The Ultimate Legal Guide for Startup

In a world of globalization, startups are growing more and more frequently. To ensure that the startup complies with regulations and legal requirements, a comprehensive legal framework must be created. The number of unicorns is growing in tandem with innovation and technological advancement. All the legal information needed for the legal will be covered in this article. This article covers the entire legal system. Everything may be found in one place.

The legal regime of startups in India:

Innovation is greatly driven by startups, which are defined by Forbes as young companies established to create unique products. It is crucial to be knowledgeable about the legal documents necessary to start a business. The government offers several initiatives and benefits for startups, including registration under the Startup India scheme. This program provides several advantages, such as tax exemption and a 10% discount for patents.

The Government Eligibility for the Startup Recognition:

· must be registered in a Limited liability Partnership, Partnership, or Private Limited company.

· The startup shall focus on innovation or develop a unique product that can resolve an issue.

· The Startup must be certified by the inter- Ministerial Board

· The startup shall have a turnover of less than Rs. 100 Crore.

What is the procedure for startup Registration In India?

· Create a corporation or Limited liability

· Register your business name

· Apply for Federal Tax ID Number

· Obtain Business licenses

· Obtain Insurance

· Open a business account

What are the Licences and Certificates one shall acquire for a startup

§ Patent Registration Certificate

§ Registration of Business license

§ Industry-specific licenses

Documents for the startup business in India

§ Director identification number

§ Digital signature certificate’

§ Shop and establishment license

§ GST Registration certificate

§ Commencement of business certificate

§ Registration on the Ministry of Corporate Affairs portal

§ Certificate of Incorporation

Step-by-step procedure to register a startup

§ A startup must be registered as a private limited company, partnership, or limited liability company before it can be incorporated.

§ Register on the Startup India website. Register Your Business Under the Startup India Program by Submitting the Application

§ Upload Documents: Upload the application's required documents.

§ Self-attestation

§ Then Avial Identification Number

Benefits for DPIIT-Recognised Startups Are Eligible

§ Intellectual Property Rights (IPR)

§ Section 80-IAC: Income Tax exemption for 3 out of 10 years

§ Faster exit for Startups

§ Relaxation in Public procurements norms

§ Section 54GB: Capital gain on transfer of residential property

§ Startup India Seed Fund Scheme (SISFS)

§ Self-certification under Labour & Environment laws

§ Section 79: Carry forward and set off losses

§ Section(56)(2)(vii): Taxes which are received by Hindu undivided family which exceed the amount of 50,000 which is known as exceeding the amount of fair market value

§ Fund of Funds for Startups (FFS)

§ Sections 156, 191, and 192: Deferment of tax liability on ESOPs

§ Programs on the Startup India website

Legal formalities to establish a startup in India

Starting a new venture, especially a startup involves a range of legal formalities to ensure compliance, protection, and smooth operations. Here are a few formalities that a startup needs to fulfill

§ Business structure selection: Choose the appropriate business structure based on the nature of the business such as sole proprietorship, Partnership, etc.

§ Business name selection: Register your business name as a trademark to protect your brand identity and prevent others from using a similar name. Check for domain name availability for your website as well.

§ Incorporation: If you opt for a company structure (LLP, private limited, OPC), incorporate the company under the Companies Act with the Registrar of Companies (RoC). Complete the necessary documentation, including a Memorandum of Association (MOA) and Articles of Association (AOA).

§ Obtain Business permits and licenses: Obtain the required licenses and permits depending on the nature of your business, such as GST registration, Shops and Establishments Act license, FSSAI license for food-related businesses, etc.

§ Intellectual property protection: File for patents, copyrights, and trademarks to protect your innovative ideas, products, branding, and intellectual property assets.

§ Founder Agreements: Draft clear founder agreements that outline each founder's roles, responsibilities, equity ownership, vesting schedules, and dispute resolution mechanisms.

