parties in which the sharing of confidential information is prohibited. However, this agreement is made to secure the business information shared and goodwill can’t be misused.

6. Employees Contact 

With the growth of the startup, it requires more employees to work and manage the roles and responsibilities they sign a contract that states the work boundaries of the startup. An employee agreement must include the term of employment, no poaching, non-solicitation, and many more.

Conclusion

Fulfilling the legal formalities is much needed for any startup to fulfill. Knowing the compliances ensures smooth business operations. This is where an expert can help you to safeguard your startup from legal complications and consequences.

We at Registration, can assist you in the complete process of startup registration in India. If you have any questions then reach out to us for the right assistance.

Also read:  Steps to Follow Before Filing an ITR Return

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