Business Structures
Image Source - http://thesocialmediamonthly.com/legal-considerations-startup/

No startup owner is thinking much about the legal needs of the business. But this is something every business has to face the legal issues at some point. The law has a major impact on the businesses.

You must have seen the plenty of legal mistakes made by the startup owners. Even after having the basic understanding of the law, there are many unforeseen pitfalls when it comes to the legally sound business.

From incorporating your business to compliances to protecting the intellectual property, considered as an important aspect of the business’s success.

Broadly, we have divided the legal issues into two categories- legal issues every business has to face before incorporation and after incorporation.

Business legal issues before incorporation

  1. Business structure

Most of the startups don’t survive for long, and the reason being isn’t selecting the proper business structure. There is not one specific best business entity. Selecting the most effective sort of business is essential.

Choosing the most effective legal structure for your business is one amongst the foremost vital legal problems within the startup method. Every basic type of business entity having its own pros and cons, you’ll be able to opt for the kind of entity which supplies your business the foremost blessings.

The following factors can help you to choose the ideal legal structure:

  • The level of control you want over your business is one of the factor. If you want to operate the enterprise single handedly then One Person Company will be the most appropriate.
  • Complexity of Formation. Every legal structure has differing set up procedures and complexities Like private limited company is easy to set up and a trust involves complex requirements.
  • Tax Implications. Each legal structure will have an impact on the taxes you pay. For instance, a sole trader can claim the tax benefits on personal tax return but not in a trust.
  • Liability Limit. When choosing a legal structure, you need to check the extent at which you need to be protected from personal legal liabilities.
  1. Written agreements

Startups often face the problems when they do not have an adequate written agreement. To bloom your business in the world, you should formalise the agreements with everyone who engages in the business.

It’s important to regulate the relationships inside the company to clarify the rights and obligations of the engaged persons in the business. It can be a partnership agreement, employment agreement, shareholder agreement.

Make sure you clearly define the ownership, duration, rights and liabilities to avoid an unnecessary headache, time and money wastage in the long run. Without the proper legal agreement, you will surely face some legal issues in future.

  1. Company Relationships

For the lasting success of the business, a defined relationship with the company is essential. Clearly define the company’s relationship in the context of ownership, partnership, employment etc. These blurred relationships may cause the enormous problems later.

Proper documentation and agreement ensure the hassle-free growth of the business.

Think of the agreements as a form of pre-nuptial agreement in order to deal the terms in various relationships with the company.

  1. Business licensing

Don’t get confused the business license with the business registration. Both the terms are different altogether. Startups need to register with the authority as well as take the license to get the right to operate the business in the particular city.

Are you confused about whether you need a business license or not? Generally, every business required a different business license. However, knowing which license you need, can be complicated but essential business requirement.

Many startups either overlook the legal requirement or not aware of the legal requirements. The type of business license you need depends on the activity your business performing.

Business legal issues after incorporation

  1. Employment

Hiring the employees and the contractors is the initial step once your business starts growing. You need to be careful while considering the regulations for employment contracts. Startups often face the consequences of not maintaining the adequate employment documentation.

If you are not outlined employer-employee relationship properly, you will definitely encounter the claims of discrimination, breach of contracts etc. According to a survey, more than 8% of companies faced employment issues that are making the employment as a most common legal issue for the businesses.

  1. Compliances

After business incorporation, you need to face the numerous legal issues; compliance is one of them. If you are running a business in India, then you would require keen ability to understand the complex compliance requirements.

Broadly, compliances highlight one such facet of realities concerning statutory compliance and regulatory compliance which includes the legal obligation of meetings, paying taxes, obtaining business license etc.

When you meet the compliance requirements, consequently, it will reduce the risk, penalties, lawsuits or stoppages.

The compliance required to do business in India:

  • Appointment of statutory auditor
  • Allotment of securities
  • Conducting the meetings
  • Filing of financial statements
  • Filing of annual return
  • Income tax return
  • Business license
  1. Tax

Tax issue is the most common legal issues for startups because most of the small businesses facing the legal issues related to taxes. Business taxes are not just about the income tax filing. Every business entity has to pay different kinds of taxes along with the income tax.

Business taxes also rely on the business activities. If you are running a business, then you must know that what taxes associated with which activity.

Depending on your business structure, you are responsible for incurring some of the taxes:

  • Income tax
  • Corporate tax
  • Self-employment tax
  • Sales tax
  • Property tax
  • Payroll tax
  1. IPR

The imitation is the sincerest form of flattery, whoever said that surely didn’t have a startup. The reality is when you have a good idea the copycats will come out of the woodwork to steal it.

Every business is different, IP protection creates the unique identity of every business. Investing in business brand involves the name of the company to innovative process or design of the product which gives you a competitive advantage.

If your startup is having something new and innovative, to keep the copycats on their toes and for protecting fostering innovation, there are the ways to protect your startup’s intellectual property:

  • Trademark
  • Copyright
  • Patent
  • Design registration

About the author

Kapila Tanwar

Limiting her to few words would be a herculean task. She Likes to add some zing to the story. When not writing, she loves to watch movies. She especially enjoys being a fashionholic. Affiliated with QuickCompany which deals in Company Registration, Trademark Registration, Service Tax Registration, MSME and Other Legal Activities.

Linkedin: https://www.linkedin.com/in/kapila-tanwar-83a45828/

LEAVE A REPLY

Please enter your comment!
Please enter your name here