10 Fundamental Legal Requirements for Every Startup

One of the principal causes which lead to the failure of a startup is disobeying the law. Startup founders while beginning the business may set aside many compliances for ignorance of law. However, no court of India accepts ignorance of law as an excuse. Besides, the legal jargons and expenses may be a tedious task for founders to confront. Legal fees can become a large part of the upfront investment at several stages of business, whether it is for license fee, bonds, filing incorporation documents or trademark.

Every seasoned entrepreneur will mention that legal expenses shoot up further than the anticipated. Therefore for every early stage startup, there should be enough of a buffer in their budgeting for such services.

Learning Contract
As a startup founder, understanding a few legal hacks while formulating contracts will lead to better negotiation. Let me give you a hypothesis. While working in a B2B structure, startups often give out confidential information which may include various trade secrets. On the contrary, not exchanging such information may also lead to incomplete transactions.

So here’s the hack: include a non-disclosure clause in the contract which leads to legal obligation upon both the parties to not disclose confidential information. However, you may keep in mind the following, what constitutes confidential information, how confidential information should be handled, who owns that information and the time period for which confidentiality will be maintained.

Startup Incorporation
Each structure of business, comes in with its set of convenience and complexities. Whether incorporation is in the format of sole proprietorship, private limited or LLP, you have to know what the incorporation document required in a business, IT returns to be filed, labour law requirements for the organisation and even more. For investment purposes, a private limited structure always has an edge over other business structures.

Employment and Labour Laws
To improve talent acquisition at a lesser expense, entrepreneurs may also include Employee Stock Option Policy to motivate workers towards better performance. Also, at different stages of business, Employee Provident Fund is to be filed. Once the number of employees in an organisation is more than ten, then norms to be maintained change again. Often the penalties for non-compliance of law can lead to heavy charges.

Toxic Trademark Mistakes
Trademarks make efficient commercial communication tool to capture customer attention and make your products and services stand out. A startup’s trademark should be fanciful, independent, and suggestive. When you are thinking about using naughty words or phrases in the name of your company, hold your horses. They may have innovative business models to win the acclaim from investors and customers, but has an adverse effect on the civil society. There are certain legal provisions which implements the need for staying within the liberation provided by courts. Also, having the right trademarks also benefits a company in times of acquisition and merger.

Having the Right Attorney for Each Task
On the onset, do not consult with an intellectual property lawyer for matters of taxation! Specialisation matters. Costly penalties maybe the consequence of not consulting with the right lawyer. An attorney having in-depth knowledge of the ins and outs of intellectual property will vary very much from someone advising you on matters of civil litigation. Opting for a general practice lawyer who covers a broad range of areas will cost you down the road.

Have the Positive Intent
Don’t just follow letter of the law, you must also abide by the intent. Every entrepreneur must keep it in mind that regardless of what legal parameters your venture faces, you must proceed with bonafide intentions. Founders may come under the contagious influence of market demands. Many online service relaxed their legal compliances to improve customer acquisition.

YouTube at one point added a “report copyrighted content” button to let users report infringements, but removed the button when it realised how many users were reporting unauthorised videos. Copyright compliance, or lack thereof, was the key battleground: Users wanted copyrighted clips, and the market tipped towards the service that gave it to them.

To sue or not to sue
Whether it is in matters of property, taxation or services, founders must always reconsider before resorting to litigation, which may lead to consumption of time and money.

A. Jurisdiction
The place where the cause of action for the dispute has occurred may not be within the pecuniary or territorial jurisdiction of the business. An entire legal suit will get usurped if the matter is not filed in the correct jurisdiction.

B. Alternate Dispute Resolution
There are thousands of matters undergoing pendency in courts. It is not an unknown fact that legal suits take years to undergo the trial proceedings of courts. The efficient solutions to this are arbitration, mediation and conciliation, which requires much lesser number of days to resolve legal disputes.

Use A Name which is Legally Permitted
You may begin to give out business cards, buy a domain or even commence a business, but that particular name may be already be registered by RoC. In such a case, all trade activities under a name which is unregistered will be null and void. Free tip: you won’t be hiring an attorney, you may acquire this information from of the website of Ministry of Corporate Affairs. So unless you any conflict to commence with, do the free trademark search!

Shareholder Agreements
Cofounder conflicts are one of the most commonplace problems. Hence begin with a shareholders agreements clarifying right to transfer shares, right of first refusal, redemption upon death or disability, powers of operation and mention of exercise for those rights. Before taking in private equity, determination of all such rights of the cofounders is crucial for the growth of the organisation.

Insurance
At the commencement of any business, whether QSR chain or e-commerce, there are certain insurances required as per law. Some of such insurance are employers’ liability insurance, motor insurance, and insurance demanded by any contracts you may have. This process can be very time-consuming when seen as a whole, however when taken up individually at the required stages, all demands can be met.