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Legal mistakes made by the Start-Up
  • By: admin
  • Date: 12 Feb 2020
  • Startup
  • Comments:
  • Views:142
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In India, the rapid progress and advancement in various sectors have led to an increase in the number of startups. They are the future of India. It has the scope to incorporate in multiple forms such as company including a partnership firm, limited liability partnership, etc. The laws relating to the tax laws, incorporation, environmental laws, securities laws, intellectual property laws, contract law, and various other regulations are required to adhere the compliance of Startups. The private limited company, partnership firm, a limited liability partnership firm are considered as ‘Startup’ till seven years from its incorporation date for getting the benefits under the Schemes of India.

It needs a lot of attention and efforts, including a developed proof of concept, finding the market fit product, and hiring the first set of employees. One of the most common areas where most startups make the wrong choice is establishing a solid legal foundation. Some of the legal mistakes made by them are as follows:

Legal Entity:

In startups, the legal entity you choose is very significant; mainly, it should be a registered company. It is preferred to go for Limited Company or LLP if you don't want to be personally liable for the liabilities of the startup and to avoid any legal hassles.

Absence of Founder's Agreement:

It is necessary to have a founder's agreement to decide the percentage of ownership, vesting rights, responsibilities of partners, salaries, terms and conditions, assets or cash flow in the business, etc. Absence of Founder's Agreement leads to enormous problems.

Lack of Documentation:

It is essential to maintain the documents to avoid the legal mistakes as the due diligence can make or break the deal.

Bifurcation of the Expenses:

It is very difficult to distinguish between personal and business expenses. The company should have a financial account at the onset and separate records as well. The proper distinction between the revenue and expenses shall be defined in the founder's agreement to avoid the conflicts.

Not tracking expenses:

Mostly, the mistakes made by the startups are not keeping track of their expenses. The expense which is not documented is not deducted, and therefore, the tracing of the expenses becomes very difficult.

Non- Compliance with Security Laws:

Most security laws require the sale of shares that comply with a specific form, filing procedure and disclosure unless such sales are exempt. If they fail to comply with such conditions, it can lead to the penalties for the founders and the start-up company, including the repurchase of all the shares at the issue price. Consequently, to avoid such penalties, founders, must hire the lawyers to prepare the document relating to sales of shares in compliance with the respective laws.

Lack of Employment Document:

Start-ups often encounter problems as they fail to maintain satisfactory employment documentation. They have prepared a core group of employment documents to be signed by most, if not all, employees. Employment documents for a  company would include the benefits available to the employee, their roles and responsibilities, confidentiality clause, service marks, etc.

Intellectual Property Rights:

In case you develop a unique product or service, one should take the appropriate steps to protect the intellectual property of the company. While registering the name of the business, it is essential to research for picking the name of the Company to avoid the trademark and copyright.  You should make sure that the name is distinctive and memorable. The name selected should not be in a limited sense as you might need to change the nature of business later.

Good Terms and Conditions of the Agreement:

The terms and conditions set forth for people using the website shall be appropriately mentioned in the agreement and the policies. The Privacy Policy of the business is a legal statement on the website stating the nature of business. The terms for the excellent website shall include the procedure of using the site, disclaimers, warranties, Liabilities, Dispute settlement, refund policies, intellectual property rights, etc.

Legal Counsel:

It is a misguided effort to hire an inexperienced legal counsel to save the expenses, in case of start-up businesses. Instead of spending the money to hire competent legal counsel, founders often hire lawyers on steep fee discounts. It is advisable to take the consultation from the lawyer who has a vast experience in Commercial, Corporation, Contract, Employment, Intellectual Property laws, etc.

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Start-ups in India

By: admin Startup 17 Apr 2019

One doesn't need a college degree, bank balance or even business experience to become a great business entrepreneur or to start something that could become the next big thing. Though, what you do need is a definite plan and the drive to see it through.

Things to remember and need to start a business/company

Select a Name and Legal Structure:

There are four types of legal structure/organization, are there you can select any one of them.

· Sole Proprietorship

· Partnership

· Limited Liability Company (LLC)

· Corporation or S-Corporation.

Thorough research of the market:

Is someone already doing what you are planning to start? If not, Why?

Start researching the thing what you have decided to start and collect the information, also, contact people who experienced or have some knowledge about your idea and can help you in this matter.

Writing the Plan:

A written summary of how your business will evolve and from when it will start - to the finished product.

  1. Title page: Start with the name of your business, which is harder than it sounds.
  2. Executive summary: The high-level overview of what the plan includes, the description of the company, the problem the business is facing, the solution, and why now. 
  3. Business description: What business do you intend to start? What does your industry you are entering into look like? What will the industry look like in the future?
  4. Market strategies: What is your target market? How can you sell your best to that market?
  5. Analysis of competition: What are the strengths and weakness of your competitors, How can you beat them?
  6. Development and design plan:  What is your product or service and how you will develop it? Next, create a budget for that product or service.
  7. Management and Operations plan: How does the business function daily?
  8. Financial Factors: Where is the money going to be coming from? When? How? 

Learn as much as you can about the production, development of Business/company, so that you can improve the process and hiring decisions in the long term.

Obtain PAN Number from the Income Tax Department: If you are set up as an LLC, Corporation, or Partnership, apply for a PAN Number from the Income Tax Department.

Opening Company Bank Account: Select a bank of your choice and open the company bank account.

Lease Office, Warehouse or Retail Space: Depending on the type of your business, arrange for office space to be purchased, leased or rented. Contacting a commercial realtor in of your area can be helpful here. And arrange for utilities and office furniture.

Obtain other Licenses and Permits:

· Obtain Director Identification Number (DIN)

· Obtain Digital Signature Certificate

· Reserve the company name online

· Stamp the company documents

· Get the Certificate of Incorporation

· Make a seal

· Obtain a Permanent Account Number (PAN)

· Obtain a Tax Account Number (TAN)

· Register with the Shops and Establishment Act (State/Municipal)

· Register for GST

· Register for Profession Tax at the Profession Tax Office (State)

· Register with Employees' Provident Fund Organization (National)

· Register for Medical Insurance

Hire Employees: Recruit smart and talented individuals and professionals. Keep a balanced team with entrants and experts and delegate tasks based on their experience.

Set up an Accounting System: Set up an accounting system for keeping accounts of the business and timely payments of tax, salaries to employees and other financial transactions

Develop your Business Identity: Make your own logo, letterhead, business cards, and other promotional materials of your business. 

Marketing: Now that you've set up the company, you have to get the word out to reach your customers. Develop a marketing plan for your products and services that target your ideal customer.

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