With the ease in company registration process more and more aspiring entrepreneurs are motivated to bring their dream of forming a Startup into reality.
When a startup is being incorporated, it goes through several phases. There are separate legal requirements for every phase like at an initial stage every startup is required to procure the business license, obtain registration, maintain books of accounts, taking care of taxation, drafting vendor contracts, etc. The various legal advice that every startup must take include the following-
- Choosing the best legal structure- This is one of the most crucial decisions that must be taken by every startup. While taking this decision multiple factors must be considered such as nature/sector of business operation, business trajectory, regulatory and tax considerations, costs of formation, ongoing administration and many more. However, the most preferred entity structures for startups in India are limited liability partnership and private limited company.
- Obtaining Registrations and licenses- Any business entity is mandatorily required to obtain certain registrations as per the applicable law. Some examples are Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), Goods and Service tax number. Further according to the nature of the business entities they are required to obtain the Business licenses issued by a government authority that allows startups to start/conduct/continue to operate a particular business within its territorial jurisdiction lawfully.
- Protecting intellectual property rights- In the era of modernization, one of the most crucial assets for any business entity is its Intellectual property rights. These assets help the startups to establish a distinct brand image and gain a competitive advantage over others. One significant thing to be noted here is that Registration of a company or business in India does not by itself give protection against others who might commence using identical or similar marks. A trademark search should be conducted before deciding on these business name/ trade names to prevent any issues in future including potential infringement.
- Agreements – In case there is more than one founder of the startup then there is a need to formulate the agreement between them in order to establish the relationship between the founders of a startup. In the agreement, the roles, responsibilities and the rights of each partner shall be specified.
- Compliance Management- Just incorporating the startup is not enough. The companies once registered are required to fulfill certain annual compliance requirements and other requirements to avoid government intervention and hefty penalties. To manage the compliances of the company it may take some professional guidance.
- Third-party Agreement- Utmost care must be taken by the company while entering into any third party agreements and setting out its terms and conditions. The clauses related to breach, termination and dispute resolution should be well negotiated and captured in all third-party agreements.
- Contracts with employees- Before employing any person the startup must ensure to enter into clear employment contracts detailing terms and conditions of employment. The contract must specify the details regarding the job profile, compensation, and other associated benefits, a number of clauses may be inserted to safeguard and protect the interest of the startup – such as stopping employees from setting up competing entities, Prohibiting employee from exercising any legal right on IPR on the work done/developed during the course of employment.