Start-ups face a wide range of legal issues, from the formation of a registered entity, negotiating with investors, getting the requisite licenses and permits, and much more. New businesses often discover they must interact with statutory authorities, such as those responsible for issuing licenses or collecting taxes.
As an entrepreneur, it is essential to have reliable legal counsel to protect oneself from liabilities and to ensure that the other parties perform their contracts as agreed. There are numerous reasons to hire a Startup lawyer in India such as compliance with the relevant legislation, getting the requisite licenses or permits, etc. A Startup lawyer can take care of the legal side of things so that the founders can focus on their core mission. In this article, we will focus on the importance of availing legal aid at the time of starting up a business by an entrepreneur and the role of a lawyer in the development of a start-up.
Do You Need a Startup Lawyer?
A Startup lawyer can protect an entity from the many forms of risk that can be incurred through interactions with outside parties. A Startup lawyer can mitigate risks by ensuring that the entity complies with the relevant laws; has the requisite licenses and has water-tight contracts with everyone the Startup deals with including its founders and employees.
In addition, securing the intellectual property from the start is crucial. The need to register a trademark or patent can arise early on in the life of any firm but is especially common among Startups in the creative industries or those that directly serve customers. In the next section, we will explain why every Startup needs Startup lawyers.
What is the Role of a Lawyer in the Development of a Start-Up?
When entrepreneurs first start their businesses, they are primarily concerned with the goods or services they are offering, the supply chain, and other associated technicalities. While prioritizing this, entrepreneurs must exercise caution and keep in mind how their legal strategy may affect their company. The role of a lawyer in a start-up is detailed herein below:
1. Incorporation of the Company
Lawyers can offer advice to entrepreneurs on a business structure most suited to the entity, whether it be a sole proprietorship, partnership, limited liability partnership, or corporation. Lawyers can also facilitate entrepreneurs in determining how to structure their investment in their company. A legal professional is also needed when an entrepreneur is raising funds from venture capitalists or angel investors in the initial phases of their business.
It is crucial for founders and investors to agree on the equity, rights, and obligations that will constitute the investment agreement while raising funds. This is where a lawyer may help because they can negotiate the provisions of the agreement and illustrate to their clients the ramifications of the associated rights and obligations.
2. Assistance in Drafting of Contracts
It’s extremely challenging to run a business as a one-man show; thus, an entrepreneur usually needs a co-founder to support operations and business expansion. A lawyer can assist in figuring out how to balance the co-founders’ benefits, rights, obligations, and duties in a way that is favorable to all the co-founders and the company.
By negotiating and executing the relevant contracts at the appropriate time, entrepreneurs can safeguard their business. Co-founders’ agreements must be negotiated and put into effect by entrepreneurs, ideally prior to the initiation of a company’s operations. This will ensure that roles are clearly defined and contain effective solutions for co-founder exits, limiting the impact on a company, other co-founders, and stakeholders. Consulting a lawyer to understand the business needs for the website T&C, client/vendor agreements and shareholder agreements can be beneficial for the growth of the business.
3. Labour and Employment Laws
Labour laws play a significant part in creating a good legal structure and framework that promotes improved working relationships. They provide clarity to the employer and create a system with consequences for activities that infringe on an employee’s rights. Further, it provides a framework where employers and employees can interact regarding work-related issues.
To resolve disagreements from irate employees, it is crucial to negotiate employment agreements carefully because they are intricate and particular. Lawyers can assist entrepreneurs in understanding employment laws, including those pertaining to termination, pay and compensation, and paid and unpaid internships.
Employee rights are of utmost significance, however, due to a lack of general understanding of the implications and effects of employment law, these rights may occasionally be inadvertently violated. In the event of a conflict, lawyers may even be able to negotiate between the employer and the disgruntled employee. They can also assist entrepreneurs on how to conduct an inquiry into any alleged wrongdoing as well as provide compensation, if necessary.
