Most startups pay little attention to legal compliance when venturing into the ever-changing entrepreneurial world. However, legality is the foundation of any company that has been able to sustain its enterprise. In other words, it ensures that a venture is carried out legally and saves it from financial punishment, reputational loss, or even closure by law.

A solid legal foundation set early helps to stay in compliance while creating confidence with investors and helping the business to scale. While dreaming big, it’s worthwhile to note that every successful startup starts by keeping legal.

The aim of this article is to help new entrepreneurs understand the legal requirements they need to follow when starting a business. Understanding these laws and agreements will ensure that your business is built on a solid foundation, mitigating risks and preparing for long-term success.  As you dream big, remember that staying legally compliant is the first step toward achieving your vision.

Indian Laws Applicable to Startups

The Indian Contract Act, of 1872: Deals with contracts and agreements among businesses and people, including vendor agreements, employee contracts, and partnership agreements.

The Sale of Goods Act, 1930: It deals with sales and contracts related to selling.

The Companies Act, 2013: It contains the formation, operation, and incorporation of companies and dissolution in India. It outlines the provisions about incorporation, governance, rights, and duties of directors, along with financial disclosures.

Limited Liability Partnership Act, 2008: Limited Liability Partnerships (LLPs) are partnerships that combine features of a corporation and a partnership. The legislation governs its formation and the operation of the LLP.

The Trade Marks Act, 1999: This act gives legal protection to trademarks and ensures that exclusive rights to use business logos, names, and symbols are maintained.

The Patents Act, 1970: This act gives protection to new inventions and grants exclusive rights to the inventor for a limited time.

The Copyright Act, 1957: This act protects original works of authorship, such as literature, software, and music.

The Designs Act, 2000: Protects the visual design of products.

The Geographical Indications of Goods (Registration and Protection) Act, 1999: Protects unique products associated with a specific geographical location.

The Goods and Services Tax (GST) Act, 2017:  Regulates the GST system, a single tax for the entire country applicable to all businesses involved in the supply of goods or services.

Income Tax Act, 1961: It deals with the taxation of individuals, companies, and startups. It states tax rates, deductions, and exemptions available to the startups.

The Consumer Protection Act, 2019: Protects the interests of consumers and regulates e-commerce platforms, ensuring transparency and fairness in business transactions.

The Legal Metrology Act, 2009: Ensures accuracy in weights, measures, and labeling of products to protect consumers.

The Information Technology Act, of 2000 (IT Act): Deals with cybersecurity, data protection, and e-commerce regulations.

The Rent Control Act (state-specific): Regulates rental agreements including rights and liabilities of tenants and landlords.

The Transfer of Property Act, 1882: Dealing with transfer of property. It includes buying and selling and letting out of real estate.

The Arbitration and Conciliation Act, of 1996:  Deals with arbitration as an alternative dispute resolution mechanism instead of litigation.

The Foreign Exchange Management Act (FEMA), 1999: Regulates foreign investments and remittances into India.

Securities and Exchange Board of India (SEBI) Act, 1992: Regulates the securities market, public offerings, and investor protections.

Steps to Take Before Starting a Startup by Law

Registering Your Business

Registering your business is essential for legal recognition, brand protection, and access to benefits, ensuring it operates within the framework of the law.

•  Why Register Your Startup?

Legal Status: Grants formal recognition under laws like the Companies Act, 2013, and Limited Liability Partnership Act, 2008.

Tax Benefits: Avail tax exemptions and incentives under schemes like Startup India, as per the Income Tax Act, 1961 and GST Act, 2017.

Credibility: Enhances trust with customers, investors, and banks.

Brand Protection: Protects your name under the Trade Marks Act, 1999.

•  Steps to Register Your Business

Choose a Structure: Decide between Sole Proprietorship, LLP, or Private Limited Company based on your needs.

Obtain DSC: Required for filing with the Ministry of Corporate Affairs (MCA).

Apply for DIN: Mandatory for each company director.

Register the Name: Reserve through RUN service on the MCA portal.

File Incorporation Documents: Submit SPICe+ form for company registration.

Obtain PAN and TAN: For tax purposes.

GST Registration: If applicable, register under GST Act, 2017.

Obtain Industry Licenses: Apply for necessary permits (e.g., FSSAI for food businesses).

 So, Registering your business ensures legal compliance and sets the foundation for success.

Contract Law and Vendor Agreements

Proper contracts are the backbone of any startup, ensuring smooth operations and safeguarding interests. Below is a list of essential agreements for startups:

• • Rental/Lease Agreement: This agreement defines the terms under which a startup rents office space. It covers aspects like rent amount, security deposit, maintenance responsibilities, and renewal terms to ensure clarity between the tenant and landlord.
  • Non-Disclosure Agreement (NDA): An NDA protects sensitive information shared with employees, partners, or vendors. It ensures confidentiality and prevents unauthorized use or disclosure of trade secrets and business strategies.
  • Assignment Deed: This document facilitates the transfer of ownership or rights (like intellectual property or assets) from one party to another. It ensures that the transfer is legally binding and clearly defines the rights being assigned.
  • Franchise Agreement: A franchise agreement prescribes the relationship between a franchisor and a franchisee. It states terms such as branding, royalty remittances, territorial rights, and operational guidelines that bring a uniform business model.
  • Arbitration Agreement: This agreement specifies how disputes are to be resolved through arbitration and, therefore, serves as an alternative to litigation. It saves time and money and defines rules for fair and binding resolution.
  • Memorandum of Understanding (MOU): An MOU is an understanding between the parties before signing an actual contract. It’s more of a non-binding document that outlines the purpose, expectations, and conditions of a proposed future contract.
  • Loan Agreement: This document stipulates the terms of borrowing money, such as repayment schedules, interest rates, and penalties for default. It protects both the lender and the borrower legally.
  • Staff agreement: It is an employment contract where an employer offers to employ and an employee accepts the terms to work under specific job responsibilities, remuneration, working hours, and other employment terms. In return, a clear definition of roles and expectations with protection by law reduces disputes between both parties.

