Nature and the type of startup business
It is important to know the kind of organization you want to set up. It can be structured in the form of a partnership firm, limited liability partnership, private limited company or public limited company depending upon the purpose, requirement, and long-term objective of the business. It is important to understand the differences among all the types by consulting a professional lawyer who can then assist in the formation of the business.
Each form of business is governed by separate laws having various rules and regulations which necessitate strict compliance towards such rules otherwise the business can run into the risk of non-compliance which may involve heavy penalties and loss of reputation.
Each type of business has its own set of legal requirements and regulations and one should pay special attention to them before and during the incorporation process.
Apply for business licenses!
The most common license that is applicable to all businesses including startups is the license under Shop and Establishment Act which is applicable to all premises where trade, business or profession is carried out. There are other specific business licenses that vary from industry to industry.
An e-commerce startup business may require additional licenses like GST, Professional Tax, etc., while a restaurant or food-related business may require licenses like a Food Safety License, Certificate of Environmental Clearance, Health Trade License, etc. along with other standard permits.
Knowledge of taxation laws
Startup India Scheme was launched in the year 2016 to promote innovation in startups and introduced many exemptions and tax holidays for startup businesses.
According to this initiative, a startup business can avail of income tax exemption for a period of 3 years after incorporation as well as tax exemptions from capital gains and investments which exceed above Fair Market Value.
Compliance with labour laws
A startup business has to know a host of laws with regard to minimum wages, gratuity, PF payment, maternity benefits, sexual harassment, and payment of bonuses among others. It is best to consult a legal counsel to understand the applicable laws to ensure that the startup business is compliant with labour laws requirements.
With regards to labour laws, startup businesses registered under the Startup India Scheme are allowed to self-certify (through the Startup mobile app) for nine labour laws and three environmental laws within one year from the date of incorporation and get an exemption from labour inspection for a period of 3 to 5 years.
Startup businesses usually hire consultants or freelancers in addition to full-time employees, hence employment-related policies should be properly drafted to cover all benefits and applicable requirements regarding employees both full-time and part-time. It is advisable to take proper legal help to draft all the policies applicable for a startup business as neglect of such may result in inefficiencies and at times startups can land in risky situations if employees are not provided guidance on how to work in the best interests of the workplace.
Protection of intellectual property
Intellectual property is the bedrock of any startup business, especially for tech-related businesses. Codes, algorithms, and research findings among others are some of the most common intellectual properties owned by tech companies. Startups can take benefit from the ‘Scheme for Startups Intellectual Property Protection (SIPP) under the Startup India initiative.
Contract management
Contracts lie at the heart of running any startup business. A contract is required to ensure the smooth functioning of the relationship of any startup with its employees, vendors, suppliers, and any other outside party, protection of its assets and prevent any legal risk by limitation of its liabilities.
Legally, all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration with a lawful object, and are not expressly declared to be void. It is highly imperative to get good legal advice on how to handle contractual relationships before and after signing any contract.