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The Legal Affair

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Navigating the Legal Obligations for Indian Start-ups: A Comprehensive Guide

Navigating the Legal Obligations for Indian Start-ups: A Comprehensive Guide


I would like to begin this article by stating the lines said by John Mariotti, the president, CEO and founder of the enterprise group.” In business. You don’t get what you deserve you get what you negotiate.”

This refers to the fact that profits and your Luck, are determined by your efforts.

Let us first understand what you mean by a start-up in corporate terms: a start-up company is a newly formed business with particular momentum behind it. Based on perceived demand for its product or service. A start-up intends to grow rapidly as a result of offering something that addresses a particular market gap a start-up company is a newly formed business with particular momentum behind it. Based on perceived demand for its product or service. A start-up intends to grow rapidly as a result of offering something that addresses a particular market cap. 

The six main types of start-ups are : 

  1. Lifestyle, startups.
  2. Small business startups
  3. Scalable startups 
  4. Buyable startups 
  5. Large company startups 
  6. Social startups 

According to the startup statistics, India stands the second highest number of start-ups, which seems to be increasing day by day, given that it becomes necessary to make sure they are following the necessary legal obligations, not complying with the laws can negatively affect the company as the damages can be huge and it can also impact the reputation of the business. 

There are some points which one has to keep in mind and qualify to be able to recognise as a startup:

  1. The startup should be entitled as a private company, partnership firm or limited liability partnership.
  2. It should not be more than 10 years of age, 
  3. Turnover to be less than a hundred crores in any of the previous financial years.
  4. The startup should have services that are capable of generating wealth and employment.
  5. The entity shouldn’t have come into existence because of the splitting up or reconstruction of a business.

Now let us talk about the laws that your company would need to follow :

1. Establishing your organisation structure

The structure of your business depends on the industry, You and the goals you have for your business and how you want to place yourself in the market. It is certainly necessary to be clear about the type of business because each category will be having different obligations to follow, the type of business will certainly also affect the funding, so you will eventually need to choose based on whether you want to boost trap or raise funds externally. A private limited company comes off as a great option as it gives more flexibility with the funds.

Listed below are some of the following ways you can classify yourself as: 
A) Proprietorship 

No registration is required. The person is responsible for all the actions and there is no separate legal entity. Only one person is in charge of the authority and cannot be transferred. The income tax is filed based on the income of the individual and the annual statements need not be submitted. Only one person is in charge of the authority and cannot be transferred. The income tax is filed based on the income of the individual and the annual statements need not be submitted.

B) Partnership

Registration is optional. A minimum of two persons are needed to start it and it isn’t recognised as a separate legal entity in the taxation laws applicable or as per the income tax act, 1961. Filing annual reports isn’t necessary.

C) Limited liability company

 Registration is needed with the Ministry of corporate affairs under Act the LLP Act, 2008. minimum of two persons are required to start the limited liability company and or be considered as a separate legal entity which means they have limited liability to the extent of contribution towards the LLP, the taxation laws are again applicable as per the income tax Act, 1961 to file their annual statements.

D) Private limited company 

 The company has to be registered with the Ministry of corporate affairs under the companies act 2013. minimum of one person is needed to start the company and it is a separate legal entity which means there is limited liability to the extent of share capital. The taxation law applicable to the profits is the Income tax act, of 1961 and annual filing of the statement is necessary.

2. Registering your startup 

After you have chosen the organisation structure that you have incorporated into your startup, it is now time to register your business. 

In India, we have a Startup India initiative under which you can be recognised as a startup by the Department for Promotion and Industry and internal trade. DPIIT. 

You can register yourself on the online website startup India. government by filing and uploading the necessary documents. After this, you can get approval from the inter-ministry board and upload the necessary documents.

3. Signing co founder’s agreement 

When there are cofounders, it becomes mandatory to have an agreement with them under the start-up’s rules and regulations. 

The agreement consists of rules, duties, shares and other necessary details which help in the functioning of the organisation smoothly. 

4. Obtaining the necessary licenses

based on the nature of the business requires a license to carry out the functioning of your business. Say, for example, restaurants, Bakers and other outlets related to food products and suppliers need to be verified by the Food Safety and standards authority of India. The manufacturing businesses will need air and water pollution permits.

