Are You Planning To Start A Start-Up? Here’s The Legal Compliances You Must Follow

Introduction

Do you want to start your own business? Are you confused about what legally qualifies as a start-up? Or what compliance you must follow? Many first developers face difficulty and worry about making mistakes in starting.

Wondering what exactly counts as a start-up and what laws apply to you? It is crucial to understand the exact meaning of start-up and its mandatory compliances, and legal obligations which will help you to avoid huge penalties and future disputes.

What can be the types of business structures for a Start-Up in India?

The foremost step is to choose the right type of business structure before registering a start-up. These types include:

1. Sole Proprietorship: This is the mostly chosen structure which is solely managed and owned.  This is useful for small start-ups and first-time entrepreneurs. It is easy to start and close, has no separate legal identity.

2. Partnership Firm: This type of business is managed by two or more individuals by entering into written partnership deed governed by Indian Partnership Act, 1932. It has joint decision-making and capital contribution.

3. Limited Liability Partnership (LLP): An LLP upheld the benefits of a partnership with limited liability protection under Limited Liability Partnership Act, 2008. The partners are not personally held liable for business debts which are beyond their contribution.

4. Private Limited Company: This type of company is the most preferable that grow fast and raise investment under Companies Act, 2013 and has its own separate legal identity. It is suitable for company which is planning a long term growth.

5. One Person Company (OPC): A OPC is suitable for a person who wants to start a business alone but enjoy the whole benefits of a company structure under Companies Act, 2013 and has its own separate legal identity.

What qualifies as a Start-Up legally in India?

Business is legally acknowledged as a Start-Up in India only when it meets the conditions given by the Department for Promotion of Industry and Internal Trade (DPIIT) under the Start-Up India Scheme.

A business is treated as a start-up in India if it is registered in India, is less than 10 years old from the date it was started, and its yearly turnover does not cross ₹100 crores in any financial year. In simple words, it must be a new business which should be still growing and has not crossed the government’s fixed age and income limits.

What are the legal steps to formally register my Start-Up in India?

Registering a start-up in India involves a few clear legal steps. Following them in the correct order helps you avoid delays, penalties, and future legal issues.

1. Choose the Right Business Structure: Firstly, you have to decide the type of your start up according to your suitability and availability.

2. Obtain Digital Signature Certificate (DSC): For LLPs and Companies, all the proposed directors must obtain a DSC to sign online registration documents.

3. Apply for Director Identification Number (DIN): Then, each Director must have a DIN, which is issued by the Ministry of Corporate Affairs (MCA).

4. Name Approval of the Business: You should select a unique name for a company and that name should be approved by the MCA portal. It is crucial to note that it must not violate trademark rules.

5. Registration with Government Authority:

• Private Limited Company/OPC - Register with MCA under the Companies Act, 2013.

• LLP - Register under the LLP Act, 2008.

• Partnership Firm - Register under the Indian Partnership Act, 1932.

You will receive a Certificate of Incorporation after approval.

6. Apply for PAN, TAN & Open Bank Account: After your company is incorporated, you can apply for PAN, TAN and can also open a current bank account in the name of company.

7. Register under Start-Up India (DPIIT): You have to apply under DIPIT recognition on the Start-Up India portal to get legal certification and enjoy more benefit. 

Taxation and Registration Requirements

Is it mandatory to register your Start-Up for GST in India? The registration of GST is not mandatory for each and every start up, rather it depends upon the nature and turnover of your business under the Central Goods and Services Tax Act, 2017 (CGST Act). The registration becomes more essential in cases like:

• The annual turnover exceeds ₹40 lakhs for goods and ₹20 lakhs for services.

• If there is supply of goods and services from one state to another.

• If you doing sale through online platforms or e-commerce websites.

Intellectual Property and Branding Compliance

How can you protect your intellectual property as a start-up? The name of your brand, logo, idea or design are your most valuable asset. So, it is essential to protect them for other competitive business:

1. Register Your Trademark: You must register the name of your product, logo, brand name and tagline under Trade Marks Act, 1999. It prevents the other business to use the similar name or logo so that your exclusive legal rights are protected.

2. Protect Copyrighted Work: You must register your online content, any software, mobile app, and designs under Copyright Act, 1957 from being misused. This gives a strong legal proof to your work.

3. File a Patent for Innovations: If your business has invented some new technology or process, then you can register them under Patents Act, 1970 to prevent other competitive business making similar to it without consent.

4. Protect business ideas through confidentiality: You can use Non-Disclosure Agreements (NDAs) with investors, developers, vendors and employees so that the ideas and trade secrets remains confidential.

What are the benefits of registering IPs?  It gives you exclusive rights and legal ownership. It protects your IPs from being misused, it builds trust and confidence of your customers which increases the value and goodwill of your business.  You have right to take legal action against infringement your IPs.

Licenses and Regulatory Approvals

Do you need a trade license, FSSAI license, or other industry-specific licenses? Trade license, FSSAI license, or other industry-specific approvals are necessary if your business falls under these specific categories.

Trade License: This type of license is required if you run a shop, factory, office or commercial establishment. Municipal authority has right to issue such type of license.

FSSAI license: If your business or start-up deals with manufacturing, processing, storage, distribution, or sale, of food then it is essential to get FSSAI license according to the Food Safety and Standards Act, 2006.

Funding and Investment Compliance

Can you raise money from investors without registering start-up? Raising money from investors is generally risky and not acceptable by Indian law. An unregistered business (like an informal sole setup) cannot legally issue shares or enter proper investment agreements.

In case if someone gives you money before registration, it will be considered as loan or personal income and it will lead to tax issues and disputes. Basically, there is lack of legal protection under such circumstances.

Data Protection and Privacy Law Compliance

Do you need to comply with data protection laws if you collect customer data? If your business requires a process to collect the personal data of customers, then you must comply the data protection and privacy laws, even your business is small scale.

The business has legal obligation of the personal data of customer’s like names, phone numbers, email IDs, addresses, or payment details under Digital Personal Data Protection Act, 2023 (DPDP Act). The data must be collected lawfully and there should be no misuse and data leaks, otherwise business has to face legal consequence under this act.

What basic mistakes should be avoided if you want to start a Business in India?

• Choosing the wrong business structure.

• Starting business without proper registration.

• Ignoring income tax, GST, and TDS compliance.

• Not registering trademark or other IP.

• Raising funds without legal agreements.

• Running business without written contracts or NDAs.

• Ignoring data protection and privacy laws.

How Lead India can help you?

1. We advise to choose the right business structure for your start-up according ot your capability.

2. We assist you with the compliance of tax and GST.  

3. We assure that your intellectual property is being protected.

4. Draft and review founder agreements, investor agreements, and contracts.

5. Guide you in raising funds legally and investor documentation