Indian Startups & their Basic Legal Compliances | Corporate Law Attorney in Delhi NCR | Corporate Lawyer in Delhi NCR | Corporate Attorney in India

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India is on a very fast pace of development not only in terms of its GDP but also in terms of its infrastructure and entrepreneurship. The population of the country consists of young and dynamic people who have now boarded on their journey and have been launching and incorporating new businesses which can been referred as “Start-up”. Each Start-up has to fulfill a lot of legal compliances i.e. statutory and non-statutory from the time of its inception and also during its working. The first and foremost requirement before a Start-up is to be clear about the nature and type of its business. Founders will need to incorporate the business as a specific business typ having a separate legal entity i.e. Sole Proprietorship, registered and unregistered Partnerships, Companies etc and each business type comes with its own set of statutory and non-statutory compliances.

Along with incorporation, there are certain agreements and contracts which the founders must enter into in order to prevent any future ambiguity. Given how dynamic the Start-up ecosystem in India is, it is advisable to draft a “Founders Agreement”. Such document specifies important details about the founding team and the business, such as, authority, roles, responsibilities, executive compensation, and exit clauses etc. Other than this, forming early contracts and agreements saves a lot of time while preventing future ambiguity and disputes. The founders of the business must also be clear with the terms and conditions of the contracts and agreements they are entering into depending upon the kind of the investment. Some of the agreements which a founder must enter into are Non-Disclosure Agreement (to maintain confidentiality), Vendor Agreement (removes ambiguity in reference to duties of vendor), Shareholders Agreement (helps in clearing out rights of shareholders) and Third Party Agreement etc.

Upon incorporation, the next thing which a founder would look for is funding. There are various medium through which an entrepreneur can get funding from, such as funding from Venture Capitalist (VC), funding from Private Equity (PE), funding from Angel Investor, procurement of loans from Banks including SIDBI, unsecured loan from Non-Banking Financial Corporation’s (NBFCs) etc. Next depending upon the nature and size of business, several licenses and permits are applicable in India. The common license that is applicable to all businesses is the registration under the Shop and Establishment Act of the respective State in India which is applicable to all premises where trade, business or profession is carried out. Other business licenses vary from industry to industry. For instance a restaurant may require licenses like Food Safety License and Health Trade License etc whereas in order to sell gadgets one needs an ISO Certificate.

An important thing which we must note is that in order to be accorded the status of a Start-up and to enjoy the legal rights and avail the benefits of the same, the business needs to acquire a certificate from the Department of Industrial Policy and Promotion (DIPP). For the same, an application needs to be made with documents as prescribed on the portal of Department of Industrial Policy and Promotion (DIPP). Talking about the IP protection the logos, design or inventions are considered as identity for any business, which founders would want to protect from the very beginning. The Patent, Trademark, Copyright and Design applications under “Start-up India” scheme may be filed by a Start-up entity through a facilitator (who is an IP Lawyer/Agent recognized by the Government). The Start-up entity only has to the pay official fee applicable at the stage of filing and prosecution of the application.

Now coming to most important compliance for any business, i.e. Tax Compliances. It can be broken down into two categories, i.e., Registrar Compliances and Non-Registrar Compliances. The Registrar Compliances include filing of annual returns (financial statements, profit and loss account) and statutory registers and books of accounts etc. Whereas non–registrar compliances cover taxes such as filing of GST/TDS Returns, payment of advance tax and tax audit reports etc. Income Tax compliances depend upon the nature of the business, for example in case of Limited Liability Partnership at rate of 30% of the profit, however, Sole Proprietorship are taxed upon the income of the Proprietor. Adhering to tax compliances is perhaps the most integral part for any business. Start-ups which are regular with such compliances get a good credit history and an advantage for raising future funds.

Thus, we must understand that, Start-up business is an innovative venture which drives the economy. The government indeed supports the Startups, but, it must take more steps for lowering the regulation and making the digital process more viable.
Authored By: Adv. Anant Sharma