Startups Laws In India Every Entrepreneur Should Know
Startups India initiative was announced on 2015 Independence day speech by the Prime Minister Narendra Modi. The aim of this initiative was to create the environment of Job Creators rather than the community of Job Seekers. Developing a productive culture of innovation in the country is a long and important journey which India has taken up to make itself a hub of innovation, design and startups.
At the absolute beginning of the startup and nurturing it includes many things such as knowing the correct procedure and laws relating to startups in India. As per new legal norms a business entity is identified as a startup for up to five years from the date of its incorporation which needs to meet following criteria set by DIPP to access government benefits:
1. Its turnover should not exceed INR 25 Cr in the last five financial years
2. Its headquarters should be located in India
3. It must work towards innovation , development, deployment and commercialization of new products, processes , or services driven by technology or intellectual property
Sole proprietorship firms cannot come under the startup India scheme. For an entity or business to be termed as startup it must establish itself under either of the following legal framework-
• Company’s Act, 2013
• Partnership Act, 1932 (registered under section 59 of the Partnership Act, 1932)
• Limited Liability Partnership Act, 2008
Apart from the above, knowing basics of startups laws could be the stepping stone to protect and nurture your startup. Choosing your brand will depend on your long-term goals and vision. Every type of vehicle has a separate set of laws which one needs to follow with.
Some basic legal knowledge is required before proceeding with the startups.
- Choosing the type of venture i.e. Incorporation laws: You could brand it as a ‘private limited’ or ‘single proprietorship’ or ‘Limited Liability Partnership’ etc. While this may seem unnecessary, it goes a long way to decide your company’s viability, visibility, sustainability, suitability and profitability. All depends on the kind of your venture, and your long-term goals, vision, and objectives.
- Tax Laws: Knowledge of Central, State and local/provincial government taxes, sector and area-specific knowledge of taxation would do good in maintaining the financial & legal health of your organization.
- Basics of accounting: It is always beneficial to keep a record of accounts and go through them periodically to adopt best practices. Taxation information according to area and sector of work will help in retaining and improving the financial and legal strength of any organization.
- Securities Laws (SEBI): Knowledge of Securities Laws becomes essential only if you want to list your company. The Securities market is regulated by the Securities and Exchange Board of India (SEBI) and it issues various regulations periodically.
- Business Finance: Business finance refers to the management of all the financial needs arising during the various stages of business life cycle, wherein you will have to look for options for fund raising. Hence, knowledge of avenues like crowd funding, venture capitals, angel investors, foreign direct investment (FDI on Startups), or even joint ventures (as a part of strategic decisions), would help increase the profitability of your organization.
- Employment & Labour Laws: Laws about employee, contract employee and their relationship with the employer etc.
- Intellectual Property Law: Intellectual property (IP) like new kind of code, design, program or research work need patent etc. comes under these laws. Timely IP audits of your organization, and also filing the right patent/trademark/copyright claims, would increase the profitability of your venture manifold.
- Information Technology Law: Digital signatures, e-contracts etc. comes under this law category. All type of computing services like cloud and your venture data are governed under this law type. This IT law protects your data from any infringes or hackers etc.
- Corporate Governance: Though you are just a startup and not a huge organization, though you are small in size, lessons from corporate governance and management can take you a long way in managing your organization effectively.
- Contract Law: Contracts are indispensable tools of entrepreneurs. It wouldn’t be an exaggeration if it is said that no organization would come to existence without the use of contracts, in some way or the other, at some stage or the other. Hence, basic knowledge of certain fundamental principles of contracts certainly helps.
- Dispute Resolution: Disputes are inevitable in today’s business world. It is one thing to be reactive to disputes, and a completely different thing to be proactive and to see to it that all disputes are prevented, or at least minimized. Being the CEO of the startup, knowledge about the formal (how court cases work) and informal (arbitration, mediation, conciliation, etc.) ways of dispute resolution could be beneficial in all ways. The best friction is no friction.
- Knowledge related to government contracts: This actually is not a very necessary factor but a successful venture depends upon a steady flow of funds. Bidding for government contracts can create wonderful opportunities for growth, revenues and reputation building.
Hence, knowing about all the above legalities can help out in smooth sailing even on a rough sea.