THE START-UP ECOSYSTEM & THE IMPORTANCE OF LEGAL HELP
Start-ups are nowadays being looked at as catalysts to an economy’s development, as they not only help in augmenting the overall GDP of the country but also address ancillary issues like creating job opportunities and fostering trade1. Therefore a start-up’s long term functioning is effective not only for the immediate players concerned but for the nation’s health too.
India is the fourth largest start-up ecosystem in the world, right behind USA and China, with unicorns like Paytm, OYO Rooms and BYJU’s in the lead according to Hurun Global Unicorn List 2020.2 Caring for this particular eco-system’s health thus becomes principal.
Venturing into the start-up business is like opening a Pandora’s box in a lot of ways. Even though the Government has come up with various schemes like Start Up India Seed Fund (2021), e-biz portal, SIP-EIT, Start Up India Initiative (2016) etc, it is at the ‘awareness’ front where things start to lack. Reports have shown that although approximately 90% start-ups in India are aware of Start-up India initiative of the Indian government, only 35% of them have been able to register under this and merely 20% start-ups are aware of specific benefits, schemes, tax exemptions and facilities provided by the government with more than 52% not having a firm IP Policy3.
There is a long compliance list which includes:
- CHOOSING THE APPROPRIATE LEGAL STRUCTURE OF THE BUSINESS
This includes registration choices like Private Ltd Company, Ltd Liability Partnership, One Person Company, Partnership Firm, Sole proprietorship, Nidhi Company etc where each comes with its own benefits and duties. Identifying the correct start-up type can have substantial impact on the funding options for the company, its tax responsibilities, personal liability of the owner and can help save taxes as well as protect the personal assets in times of crisis. Taking legal advice can benefit the venture in the long run.
- COMPLIANCE WITH THE APPROPRIATE TAXATION, LABOUR AND INTELLECTUAL PROPERTY (IP) LAWS
Having expert legal guidance since the very inception of the Start-up is worthwhile as it will take into account the goals, strategies, and limitations of a Start-up and help in creating a customised IP Strategy accordingly as ‘no size fits all’ in this ecosystem.4. IP is the largest asset class and has great capability of being commercially exploited which in turn calls for stringent protection. IP Rights are granted under Trademarks, Copyrights, Patents and Industrial Designs generally. These provide precautionary protection to different assets and are fairly different yet similar in a lot of ways. A well-versed IP legal team can help in identification, registration and drafting of IP related asset policy. For example, legal experience dictates that getting a copyright protection is easier than getting an asset ‘patented’ owing to less complex registration mechanism and cost benefit to a start-up. Another example includes signing of NDA when meeting with potential investors and discussing an ‘invention’ which in turn protects it from misuse by third parties. Lastly, a well-researched and strategized IP policy can prevent accidental infringement and lessen the blow of liability.
With regards to labour laws, start-ups registered under the Start-up India initiative have to keep up with as many as nine labour law legislations within the very first year of its incorporation to get certain exemptions! These include The Industrial Disputes Act, 1947, The Trade Unit Act, 1926, The Industrial Employment (Standing Orders) Act, 1946 and The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979 and many more. These exemptions have to be renewed annually by filing returns. A legal team can help in due compliance with the least amount of hassle.
Compliance factors heavily differ for taxation purposes of a start-up. For example any business whose turnover exceeds Rs. 40 lakhs in a financial year is required to register under GST and this limit is Rs 20 lakh for service providers5. The optional scheme provides for a lower amount of tax with minimum compliance for certain businesses having turnover up to Rs 1.5 crore in a year with monthly returns, annual returns being part of mandatory compliances under GST and GST audit for certain suppliers6. Legal intervention in the field of tax laws can only do benefit.
Thus, it’s clear that a start-up has to face lot of legal and administrative challenges both before and after its incorporation. A successful start-up is a venture which has several mechanisms in place for dealing with any problems which may arise out of the blue. A good legal team can help out by making sure that all legal and governmental compliances are adhered to, ultimately satisfying investor and customer credence. If you’re looking for starting your own start-up venture contact Dastaweez today! We are here to help.
- Mishra, M. and Benjamin, A., 2019. The Viewpoint – A Stitch in Time saves Nine: Steps to Protect Intellectual Property of
Start-Ups. [online] Bar & Bench. Available at:
<https://www.barandbench.com/view-point/steps-to-protect-intellectual-property-of-start-ups> [Accessed 5 May 2021].
- Hurun India. 2020. HURUN INDIA UNICORN INDEX 2020. [online] Available at:
<https://www.hurunindia.net/post/hurun-global-unicorn-list-2020-india> [Accessed 5 May 2021].
- Sodhi, G., Jain, A. and Singh, R., 2019. Linkages Between IP Protection and Start Ups in India. Technology Start-ups and IP
Protection in India. [online] CUTS Institute for Regulation and Competition. Available at:
<http://compip.circ.in/wp-content/uploads/2019/12/Technology-Startups-and-IP-Protection-in-India.pdf> [Accessed 5 May 2021].
- See Mishra & Benjamin, supra, at 1
- Jaiswal, A., 2021. Legal Compliances for Start-Ups in India. [online] TaxGuru. Available at:
<https://taxguru.in/corporate-law/legal-compliances-start-ups-india.html> [Accessed 5 May 2021].