3 Things that every startup should follow for better legal hygiene

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It is exciting to start a new business, but there will be instances leaving you in utter confusion when it comes to making the right choice. Startup brings with it some doubts, nervousness, and legal dilemmas. Those who are new to businesses world may often feel themselves caught up between choosing the new company registration in India or even opt for LLP registration. And everything begins from there, actually. I’ve experienced several concerns concerning adding capital at an earlier level. Often, a question of whether to opt for a loan or go the Angel way remains a colloquial mystery for millennial startups, and a lot more goes into ensuring legal hygiene.

Let us explore some of the legal situations that a startup wants to be taken care of.

#1. Opting for Ideal Business Structure

While at first glance, it seems easy, there’s plenty to ponder with this one. In India, there are more than10 types of business structures from which to opt. Choosing the right one for a startup is a sweet headache.

In general, startups in India may be registered as a Limited Liability Partnership or as a Private Limited Company. The ball game identifies business nature, corporate flexibility, tax efficiency, compliance requirements, training cost, etc. A typical Indian scenario sees startups operating as a Private Limited Company; simply because raising funds from investors is easier.

Check the table below to get the gist of different types of standard business structure that startups can use.

#2. Know Licensing Regulations

No startup can remain functional in any ambiguity, and therefore licensing plays a critical role in defining legal hygiene. If your startup is into something that needs licensing, do it. Play the fair game or else be prepared for costly, almost-infinite legal proceedings, slow down investments, lose investor trust, and even shut down the business. Tad simple but pretty fatal – licensing knowledge is required hygiene that startups should strictly follow.

Test if you are an aspiring startup entrepreneur with your new company in the following domain:

  • Get the shops and business registration for the premises on which the company works.
  • Activity-based licensing requirements can occur depending on business nature. For example, if you start a food truck, restaurants, food joints, food items or consumables packaging, food items or consumables delivery, etc.
  • Online GST registration is recommended unless mandatory. However, it is compulsory for all companies or qualified organizations exceeding INR 20 Lakh turnover per year (10 Lakh for north-eastern states). You’ve forced to time-scale the startup. Therefore, voluntary registration is the safest.
  • Import and export business practices allow the owner to obtain the Importer – Export Code.
  • To benefit from government schemes and subsidies, registration with MSME is recommended. Do the same under the schemes government has introduced for relevant activities.

#2. Have legal documents and policies in place

It is recommended for new businesses to follow the standard practices from the beginning itself. For many startups, undergoing an agreement is one thing that is very basic from the operational point of view. Therefore, setting up policies for the same is essential. There are many agreements like preparing term sheet for the investment options, drafting co-founder’s agreement, the terms and conditions for website usage, warranty policy, etc.

Let us look at the necessary agreements and documents that businesses should ideally fulfill.

Co-founders’ or Shareholders’ agreement

This agreement will have the duties, roles, responsibilities, and other nitty-gritty of the founding members of the business. It involves drafting a broad agreement engulfing a few essential aspects that founders undertake during their tenure in the business.

A shareholders’ agreement defines the shareholders’ rights by specifying the conditions in which they can exercise their rights. This includes shareholders’ right for share exchanges, right of first refusal, redemption upon death or disability, and their authority to manage and operate the company.

Privacy Policy, Website Disclaimer Policy & Terms & conditions

The organization communicates to third parties via websites, privacy policies, disclosures, and other required policies after LLP registration. Terms and conditions, as well as privacy policies tailored to the specified business.

iii. No disclosure agreement

NDAs are critical to startup as it preserves the innovations of creators and workers along with intellectual property. At least, an NDA should specify:

  • How to handle critical and confidential business information
  • Information of the business owners
  • Defining a set of information as ‘confidential.’

HR policy

The early hires of the company are the greatest assets. To make the most of the new talent, startups are often encouraged to have the HR strategy geared towards keeping the workers. This is not fresh that startup equips programs like working hours flexibility, WFH rules, ESOP offerings, retirement benefits, etc.

Vendor Agreement

Imagine entering in vendor contract that has some secret clause(s) that probably may cause unpredicted price increase, or grant termination power to the other party without the notice requirements. This can confuse your startup. Therefore, while not necessary, it is essential to protect your business transactions with symbiotic contracts with third parties.

Conclusion

The phases of integrating, reporting, handling, and running startups require more comprehensive attention. It should be based on the provisions established for regulating the respective transactions, procedures, and business acts. It is a little challenging for the businessmen who are dedicatedly engaged in the primary business operations. But the value of legal requirements and procedures shouldn’t be ignored that effectively protects the company.

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