Five Legal Complexities When Founding a Startup in India (Content Princess – SEO)

On January 16, 2016, the “Start-Up India” initiative was launched by the Prime Minister of India, in conjunction with the Ministry of Commerce and Industry. The aim is to promote entrepreneurship and innovation and to transform India into a nation of job creators.

There are some legal requirements to become an entrepreneur and build a startup business. Here are five elements to keep in mind as you create a start-up.

  1. The Legal Entity of the Business

Depending on the structure and business plan that an entrepreneur has, the legal entity of the business will change. The startup company can be registered as one of five entities listed in the infographic below. Each entity has distinct advantages and disadvantages. The investments and legal requirements will change for each category.”>

  1. Business Licences and Legislations

To begin, an entrepreneur must obtain a business license to operate within a given city. The chosen office location will need to have the correct city zoning for the type of business that will be there.  Furthermore, the state and central government may require additional licenses to operate the business. Depending on the kind of work, fire, air and water pollution, and sign permits will need to be obtained.

Other than government-issued licenses, the businessperson will also need to look into labour legislations. In the beginning, they may be the sole employee of the start-up, but as the business grows, this could change quickly. There are dozens of labour welfare acts that founders should be familiar with, as well as details regarding wages, health and safety, and social security.

  1. Taxes

In addition to the licenses mentioned above, the entrepreneur will need to determine what taxes will need to be charged to clients and/or paid to the government. These will vary depending on the location of the establishment and the nature of the work it does.

  1. Comprehensive Contracts and Their Enforcement

India ranks as one of the worst countries in which to enforce a contract. Because of that, startup ventures will need to learn how to enforce the contracts that they make. This canbe done through arbitration, recovery strategies in the contract, or with the help of the Ministry of Micro Small and Medium Enterprises.

Before signing, contracts need to be searched for hidden clauses that may harm the start-up. Two must-have clauses to look out for are a non-compete clause and a confidentiality clause.

  1. Investors, Investments, and Funding

Promoters may need money to start their business. Depending on the legal entity that they have registered, funding may be available from a variety of sources. Investors may be domestic or foreign, but all will require some form of a contract. Initially, this will be a term sheet and may need legal advice to complete.

Start-ups may be receiving less funding compared to last year, but this has decreased competition among companies. As long as the business model is strong, having less access to funding should not harm the start-up. Plus, as soon as the start-up is profitable, it is eligible for bank loans.

LSI Keywords

Variants of LSI:  Startup business,  startup company, Startup ventures,

Antonyms/Synonyms: Entrepreneurship,  business, legal entity, establishment



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