An app to get your laundry done, an online service to order in a gourmet customized 3-course meal, the most advanced medical services at your doorstep! It is, without a doubt, the era of entrepreneurs. Our newspapers, magazines and all social media platforms have feeds that are flooded with everything that has to do with new, old, brilliantly successful or even miserably failing startups hanging on to their last strands. Stories of entrepreneurs busting it out to make a mark in a crowded startup set-up also tend to grab our attention.
India has emerged as a globally appreciated destination for entrepreneurship, owing to the fact that we have been able to successfully host, support and nurture some of the best names in the startup world. It makes perfect sense that entrepreneurs are able to close in on India being their first choice for a startup destination.
1. Form Of Business
Every entrepreneur at the outset must decide on what company he would register before registering it with the Registrar of Companies. This decision is made based on several factors such as purpose of business, number of partners and liability if any, company objectives, raising capital from the public or privately, etc. Every form of business, such as Limited Liability Partnership, sole proprietorship, partnership, joint venture, etc. has different laws to govern different types of companies. It is perilous to register in the wrong category because each company has to comply with the existing legal framework and failure to do so will attract severe fines and penalties from the Government.
2. Location and Launch
Location is key. Several founders will tell you that the three most important things in a business are location, location and location. It has never been more true than it is now for startups in India. Several startups have shifted after already setting up base elsewhere because location is an important factor that affects business decision and customers. Bangalore is the hot-spot for most startups to either locate or relocate to.
Launch refers to launch of the product or service. The factors that need to be considered are where to launch? how to launch?, when to launch? Location influences the launch and hence the points are clubbed together for convenience sake.
3. Capital Requirement
Start-ups have no minimum capital requirement after the recent amendments to the Companies Act, 2013. Technically, a company can start with literally zero capital. Earlier, the amount required to start a private limited company was INR 100,000, which led several entrepreneurs to register as a sole proprietor. With the new change, several companies have registered as Private Limited and the number of start-ups in the Indian ecosystem has boomed. Public companies also do not have any minimum paid up capital, which was previously INR 500,000 to register as Public Limited. The startup must make an informed decision on how much capital to raise, if it needs to be raised, and when to raise funding and whom to raise it from.
4. Tax Laws And Accounting
Every business registered/operating in India will be required to pay taxes to either the central or state Governments or both, depending on case to case. Basic accounting and basic knowledge of the tax laws prevalent in India are important to all business owners. The business has to pay taxes, employees have to pay tax on the salaries they draw, other additional taxes need to be cleared in order to avoid penalties, jail time and legal proceedings. The Companies Act, mandates appointment of an auditor or renders the role to outside party services because specialised education and training is required for chartered accountants and company auditors.
5. Stocks and Finances
Listing stocks on the stock exchange is required only if a company wants to go public. In order to raise capital from the public, a company needs to list its shares on the Stock Exchange regulated by the Securities Exchange Board of India (SEBI). The public then subscribes for these shares through an underwriter (contracted by the company) that will take care of the share subscription, share allotment, first and second call of shares.
Private Companies can raise finance by borrowing from friends and family, banks, investors, venture capitalists, joint ventures, crowdfunding through private placement of shares. Generally, startups raise finances initially in the form of seed funding, followed by Series A, Series B and so on depending on how much capital is needed by the company.
6. Intellectual Property
If a company has intellectual property in the form of codes, designs or programs then the company has to get the right patents and copyright claims to protect such assets. Intellectual property rights such as patents can be filed for at the patents office. Failure to do so could give a competitor to file for the same patents first, but there is no punishment for not having IP rights. The first to file for patent generally obtains the patent rights. IP rights can be sold and/or licensed and thus has financial value apart from technological application.
A trademark is a symbol used by a brand on its goods and services so that customers identify with that good and/or service just by looking at the symbol. It differentiates products based on quality, aesthetics, packaging, etc. No two companies can hold the same trademark, but its ownership can be changed. A registered trademark holder has legal protection against infringement on their trademark.
7. Information Technology
With the advent of the technological age, digitisation is the scheme of things. Companies will be required to enter into digital contracts, provide online verification such as digital signatures and digital fingerprints, use of cloud computing to analyse and use user data. Internet security is another important factor companies need to consider to protect their data and servers from harmful viruses, cyber attacks and hackers. Knowledge in the area of Information Technology Law can assist a company in its objective towards electronic privacy.
Contracts are quintessential in today’s business world and are indispensable to large corporations as well as new businesses and startups. It is essential to have a lawyer or a third party to draw up customised contracts based on the use of contracts. Companies use employment contracts, vendor contracts, share contracts, third party contracts, etc. to enter into a legal agreement with one or more parties. These contracts serve as legal documents in case of dispute resolution. There are several types of contracts in India with separate legal laws on the different types of contracts.
9. Legal Processes
An entrepreneur should know the various processes involved in the registration of a company along with the legal documents that a company needs to obtain to operate legally. The Government has taken several initiatives to ease the process of starting a business in India for entrepreneurs. Most registration processes can be done online at various government portals and an entrepreneur should have knowledge about how to go about to obtain these documents and interact with offices of the Government.
Indian laws mandate that at least one director on the board be a resident of India. Resident of India implies the individual has stayed in the country for a minimum of 182 days in the previous financial year. The same individual can be a director of the company as well as hold shares in said company, though a body corporate will not be deemed as the position of director.
Now that you’ve found the entrepreneur in you, don’t hesitate to get started! As long as you know what you want to do, how you do it can surely be assisted with the extensive amount of resources that help you walk through the entire process. At LeglaDesk.com, you’ll find everything you need to register and take care of all other legal documentation needs to carry forward your entrepreneurial ideas. Keeping in mind, that you as the entrepreneur, are still the captain of your ship. What does it take to be an entrepreneur? What does it mean to be one? You’ll find out on the way. Especially in a country like India, where entrepreneurs are rooted for.