Essentials for Start-ups

Startups are the new trend in the business world. If you have a great idea and are leaning towards materializing your own start-up dreams, it is important to understand the types of structure, as each structure has its own rules and regulations. Here are some of the legal compliances and regulations that you need to be aware of and knowing the same will save you from future legal battles:

• Founder’s agreement?

The Founder agreement should describe the relationship of the founders, provide the probability that all work will belong to some entity in the future and outline a basic communication and conflict-resolution clause that can help prevent disputes.

In case of start-ups with multiple founders or founding parties, it becomes necessary for them to sign an agreement that defines the working coordination of all parties, and form outlines to define boundaries. It is to prevent any conflicts in the future. Basically, to avoid any dispute among the founding parties of a start-up, all co-founders should sign a comprehensive operating agreement. The agreement should describe the relationship of the founders, provide the probability that all work will belong to some entity in the future and outline a basic communication and conflict-resolution clause that can help prevent disputes.

Setting up only a sole proprietorship can result in huge income tax bills and legal liabilities for which founders are personally responsible. By not filing with the Internal Revenue Service to form a distinct legal entity for their business, founders risk losing their savings and, in some extreme cases, their homes. While all options have their positives and negatives, for the most part, start-ups with multiple shareholders should form a corporation.

• ?Shareholder’s Agreement?

Once your start-up is ready to move ahead with private investments by individuals or corporate as the case may be, a Shareholder’s Agreement needs to be put in place. It is one of the most crucial start-up documents that helps to determine the rights and liabilities of these shareholders and their ability to exercise these rights. These contracts are very critical as they define the relationship between the shareholders of a particular company and are invaluable in case a co-founder decides to leave the organization.

• Registration:

1. To commence a legitimate business, it is very important to register your startup. One should follow the required registration procedure which includes obtaining a certificate of incorporation or registration etc. It is important to note that under Indian Law there are only a few structures which are considered as a startup like proprietorship, private limited company, partnership firm or LLP.
2. ?Registering with ‘Startup India’

Startup India is a scheme launched by the Government of India, which promotes innovation and startup trend in the country. Registering with this initiative opens the door for your startup to a lot of benefits and the same could help you boost your business at initial stages. To know more about the Startup India initiative, please visit?https://www.startupindia.gov.in/ where they provide every kind of legal information regarding Startups such as List of Facilitators for Patents, self-certification, etc.

• ?Taxation and Accounting Laws:

There are tax exemptions provided by the government under Startup India scheme. Different businesses are applicable for different tax policies depending on the nature of the business. It is mandatory for a startup to be registered to avail such benefits. Every firm or business should maintain proper accounts and tax audits to adhere to the taxation laws and rules applicable.

• ?Employment and Labor Laws:

Employees are a very important part of any organization and hence it becomes the duty of the employer to know his responsibilities and comply with all the requisite labour regulations.

Building an A-Team for the start-up?is crucial to set up your business for success. The reasons why you need to ensure proper contracts for each new addition may not seem important as a start-up with limited initial manpower capacity, but it will go a long way in making your employees understand their values and expectations of the company from them as an asset.

They should clearly state the following:?

1.?????Terms and condition of employment (e.g., compensation, role responsibilities, working hours and grounds for termination)

2.?????Reporting structure?

3.?????IP ownership of work?

4.?????Expectations?

5.?????Required commitments?

6.?????Share vesting?

7.?????Company policies (e.g., vacation days, paid time off the structure, dress code)?

Non-Disclosure Agreement papers are also a workable asset to keep the reign tight on a start-up’s employees which helps by safeguarding a start-up’s founder and employees’ ideas and their intellectual property rights.

An NDA should specify the following:?

• What constitutes confidential information?
• How confidential information should be handled?
• Who owns that information (the company)?
• The time range that the information will be disclosed?

A startup maybe exempted from labor inspection for the period of one year if it is registered with the Startup India and apply the above major applicable laws.

• ?IPR Laws:

This is one of the important aspects that a start-up should take care of. As most of the tech based start-ups works on innovative ideas. These ideas are the intellectual property, which can be protected under this law which focuses on the subject like Patents Act, the Copyright Act and Trademark Act, etc. It protects a start-up against any unfair competition. Owning this right is very important for any company.??????????

Technological Assignment Agreements are made between a shareholder and the start-up. Here the shareholder assigns their intellectual property to the respective company. These consist of the intellectual property of persons before the formation of the company. Invention Assignment Agreements are relevant when there is an innovative product or service created by a company’s employees. Invention Assignment Agreements ensure that the company owns all rights of the IP portfolio in this particular case.

An Intellectual Property assignment agreement could be one of the key legal start-up documents that determine whether your start-up can attract the investments it needs to grow. This is especially accurate for technology companies because it’s often the value of your IP portfolio that investors and venture capital firms are evaluating.

• Website Terms and Conditions

Most growing businesses have established (or should establish) a Website to market their start-up and their products. Essential to these Websites is a?Terms of Use Agreement, which is intended to be an agreement between the Web site owner and the users of the site and any buyers of goods or services from the site.

A well-drafted contract includes limitations on how the site can be used, disclaimers, liability limitations, disclosure on the site’s privacy policy in dealing with customer information, copyright protection warnings, the jurisdiction where any disputes must be brought (ideally, the home town of the site owner), and much more.

• Investor's Agreements:

Investors also play an important role in a startup journey. The contract designed for the investors is called an Investor Agreement. This contract clearly defines the role, power and percentage share of an investor in the company.

• ?Conclusion:

There are a many more legal compliances and regulations which are essential for start-ups. Some exclusively depends on the nature of one’s start-up. ?One must consult their chartered accountant, company secretary and lawyer to cover all the Statutory and Legal requirements for their blooming start-up.