Know About The Laws For Startups

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LegalKart Editor 05 min read 836 Views
Last Updated: Nov 09, 2023
Laws For Startups

Startups Accelerate The Innovative Spirit And Energize Societal-Economic Cohesion 

Business is the new ongoing, ever happening movement of the world. The onward march of economy and society depends on the continual churning and development of businesses. Businesses are energized by the vigour of innovations and entrepreneurship. And, a very significant aspect of modern businesses is the rise of start-ups. Well, a startup or start-up is technically defined as a company or project undertaken by an entrepreneur to seek, develop, and validate a scalable business model. The concept of startup has become more popular in recent times. It is widely believed that start-ups keep up the innovative spirit, they continually make the world move and help people find new meanings and dimensions of the running time. Startups heighten the interest in business and innovation, thus they create stronger integration of society and economy, leading to more universal dynamism and energy.  

Also read Know About The Annual Compliance Filings For LLPs.

Laws That Govern The Startups 

In the modern times, almost all arenas of human activism and development are governed by certain written manuals and laws that form the overall outline for the proper functioning and interaction of various elements and stakeholders within that paradigm. Startups are no exception to this rule. Since startups aggregately reflect the aim and aspiration to rise high, they are subsumed by competition and ambition, so laws are all the more important in the context of startups as they are bound to involve friction and various forms of conflicts and disputes. 

 Besides, startups are businesses of a different type, so their laws vary at least to some extent from the routine business laws. Some startups are as under: 

The Formalisation Of Business Structure 
The understanding and applying proper business structure is needed because different business structures have different business applications while carrying out the business. There are various forms of business structure eg - proprietorship, partnership, limited liability partnership, and private limited company.

There are various legal details such as registration, legal status, taxation, member liability, number of members allowed, etc. Example:- legal status explains that the proprietorship and partnership do not have different legal entities and liability is on the promoter himself and in limited liability partnership, a private limited company separate legal entity is recognized and the promoters are not responsible personally for the liabilities.

The Issue Of Licensing In Startups 
Every business requires licenses as per the type of business carried out. Before initiating a startup the appropriate licensing issuing process must start to stay away from the legal battles at the inception. The licenses vary from business to business. Eg:- if an e-commerce company has to be started than VAT tax, service tax, registration, and professional taxes would be applied. The common licensing applied for most of the business under the law is the shop and establishment act, 1953.

Read about The Shop And Establishment Act - The Law That Governs Indian Businesses

The Laws Of  Taxation & Accounting
The government scheme of startup India launched has given many tax exemptions for startups. Different businesses need different tax policies to be applied according to the tax and business structure applied. For tax exemptions in a startup, the first 7 years' lifespan can be availed for tax benefits. The organization must be registered as the limited liability partnership company. The total turnover for the starting years must not be more than 25 crores annually.

 The Labour Laws
Every business firm has employees or labour for proper and efficient functioning on a daily basis. Many laws related to labours like minimum wages act, gratuity, Provident funds payment, paid holidays to workers, maternity benefits, harassment at workplace, payment of bonus, etc.

Even the government has provided an exemption from labour inspection for a startup if they apply all the major 9 labour laws of the country regularly for worker's benefit:
The Industrial Disputes Act, 1947
The Trade Unit Act, 1926
The Inter-State Migrant Workmen (Regulation of Employment and Service) Act, 1979
The Payment of Gratuity Act, 1972
The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
The Employees’ State Insurance Act, 1948.
Building and Other Constructions Workers’ (Regulation of Employment and Conditions of Service) Act, 1996
The Industrial Employment (Standing Orders) Act, 1946
The Contract Labour (Regulation and Abolition) Act, 1970

 Intellectual Property Rights 

Startups many times come up with unique and different ideas that can be protected in this world using certain laws. Our innovative product, improved process or procedure of making something in a better way can be counted as our innovative property rights.

The startup scheme for intellectual property rights is associated to the startup India program. This scheme would ensure the protection and commercialization of intellectual property and manage the trademark, copyright, and designs involved in the business startup. Under these guidelines for new startups, the government has reduced the patent fees by 80%. The panel would also have the duty to inform people in the market about the procedure of filing for patents or any other intellectual property.

You may also read Trademark Agreement - The Law To Preserve And Facilitate Creativity.

Laws Regarding Foreign Investments 
To encourage, foreign investment in the startup there are regulations for foreign venture capital investors (FVCI). Schedule 6 of the foreign exchange management act (FEMA), 2000, and the third amendment in this same act in 2016 has used for regulating investments.

Any investor from abroad may contribute to the 100% of the capital of the Indian startup engaged in any activity or business under Schedule 6 of Notification No. FEMA. The equity or debt instruments can be issued instead of foreign remittance in a firm.

 Winding Up The Business
When a business has started the laws must be known about the windup because no one knows when the worst would come. The winding-up process is a systematic process with 3 modes of winding-up which are fast track exit, court or tribunal route, and voluntary closure.

In the fast track exit, the company should not have any assets liabilities left and no past business must be entertained in the process of winding up and the company’s name can be removed afterward from the registrar of companies (ROC).

The Conclusion:

The laws that govern startups walk the tightrope between encouraging startups and protecting business ethics. And these laws strive to do that quite well, 

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