WHETHER LEGAL COMPLIANCE IS NECESSARY FOR INDIAN STARTUP?

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SHORT NOTE:


Of late, in India startups have seen a promising ecosystem for them to proactively evolve and prosper. Till date, 15,066 startups have been recognized according to the StartupIndia website. As per the NASSCOM report, startups in India has raised USD 4.2 billion in the year 2018. The biggest hurdle to raise funds can be envisioned during the seed funding stage. It hits the most to startups when they fail to raise funds at the seed funding stage. The alarming factor, however, is not the funding but the legal compliance which is easily swept under the rug by the entrepreneurs. The spectrum of legal compliance includes the type of business entity, founder’s agreement, taxing statutes, labour laws, environmental laws, and other plethora of statutory compliances set forth by the government.

If the standard authorized by law is not in conformity with the statutory compliances from the birth of the startup, then it becomes very unlikely to get angel investors/venture capital, thereby losing the confidence of the investors to invest in your startup. One of the indispensable factors behind the failure of startups is failing to comply with legal obligations. According to the Taxmantra Survey, (i) ½ startups get demand notice for Income Tax (ii) 3/7 startups get into the defaulter's list of Registrar of Company, (iii) ½ startups end up paying unnecessary interests and penalties (iv) 7/10 startups stop operating within three years of their incorporation. So, if you have a startup or planning to have one, then inculcating legal compliance cannot be at the end of your priority list. Otherwise, a legal mishap can have far-reaching consequences, resulting in the slow decay of your startup.

SOME ESSENTIALS TO BE CONSIDERED:

1. Type of Business Entity
2. Founders Agreement
3. Business Policy
4. Licence under Shop and Establishment Act
5. Employees related compliance
6. IP Protection
7. HR Manual/ Handbook for the company

SOME MANDATORY LEGAL COMPLIANCE:

1. GST registration and compliances
2. Preparation of Financial Statements
3. Professional Tax
4. Income Tax Return Filing
5. Annual Registrar of Company Filing
6. Audit Compliance
7. Labour Law and Environmental Law (self-compliance is also possible)
8. Secretarial Drafting



(For any further information be my guest at lawyer.akt@gmail.com)
                                                  

                                                   


                                              - Abhishek K Tripathi 

                                                                    Advocate 
                                                                             

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