Importance of Legal Advice

Any business is built upon well-drafted and legally sound agreements. Hiring an experienced legal expert ensures that your contracts are personalized to your specific needs, law-compliant, and ambiguity-free. Poorly drafted agreements often result in expensive disputes, penalties for non-compliance, or intellectual property loss. For well drafted contracts you can consult experts at www.asmlegalservices.in, or the author of this article at www.lifeandlaw.in.

Taxation Laws

Startups must comply with various tax laws to avoid penalties and take advantage of tax benefits. Key taxes include:

• GST (Goods and Services Tax): This applies to businesses with a turnover above ₹20 lakh. Helps startups claim Input Tax Credit (ITC) for taxes paid on purchases.

• Income Tax: Tax on profits. Startups recognized under Startup India can enjoy tax exemptions for up to 3 years.

• TDS (Tax Deducted at Source): Deducted from payments like salaries and professional fees. Requires timely deposit and filing.

Tax Benefits:

• Income Tax Holiday for 3 years for eligible startups.

• Capital Gains Exemption for investments in startups.

• Tax Benefits on ESOPs for employees in startups.

Staying on top of tax registrations, filings, and deadlines helps startups remain compliant and reduce liabilities. Consulting a tax professional is highly recommended.

Intellectual Property Rights (IPR) Laws

Intellectual Property Rights (IPR) protect your startup’s unique ideas, products, and brand. Here’s why it’s important and the key types of protection:

 Importance of Protecting Your Brand and Innovations

• Brand Protection: Prevents others from using your business name, logo, or unique marks, preserving your reputation and identity.

• Innovation Protection: Safeguards your products, services, or technologies, ensuring you retain exclusive rights and prevent competitors from copying.

 Types of IPR

• Trademarks: Protects your business name, logo, or slogan from being used by others.

• Patents: Grants exclusive rights to your invention for a limited time (usually 20 years).

• Copyrights: Protects original works like software, books, and music.

• Trade Secrets: Safeguards confidential business information, like recipes or processes.

 Steps to Register Trademarks and Patents

• Trademark Registration:

  1. Check for existing trademarks.

  2. File with the Intellectual Property Office (IPO).

  3. Wait for approval.

• Patent Registration:

  1. Conduct a patent search.

  2. Prepare detailed documents.

  3. File with the Patent Office.

IPR protection helps secure your business’s unique assets, preventing theft and legal conflicts. Proper protection is key to long-term success.

Employment Laws

Understanding employment laws is vital for startups to ensure legal compliance and fair treatment of employees. 

Labor Laws

• Minimum Wages Act: Ensures employees are paid a fair minimum wage based on industry and region.

• Employees’ Provident Fund (EPF): Requires businesses with more than 20 employees to contribute to employees’ retirement savings.

• Gratuity Act: Provides a lump-sum payment for employees who have worked for at least 5 years with the company.

Importance of Employment Contracts : A written contract specifies job roles, compensation, benefits, and terms of employment, preventing disputes.

Compliance with Anti-Discrimination and Safety Laws

• Anti-Discrimination Laws: Prevent discrimination based on gender, race, caste, or disability.

• Workplace Safety Laws: Ensure a safe work environment, protecting employees from accidents.

Other Considerations

• Leave Policies: Clearly define leave entitlements and benefits.

• Employee Welfare: Offer benefits like health insurance and bonuses to improve employee satisfaction.

Compliance with employment laws helps startups avoid legal issues and ensures a fair, safe, and productive workplace. Consulting a labor law expert is recommended.

Conclusion

Starting a startup is a very exciting yet challenging journey, and knowing the legal framework that surrounds it constitutes the success story of one’s startup. Through compliance with necessary laws like business registration tax obligations, intellectual property protection, and employment regulations, you prevent legal risks to your business and form a strong foundation for sustainable growth. Remember, going by the law will not only protect your startup but also grow trust among people about doing business in the market. Dream big, but always stay informed and legal. That will be the key to bringing your entrepreneurial vision into a thriving reality.

At the same time seeking professional legal advice is equally important, as it provides guidance in navigating complex regulations, preventing costly mistakes, and making well-informed decisions. For that purpose you can consult experts at www.asmlegalservices.in, or the author of this article at www.lifeandlaw.in, who can guide you to start your startup legally.

Adv. A. S. Mulla

Adv. Abdul Mulla (Mob. No. 937 007 2022) is a seasoned legal professional with over 18 years of experience in advocacy, specializing in diverse areas of law, including Real Estate and Property Law, Matrimonial and Divorce Matters, Litigation and Dispute Resolution, and Will and Succession Planning. read more….