Startups: Legal essentials
Feb 14 2017
Choosing the legal structure of the startup
Your future plans would depend heavily on the legal structure of your startup. It has an impact on the kind of investors you can accept, your tax liabilities, your personal legal liability, and so on. By selecting the wrong kind of structure, you might end up with unlimited personal liability for debts incurred by your company. So, you need to keep in mind factors such as — the type of business you own, its administration control, its tax registration, management and ownership, funding, profit sharing, business regulation and more.
In India, registrations and licences are extremely important to operate a business lawfully in a territorial jurisdiction. These include PAN registration, VAT registration, TAN, service tax registration, etc. Without these, any entrepreneurial venture is perpetually under the threat of government scrutiny. It is also essential to have a shareholder’s agreement, even if they are friends or family members. Quite often frauds and breach of trust occur due to lack of a shareholder’s agreement.
One common mistake that startups make is not registering their trademarks. This proves costly at times when organisations, fighting to survive in a competitive market, end up stealing ideas and other entities. You must protect your intellectual rights, not only for yourself, but also for your organisation as a whole. Go for trademark registration and bear the responsibilities of an owner.
Avoid loose language
In marketing rage, at times people commit the grave mistake of promoting overblown or exaggerated benefits of their product or service, which later have unprecedented negative outcomes. Fraudulent cases are rampant, with consumers being smart enough to take the organisation to court. Therefore, you must avoid using a loose language while describing a product and service that are utterly false. A carefully thought-out campaign benefits in the longer run.
Rights of employees
Stricter labour laws and growing awareness has led to more empowered and conscious employees in terms of their rights. Failing to adhere to employee laws in matters of vacations, sickness and disciplinary action can result in court cases. Cases of bullying and sexual harassment in the workplace often put organisations in tricky situations. It is essential therefore to keep yourself abreast with the latest in employee rights to prevent such nasty occurrences. Organisational goodwill can only be maintained through satisfied employees.
Do not miss out the evidence
Employee disagreements, client dissatisfaction etc some times lead to legal issues, in which factual evidences are crucial. You are bound to be at the defeated end if you haven’t invested in keep evidences. Reverting to a complaint with evidence and putting your case across is the most positive thing in this instance. Every business-related decision needs to be documented in writing. Contracts, emails, and even note-taking apps are aids for you to prove your innocence. It is always good to back your case with solid proofs.
Agreements with a third party
While you negotiate for a third-party agreement, you should also include a non-disclosure agreement, which protects your rights of intellectual property. It should highlight all the points of agreement in the case of a breach, a dispute or a termination. At the end, you will have proper documentation of the things agreed upon that will prevent any harm to your startup.
It is always advisable to enlist the help of a lawyer to ease you out of a legal tangle, but self-education on these pointers would ensure prevention beforehand.
(The writer is CEO and founder, BusinessWindo)