5. Having a nondisclosure agreement

To protect your start-up and your idea and the strategies you have planned for it. You will need the nondisclosure agreement. If you are pitching your basic business idea to investors or the public. Then the information is not considered confidential, it has to be related to the insights of the business, while discussing the strategies with your investors and employees make sure an NDA contract is signed with them to protect your plan, and if anyone breaches the contract you can take legal action against them and claim your damages. while discussing the strategies with your investors and employees make sure an NDA contract is signed with them to protect your plan, and if anyone breaches the contract you can take legal action against them and claim your damages. 

6. Protect your intellectual property

Every start-up will have something unique to it. A secret sauce that you would like to have a claim over for years. Intellectual property rights will help you to do that they help you have a patent, copyright protection, and trademark registration so that no one else can copy or steal your product. Your brand’s name, logo designs even your unique selling proposition can be protected by using intellectual property rights so that your business and business ideas remain authentic & unique to you and your company. The start-up intellectual property protection scheme by the government of India helps start-ups to file applications for patents, designs etc through registered facilitators in the concerned IP offices.

7. Know your taxation and accounting laws

That plays an important role and it is necessary to define what kind of taxes will apply to your business. If your business exceeds the turnover of 40 lakhs you will have to register for GST and the limit is 20 lakhs for service providers. Income tax filing is crucial which again will differ based on your organisational structure. The income tax is filed on the earnings and the government of India has introduced a pre-summit of taxation scheme for HUF and individual proprietors under this scheme if you have a turnover of less than 2, crores you can reveal your income as: 

  • 50% of the value of the services provided 8% of the non-digital transactions or 6% of the digital transactions tax exemptions are offered as a part of the start-up India program angel tax. If the business is DPIIT recognised and the paid-up share capital and premium do not exceed Rs.25 lakhs angel investors would receive 100% tax exemption ATIA, C tax exclusion, private, limited companies and limited liability partnerships that are recognised as start-ups and that were formed after 1 April 2016 or eligible for a tax break for three of the first 10 years following their establishment. Although the start-up can be registered without a PAN it is encouraged that the entity must have one to take the advantage of the government tax incentives, you must obtain a PAN otherwise your tax rate would be greater.
8. Do not forget to consider the labour laws

As a business owner, it is your responsibility to look after your employees and make sure they have support and safety. They need wages, gratuities, maternity benefits, sexual harassment, and other issues about the well-being of employees are all covered by labour laws. Many of the crucial acts include the Employee’s State insurance act of 1948. It intends to provide benefits to the employees in cases of illness, injury and other health-related issues. The Employee Provident fund plan established in 1952 provides employees with financial advantages while also serving as a safety net. When they retire. The maternity benefit act of 1961 was created while keeping women in mind. It is for the benefit of women during their time of maternity they’re allowed a paid leave from their work also aims at protecting the employment of women. The government of India has introduced a Shram suvidha portal where start-ups can submit their self-certification of the laws mentioned below and avoid inspection for five years… 

  • The building and other construction workers, regulation of Employment and Conditions of service act, 1996. 
  • The interstate migrant workmen, regulation of Employment and Conditions of service act, 1979. 
  • The Payment of Gratuity Act 1972.
  • The Contract of labour regulation and abolition act, 1970, the Employees’ Provident Funds and miscellaneous provisions act, 1952, the Employee State insurance act, 1948
  • Specify your terms and conditions and privacy statement. If you have a website or other digital assets, be careful to explain how the general public may use them. This offers you control over your data and aids in the protection of your interest. However, some standards must be observed if your business deals in bitcoin NFTs or something similar to safeguard both the start-up and the persons participating in the trade and ensure the liquidation procedure is handled. It’s challenging to close a business you have worked on, but if that needs to be done, then it needs to follow a set of legal procedures which will put all the stakeholders from the employees to the investors to ease and make the boarding process, smooth and systematic. There are three ways of shutting down a business; 
  • Fast-track exit mode

    This mood is the best suited for start-ups as it is a fast process and it is done at a low cost. If you want to opt for this, then you will have to show the registrar of the companies that the business doesn’t have any assets or liabilities and hasn’t been functioning for the last year.

