Many Indians are nowadays interested in entrepreneurship, those who are very passionate are responsible for driving unique solutions to make their startup’s very successful. A strong focus on customers and the market is really important to deliver a quality service through their business. Along with that, it is important to follow all the rules and regulations by the government. Agreements are really necessary to safeguard the properties along with signing up the contacts and MOU’s. All the business people should be aware of these legal basics to be followed for successful organisation growth. Here we are going to list a few legal documents that are necessary for an organisation.
Formalizing a business structure
When you are planning to form a business you should be clear on how you are going to format your business. Either you are going to register your business under sole proprietorship or you are going to have a few partners with you. And what kind of shares and responsibilities these partners will have in your business. All these deeds should be properly documented. It is very essential to brief them before you start all the internal processes inside your business.
Another important thing that startup founders should be asking themselves is how they are planning to raise the funds for the organisation or if they are going to bootstrap their business. When you are registered as a private limited company then you will be having some kind of flexibility to manage external investments and company stock.
Applying for business licenses
Before you set up your business you should be aware of the licensing part. According to the size and nature of your business your licenses may vary, but you should take the ones that are necessary for you.
Some of the common licenses for a company that handles e-commerce are VAT registration, Service Tax Registration, Professional Tax, etc. When you have a food chain or a restaurant then you should have a Food Safety License, Health Trade License, Certificate of Environmental Clearance, Prevention of Food Adulteration Act, along with the above-mentioned tax.
The lack of all these licenses will lead to hefty penalties and loss of the winning case of argument for you. So when you want benefits from the government or to legally raise your voice you need all these licenses.
Understanding taxation and accounting laws
It is important for all the citizens to pay taxes for the country, in order to grow the economy of the country. Taxes are a common part of all kinds of businesses.
The taxes may vary from central tax, state tax, and even local taxes that may be applicable for certain businesses.
Some of them will have common taxes and there are even different taxes that are applicable according to your business type. You can even check on the government portal how you can apply for the tax exemption certificate.
Tax exemption is given for those startup’s that are not more than 7 years old. And for those companies whose turnover should not exceed more than 25 crores. It is good to maintain proper books of accounts and audit them in a timely manner to ensure that relevant accounting and taxation are followed under the rules and regulations of the government.
Adhering to labour laws
Whatever the company size can be when you are establishing a company and hiring employees for your organization, then you should follow some labour laws regardless of the size of the organization. You should compel your organisational structure in a way that the law enforces. You should have minimum wages, gratuity, PF payment, maternity benefits, sexual harassment, payment of bonus, weekly holidays and etc. It is better to consult with a legal counsel to understand the laws applicable for your business and try to implement it according to the labour laws.
The 9 labour laws applicable under this scheme are:
The Industrial Disputes Act, 1947
The Trade Unit Act, 1926
Building and Other Constructions Workers’ Act, 1996
The Industrial Employment Act, 1946
The Inter-State Migrant Workmen Act, 1979
The Payment of Gratuity Act, 1972
The Contract LabourAct, 1970
The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
The Employees’ State Insurance Act, 1948.
It is really tough for an employer to be really cautious about these laws, you should hire a consultant or a freelance consultant for you to guide with and figure out a good employee policy for your organization.
Ensuring protection of intellectual property
Especially the business today and tech startups were more technical centric. They often deal with codes, algorithms etc, so it is important for an organisation to have data security. Nowadays the big theft a company can have from them is their data. For these kinds of startup’s the government leverages the ‘Scheme for Startups Intellectual Property Protection’ as an initiative to nurture, and mentor innovative and emerging technologies among startups. Along with that it helps to protect and commercialize intellectual property. In order to have an effective result then the employer should be impanelled by the Controller General of Patents, Trademarks, and Design.
All these filings can be done as an e-service and it is necessary to have all these legal identities when you have some rights or patent issues for your products.
Ensuring effective contract management
To ensure the smooth functioning of work it is important to have contracts/ agreements. They will help you with the kind of services you offer and also the employment service you offer for an employee. As an entrepreneur, it is important to have some basic knowledge on contract management.
As per the Indian Contract Act, 1872, all the agreements/contracts are made by the free consent of parties for a lawful consideration with a lawful object, and are not expressly declared to be void.
As a business it is important to formalize employee contracts with details about salary, scope of work and stock options. When you have clarity from the very beginning helps startups reduce risks at a later point in time. At the early stage of a startup you might have to admit employees into your organisation on a contract basis. So a legal document is always necessary to get signed up form the contract employees, when you face any issues legally.
As a startup there are risks like the theft of ideas and other proprietary business information, even if you share with other people as a goodwill. To avoid such cases, it is important to get signed up with the non-disclosure agreements or NDAs. It is important for startups to use these NDA’s while discussing critical business information with people outside the organization.
Details about winding down the business
You can’t say that all the startup’s you open will be a huge hit in the market, you might even face some failure. So don’t set back, failures are the learning part, you can get good lessons so you can bounce back with lots of energy.
When you have planned to shutdown your startup then all the stakeholders from vendors to employees to customers and investors need to be informed in advance.After that all the processes should be properly planned and executed in order to make the exit easy on everyone. So understanding the legal way of shutting a business too is equally important for a business man. He/She should be following 3 steps:
Fast Track Exit Mode
Court or Tribunal Route
Voluntary Closure
The first one is the best suited for startups as it allows companies to expedite shutdown at a lower cost and a shorter time period
The next one is Voluntary Closure; it requires the shareholders and/or creditors of the company to be on the same page with regards to the details of the closure.
It is also an easy route to shut down, and in some cases it doesn’t seem to be more practical or applicable. The traditional way to close any business is through the closure via courts or tribunals. But this method is not suited for a startup as it has several meetings with various stakeholders leading to prolonged court proceedings. So when you plan for a company exit, follow either of these 3 procedures to shut it down appropriately.
Bottom Line:
Adhering to legal requirements in all these cases are very important for any organisation; so it is very important for a business person to have a basic knowledge about these legal entities to get flowing. Even if you have knowledge on something, following up and adhering to each and every thing is tough. So hiring a consultant is a good deal as they know what needs to be done exactly at the time.When you initially plan a business setup try to consult with someone and make ready all your legal documents to be on a safer side of the play. When you have all the agreements from your end appropriately then if you have any conflict you can win your case legally on any government bodies.