Legal requirements for a Start-up in India

Shivani Sinha | 16-Feb-2016

A lot of individuals, nowadays aspire to become an entrepreneur and run their own startups. Presently, a lot of startups are keeping their foot in the market, out of which some succeed, some fail, some flourish and some disintegrate after sometime. Bangalore , Mumbai, Pune and Delhi and have become the startup ecosystems of the country. There are many conditions which lead to the success and failure of a startup-external, internal, technological, social or environmental.

We wish to suggest you, to keep note about all the legal requirements, before initiating your startup-
Decide your type of business
The first step is to decide what type of a business structure you want to have depending upon your motive of business, missions, goals and aptness. There are mainly 4 types of business structures-

Sole Proprietorship - As the name itself suggests, sole proprietorship is the business owned by a single person. It’s advantageous because the single individual, who is running the business, enjoys all the profits gained from the business. The disadvantage is that if the company incurs losses then the single individual running the business is liable for the debts incurred.

Partnership - Two or more persons (called partners) own and manage the business together. It’s beneficial when a single individual doesn’t have enough capital or resources to start the business. The advantage is that the partners share the liability of debts and they can generate ideas to be applied in the business.

Private Limited Company – A Private Limited Company offers limited liability or legal protection to its shareholders as defined in company’s laws and regulations and places certain restrictions on its ownership. Since there is a continuity of existence so, the business in this is not affected by the status of the owner. Another advantage of a Private Limited Company is that it needs a minimum of 2 shareholders to start the business and a maximum of 50 shareholders can be added to raise the capital. Its disadvantage is that the growth may be limited because of a fixed number of maximum shareholders and the shares cannot be sold without the agreement of all the other shareholders.

One Person Company – A One Person Company is basically an amalgamation of the sole proprietorship and the company models of business. It offers all the benefits of a sole entrepreneur willing to enter into the corporate framework, i.e. the power of sole ownership with the relief of limited liability.

Pick a name legally permitted
Before starting your business processes like printing business cards, it is advised to cross check whether the name you are using is not violating the rights of businesses that already exist. You can perform a free search online to check whether the name chosen is available in your state.

Have information of the tax laws and accounting basics
It is mandatory for a person starting the business to know all about the tax related laws. Every business, in order to run their operations, has to pay some taxes to the Central and State government. Businesses in different sectors have different and diverse tax laws, and sometimes change may take in them. Hence it is important to know about all the accounting details and get detailed taxation information about your business before starting it.

Go through the labour laws
After starting your business, it is common that at some point you’ll have to hire people, be it employees, managers, supervisors and labour like cleaning staff, security guards etc. Hence it becomes crucial for you to go through the labour laws and legislations. Keep your employees happy, as keeping them fine can increase your goodwill whereas doing the opposite may harm your goodwill, even before it is created and violate the labour laws.

Security laws and finance
SEBI acts as a regulator for the securities market in India. Get familiar with the securities laws and keep a track of updated regulations issued by the SEBI, if you want to list your company now or in near future. Business finance relates to managing all the financial needs that arise during the various stages of business operation, where you may have to look for options like fund-raising. In order to increase the profitability of your business has a thorough knowledge about angel investors, crowd funding, foreign direct investment, venture capital etc.

IT related laws
In this technological era of business, where most of the business operations are run on or through the computers, it is important to know about the protection and privacy of your business computers. Some topics like e-contracts, digital signature, cloud computing and securing confidential data from the hackers and crackers are a must to get through, otherwise your business may suffer a huge problem regarding confidentiality.
Go through contract laws
A business flourishes on contracts. Without contracts, a lot of problems may arise in your business. It is common to face a dispute regarding some issue. Hence one should have the fundamental knowledge of contracts, mediation, arbitration and conciliation beforehand.

Consider Intellectual property lawIt is important to protect your intellectual property (IP) ,especially if your organization is engaged in designing and coding programs and doing research. Not protecting your IP is same as keeping your gold and diamonds on roads for people to steal. Hence, go for timely audits; fill the right patents, trademarks and copyright claims.

No matter, what type business you choose for your start-up, always appoint the best Chartered Accountant and Lawyers from who can guide and take your business  a notch higher.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of The writers are solely responsible for any claims arising out of the contents of this article.
About the Author
Shivani Sinha
A Master degree holder is a Content Developer and an SEO specialist. Having more than 6 years of experience into content development and marketing, she has contributed substantially in this arena. She is good at brainstorming and fast in writing crispy content, bold slogans, catchy captions and punchy one liners. Her stories are well researched and provide for an interesting read. She enjoys working in association with entrepreneurs while spearheading business launches providing marketing advice.