4. Intellectual Property Laws
Most start-ups are built on innovation and invention, thus it’s crucial to safeguard an entrepreneur’s intellectual property to prohibit others from generating revenue from the entrepreneur’s business. There are several laws, including the Copyright Act of 1950, the Patents Act of 1970, the Trade and Merchandise Marks Act of 1958, and the Designs Act of 1911, that forbid the unauthorized use of intellectual property.
To understand how to get the best possible protection for their ideas and innovations, entrepreneurs need the help of legal experts. To avoid a situation where neither party can make commercial use of the invention in question, lawyers can do this in a variety of ways including by designating multiple parties who claim ownership of the same invention as joint inventors.
Before choosing their brand identity and logo, entrepreneurs should also engage with lawyers. They can advise you on whether your preferred branding is available and how to tweak it to prevent being accused of stealing intellectual property from an already-existing business.
5. Other Legal Compliances
Any and every business is required to comply with a wide range of legislation. The Indian Contract Act, the Companies Act (and amendments), the Consumer Protection Act, the Industrial Disputes Act, the Information Technology Act, the Payment of Gratuity Act, the Standards of Weights and Measures Act, the Foreign Trade (Development and Regulation) Act, the Foreign Exchange Management Act, and many other acts are among the laws that have formed these compliances.
Without the help of a lawyer to make sure the business complies with all of these rules, it is impossible to avoid violating them. In India, the rules governing corporate taxation are regulated by complex income tax legislation.
All start-ups require lawyers and accountants, or there is a real chance that they could be vulnerable to sanctions by the authorities.
6. Data Protection
A Startup has to navigate through a complex legal system in order to ensure that they are in compliance with the relevant laws. They also have to consider their rights and obligations with respect to the contracts that they enter into. Moreover, intellectual property rights are one of the primary concerns for a Startup as they are built on innovation and inventions. They need to ensure that they are able to protect and enjoy their intellectual property rights. A Startup lawyer can help an entity from the outset including incorporation, negotiations with co-founders and investors, compliance with labour laws, protection from lawsuits, and much more.
Frequently Asked Questions
1. What legal services does a Startup need?
Here are some of the legal services a Startup needs:
- Formation of an entity
- Compliance with the relevant laws
- Getting the requisite licenses and permits
- Registration with Startup India
- Drafting of Contracts with founders, VCs, employees, vendors, service providers, etc.
- Employment-related compliances
- GST Registration
2. What are the legal issues that a Startup might face?
A Startup can run into a wide range of legal issues. For instance, the lack of a solid operating agreement between founders can result in lawsuits, infighting, dilution of rights, and much more. Other legal issues include non-compliance with laws, losses due to failure to protect intellectual property rights, tax implications, etc.
3. What are the licenses needed by a Startup?
A valid license is essential to the operation of any business. Start-ups in India may need to register their company and acquire different licenses applicable under different statutes, depending on the nature and scale of the firm. The Shop and Establishment license is required for any location where commercial or professional activities take place.
The requirements for the types of business licenses required for a Startup vary from sector to sector. The issuance of licenses is influenced by the many laws and policies in India that deal with the environment, food safety, labour, and employment, as well as the Foreign Direct Investment Policy, Foreign Exchange Management Act, the Reserve Bank of India, and the Securities and Exchange Board of India.
4. How do I choose a lawyer for my Startup?
It’s important to conduct your research when hiring a lawyer, just as you would when looking for a venture capitalist. You need to make sure you feel at ease with this person and have faith in their capacity to serve your company’s needs and protect it from harm. Learn as much as you can from his or her background. Each side must be confident in the other’s suitability and competence to handle the necessary legal work.
5. What is Startup India?
A Startup lawyer can guide you through the registration process with DPIIT. “Startup India” is a lucrative Government of India program introduced to create an environment conducive to the emergence of innovative businesses that may stimulate long-term economic expansion and massive job creation. The goal of the Startup India program is to foster entrepreneurship by providing a boost to the availability of bank financing for new businesses. The goal is to limit the influence of governments in many policy areas and to do away with “license raj” and other regulatory roadblocks in areas such as land use permits, proposals for foreign investment, and environmental approvals.