Startup is a company with new innovative idea which is introduced in the society for fast growing business and to provide new services. A startup company (startup or start-up) is an entrepreneurial venture which is typically a newly emerged, fast-growing business that aims to meet a marketplace need by developing or offering an innovative product, process or service. A startup can be a company such as a small business, a partnership or an organization designed for rapid business growth.
With the inception of a Startup comes hand in hand the legal responsibility. A Startup usually Startup in a partnership which does not follow the strict and sophisticated corporate culture in them. But the legal responsibility of a Startup is same as that of a company. One is suppose to take his legal responsibilities seriously.
Basic Legal Aspects to be kept in mind while setting up a Startup:
1. The name of the Startup must be legal and not violating others legal rights.
The Name you thought for your Startup must not infringe the rights of an already existing business. For this purpose one can take advice of specialized or professional Startup lawyer. You might not want to fall in the pit of legal disputes at the inception of the business. Search to the next level and conduct a no-conflict, free trademark search to see if your name is available for use and not a registered trademark.
2. License to practice a Particular business also means to obtain authority to practice a business at a particular city or locality.
Depending on what type of business and the city or location of such business , one may be required to have one or more business licenses or permits from the state Government, local or even from the Central Government. Such licenses include: a general business operation license, zoning and land use permits, sales tax license, health department permits, and occupational or professional licenses.
3. Trademark Protection for the name of the company, the name has to be ‘Trademarkable’ and in use in commerce.
Trademark means a mark capable of being represented graphically and which is capable of distinguishing the goods or services of one person from those of others and may include shape of goods, their packaging and combination of colors. There can be following benefits of a registered trademark:
- Guards the commercial goodwill of a business
- Advertise Goods and Service
- Identifies the origin of Goods and Services
Though it is not mandatory in India to register a Trademark, but is advised to do to protect one’s intellectual property rights which include Trademark.
4. Collect all the information related to the Labour Laws
Proper knowledge of employment laws allows one to understand the legal rights and liabilities in various complicated situations. It is necessary to understand the law before taking law in hands. Startups have been exempted from inspection by labour inspectors for up to 3 years if they give a self-declaration for compliance to the nine labour laws. Startups may be inspected on the basis of a written complaint filed for violation subject to approval of at least 1 level senior to the Inspecting officer.
A startup is defined as follows, for these exemptions:
- An entity incorporated or registered in India, not before five years, and with an annual turnover not exceeding Rs. Twenty Five Crore in any preceding financial year.
- Working towards innovation, development, deployment or commercialization of new products, processes or services, driven by technology or intellectual property.
- Provided that such business is not formed by splitting up, or reconstruction, of a business already in existence.
- Provided also that an entity will cease to be a startup if its turnover for the previous financial years has exceeded Twenty Five Crore or it has completed 5 years from the date of incorporation or registration.
Startups shall be allowed to self-certify compliance (through the Startup mobile app) with nine labour and environment laws.
Labour laws from which exemption is provided under the current scheme:
- The Building and Other Constructions Workers’ (Regulation of Employment & Conditions of Service) Act, 1996.
- The Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979.
- The Payment of Gratuity Act, 1972.
- The Contract Labour (Regulation and Abolition) Act, 1970.
- The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
- The Employees’ State Insurance Act, 1948.
Environmental laws from which exemption is provided under the current scheme:
- The Water (Prevention & Control of Pollution) Act, 1974.
- The Water (Prevention & Control of Pollution) Cess (Amendment) Act, 2003.
- The Air (Prevention & Control of Pollution) Act, 1981.
5. Important Contracts for a Startup
- Operating Agreement: To avoid any conflict among founding parties, all co-founders should sign a comprehensive operating agreement. This type of agreement defines the relationship of the founders and co-founders.
- Employment Agreement/Contracts: These contracts are made for hiring new employees. They must contain following
- Terms of employment
- Reporting structure
- IP ownership of work
- Required commitments
- Share vesting
- Company policies
- Non Disclosure Agreement: Also called as NDA’s. Non Disclosure Agreements are kept to secure and protect the ideas and conversation between founders and investors or any other possible persons.
- Bylaws: The code of conduct in the office. The distribution of the department, working procedure in the company, etc.
The legal perspective of a Startup is a major component required before setting up a company. The Article is inspired by the story of one of such Startup ‘LEXCARTS’ specialized in providing online legal services. The step by step Legal aspects of starting a Startup is necessary as a safeguard to protect one’s idea and business.