§ Complying with compliance such as labor Law, Regulatory compliance

Laws that govern startups in India

i. Tax Laws:

Service Tax, Central Sales Tax, Tax Deducted at Source (TDS), and Income Tax Return Filing are the taxes that startups must register with. Additionally, the government has granted startups a seven-year block of 100% exemption from paying any income taxes for any three years in a row.

ii. Indian Contract Act 1872:

The law which governs the contracts in India

iii. Labour Laws:

If they hire employees, startups must abide by a number of labor rules, including the Employees' Provident Funds and Miscellaneous Provisions Act of 1952 and the Employees' State Insurance Act of 1948. The government has implemented amendments to make it easier for startups to comply with the law in this area.

iv. FEMA (Foreign Exchange Management Act)

Foreign investment-attracting startups are impacted by FEMA regulations. Startups that accept international investments, issue shares to overseas investors, or engage in foreign exchange operations must abide by FEMA regulations.

v. Securities and Exchange Board of India (SEBI) Regulations:

Startups must adhere to SEBI standards governing public issues and listing if they intend to acquire money through an initial public offering (IPO).

vi. Other Relevant Regulations:

Depending on the startup's line of business, it might have to follow rules particular to that sector, such as those governing food safety, medical devices, finance, and more.

vii. Intellectual Property Laws:

Various laws like the Patents Act, of 1970, Copyright Act, of 1957, and Trademarks Act, of 1999, provide protection for intellectual property rights. Startups can avail of benefits like fast-track examination of patent applications, an 80% reduction in patent filing fees, and expedited registration of trademarks.

Legal Compliance for the startup

There are various difficulties you face when you don’t follow the compliance such as Difficulty in securing funding the investor wants to invest in the company which is safe in the first place. If the startup doesn’t comply with compliance, then there are high chance the government can charge huge penalties for non-compliance. A bank would now have a list of the documents it needs. A certificate from a CA for the last three years, for instance, audited financial statements, auditor's reports, etc. There are some regulations that must be followed and cannot be avoided. Additionally, banks have their own verification processes that guarantee compliance with regulations for any business applying for a loan. In case of non-compliance, securing a loan from the bank becomes impossible and they might not receive any government tenders. Non-compliance can also lead to the closing down of the startup.

§ Opening a Bank account

§ Share Capital Deposition in the Bank account

§ GST Registration

§ Income Tax Return Filing

§ Issuance of Share Certificates to shareholders

§ Disclosure of Shareholding by the Director

§ Maintenance of Statutory Registers

§ Annual return filing

The Documents/Agreements which are needed for the startups

§ Incorporation Certificate: A business registration document

§ Non- Non-Disclosure Agreement

§ Shareholders Agreement

§ Employment Agreements and contracts

§ Bylaws

§ IP Agreements

§ Founder and co-founder’s agreement

§ Terms of use

§ Privacy policy and cookie policy

§ Licences of MOU

Legal Mistakes, that the startup makes

§ Not protecting Intellectual property

§ Not having legal Counsel

§ Not Understanding tax considerations

§ Not maintaining proper documentation (Agreements, contracts, etc)

§ Failing to get licenses

Founders’ agreement and Employment agreement Drafting negligently

Conclusion

This Article covers all the general legal requirements for a startup, such as the necessary paperwork and a step-by-step guide to incorporation. Please be aware that if you are a startup founder, you must adhere to all financial and regulatory requirements that pertain to startups. You need to make sure your startup complies with all regulations.

For entrepreneurs to build a solid foundation and guarantee long-term success, navigating the legal facets of startups in India is essential. Startups must comprehend and abide by the legal framework, from eligibility requirements and registration processes to compliance with relevant regulations. Startups can operate in a compliant and secure manner while concentrating on innovation, growth, and economic prosperity by meeting the legal requirements and seeking professional help.

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This article is written by Chandana Surthi a second-year law student, studying at Osmania University Hyderabad. A Legal content writer, contract Drafter, and Legal Intern. Student Archiver 20 under 20

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