  • Court route

    This is a traditional way of winding up the business, but it is time-consuming as it takes a lot of meetings that need to be conducted between the stakeholders.

  • Voluntary closure

    As the name suggests, if all the stakeholders are on the same page and ready to shut down the business, they can opt for this method.

The Solvency and Bankruptcy Bill 2015 also allows the closure if the simple debt structure or the assets are liquidated within 90 days as per the start-up action plan and if the start-up doesn’t want to shut down and does not operate, they can apply for a dormant company, but if they are dormant for five years then they Are struck off in the registrar of companies. Following laws help you and your business function smoothly and systematically so make sure you adhere to them as per the nature of your business. Also, don’t forget to pay close attention to the contracts that are being written to avoid any errors focus on bookkeeping managing registers from the beginning, even if it is not legally needed because this will help you in the future and also avoid a lot of confusion, obeying the above laid down laws will assure you that you or your business or never found in any trouble and your businesses reputation is not harmed. 

Now let us dive deeper into the advantages provided by the Indian government through the start-up India scheme. Indian start-up ecosystem has been evolving rapidly over the past few years and today is the home of some of the world. For most innovative and disruptive companies the government has launched several initiatives such as the start-up action plan and the Atal innovation mission to promote entrepreneurship and support the development of innovative technologies. let us talk in detail about the Startup India initiative. The Startup India initiative is a government program launched in 2016 to support the growth of the start-up ecosystem. In India, the programme has a few components including providing funding and incubation support to start-ups and creating a favourable regulatory environment. The programme has attracted many start-ups to India and has been a key driver of the country‘s economic growth. The start-up India initiative has been applauded by many in the start-up community as it has helped to level the playing field of Indian start-ups. The program has also been successful in creating jobs and driving innovation. The Indian government launched the Startup India initiative in 2016 to provide support and incentives to start-up businesses in the country to be eligible for registration under Startup India. A business must be a privately held company that is less than five years old and has an annual turnover of fewer than Rs.25,00,00,000s. The business must also work towards innovation, development or commercialisation of new products, processes or services. The Indian government has taken several measures in the past few years to make the country. Most start a friendly some of the benefits that start-ups can avail by setting up their businesses in India are : 

  1. Access to a large market

    India is home to over 1.3 billion people making it the second most populous country in the world. This provides start-ups with a large potential customer base.

  2. Low cost of setting up

    The cost of setting up a business in India is low compared to other countries. This is due to the availability of cheap labour and office. Space

  3. Favourable tax policies

    The Indian government has introduced several start-up tax incentives. These included a deduction of up to a hundred per cent on profits for the first three years and a tax holiday for the first year of operation.

  4. Access to government funding

    The Indian government has set up several schemes to fund start-ups. These include the seed funding scheme, the capital venture fund scheme and the credit guarantee fund scheme

  5. Relaxed regulations 

    The Indian government has relaxed several start-up regulations. These include exempting them from minimum capital, and investment requirements and fast-tracking their approvals. 

  6. Tax exemptions

    The government has provided start-up tax exemptions under the income tax act. This allows start-ups to save on taxes and Green was there to the resources of their business.

  7. Capital gain tax exemptions

    Start-ups are also exempt from paying capital gain tax on profits earned from selling their shares. This encourages start-ups to list their shares on a stock exchange and raise funds from the public.

  8. Funding

    Funding has set up various funds to support start-ups. Financially, start-ups can use these funds for their business, operations and expansion.

  9. Mentorship and incubation

    The government has provided mentorship and incubation support to start-ups with various incentives help start-ups to get guidance from experienced entrepreneurs and access resources

  10. Funding and financial 

    Assistance, the government provide funding and financial assistance to start-ups through various schemes and programmes. This help start-ups get the necessary resources to start and grow their businesses.


Hence, I would like to conclude by saying that the future of start-ups in India is very promising. India has a large population and a growing economy. This makes it an attractive market for start-ups. India also has a large pool of talented engineers and entrepreneurs. This makes it a wonderful place to start a company. The Indian government provides several benefits and incentives to start-ups which can help them get a foothold in the competitive Indian market. These benefits include tax holidays, government funds, access, and preferential government procurement treatment start up can also benefit from the government‘s focus on promoting entrepreneurship innovation and creating a more conducive environment for them to grow and thrive.

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