business laws

Business is the backbone of the economy. Big, small, medium enterprises, are all contributors to the economy of the country. Right from the pakora walas to the jewelers, to the big pharma and technologies companies. They are all governed by various laws right from their inception to their dissolution.

I was thrust with the responsibility of helping out my mother in the family business for about three years. The challenges that a business of such small scale faces everyday, made me rethink everything I know as a lawyer. Any business, big or small are dependent on accountants and lawyers, as much as they are on their manufacturing, sales and other functions.

I learnt how a simple delay in filing complete IT returns, can cost the business multi-fold. How unpaid creditors are not just a concern for the business’ reputation, but can result in lawsuits. How an ill-maintained books of accounts could lead to income tax queries and possible penalties. How the delay in employees’ salaries and bonuses could not only halt the business functions, but also result in a labour lawsuit.

In my head I was comparing this to the MNC’s functions. They have multiple times more employees, creditors, manufacturing, sales, revenue, etc. If I found the tasks associated with a small business so monumental, what happens behind the walls of these industry giants?

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They have to worry about more laws and regulations, audits and accountability to the shareholders and other stakeholders.

# Structuring a Business

The most important thing for a business is its structuring. How is it structured? Is a proprietorship more suited to a startup or an LLP? How do you incorporate an LLP? Is co-founder agreement necessary to a startup? What suits best for a family business – partnership deed or an LLP? How do you draft the necessary protections and allocate the liabilities?

These are the tricky questions a good lawyer must address with his clients on a day-to-day basis. Because in the foundation lies the laws and regulations which will impact the business in the long run. This has to be dealt with clarity in order to navigate the functions of the business.

Sometimes the best way to go is have a one man company. But what are the compliances that a lawyer needs to bear in mind and inform his clients. What if the business is growing and new investors want a share? How does a lawyer best accommodate those investors while protecting the founders interest? You can learn more about structuring such deals and compliances by learning the basics through business law courses available.

# Taxation, Basic Accounting & Import – Export

I had just started getting involved in the business functions, when I got a letter from the IT department asking for show cause on our IT returns. The instinct of being a lawyer was to appear before the department myself. But I had to allocate resources, oversee the printing  and ten other things. So I simply hired a tax lawyer for the job. It was expensive compared to if I had gone, but I learnt that in business time is money, and my time was needed more in the other functions.

The GST is evolving and changing from time to time.  How do you register your business for GST? Do you know the basics of indirect taxes, income taxes, tax deduction at source, etc. which is necessary for most organisations? You don’t have to be CA to advise and provide for your clients basic tax needs. What is equalisation levy and how does it function?

Do you as a lawyer know how to study and interpret the profit and loss accounts or the balance sheets for your clients? How does that impact the shareholders and accountability?

What about the appointment of auditors, their role and removal? Do you know what your client’s business needs and when? How do you advise without understanding the basic functioning and mandatory requirements under the law?

A lawyer needs to understand his clients business on any given day. He cannot advice competently without knowing how the business works or what it needs on a daily basis. It is not all about contracts and disputes. Your client may just need the basic advice about his taxes and systems to put in place before the audit. It is these basic things beyond the regular paradigm that makes a lawyer from ordinary to exceptional.

# Corporate Governance

An entrepreneur or a company simply want to run his business without nagging hiccups. This is where the troubleshooting lawyer comes into the picture.  They need to advise what their clients need to do in order to run smoother operations. There needs to be systems in places to ensure that any changes do not impact the larger picture.

From the appointment of directors, independent directors, holding meetings, remuneration, dividends, the lawyer must be in the know. Sure these are secretarial functions, but these days legal and secretarial functions are operated by CS-LLB who are adept in dual roles.

How does corporate governance help detect company fraud, its investigation and punishment? The recent PNB scam was an eye-opener for the need of effective corporate governance. Simple mechanisms and processes in place can help weed out the nuisance elements. It can also help establish a more transparent and accountable organisation which is trusted by the stakeholders and investors alike.

# Negotiation and Contract Drafting

This is the where the lawyers are of utmost need. Contract drafting is the bread and butter of any lawyer. How do giants of Silicon Valley negotiate contracts? How to negotiate commercial leases?

Contract drafting is essential to any organisation big or small. From agreements for vendors, shareholders agreements, non-disclosure agreements, to employment agreements and more, are part and parcel of the day to day life of lawyers. The second and primary job, is to negotiate the terms and conditions, obligations, rights, etc. for the parties. This is where the excellent lawyers get to shine. They get to negotiate and get their clients the best possible deal out of the process of negotiation.

Every lawyer learns the basic and necessary elements of contracts in college. But what they don’t learn is the practical application of their knowledge. How do you ensure that clauses capture the essence of the instructions or requirements of the clients? How do you translate the needs of your client into the contracts while protecting their interests against the potential risks? These are the questions that can be answered by a learned lawyer only. What you don’t have in experience, you can learn by doing a contract drafting course.

# Arbitration and Dispute Resolution

Where there are parties coming together for business, there are potential disputes. Non-payment, defective products, breach of contractual obligations, etc. are all common disputes between parties to contract. The contract usually provide for a dispute resolution mechanism.

Traditionally litigation is a popular mode of dispute resolution. But it is expensive and time consuming, which is usually not good for businesses. Therefore, more and more organisations are opting for alternate dispute resolution like arbitration and mediation. These mechanisms are usually part of the contract. The parties agree to jointly or severally appoint an arbitrator or a mediator to resolve the disputes arising from the contract.

How to reduce the risk of litigation and minimise court intervention in an arbitration proceeding? What are the different types of arbitration? What is the procedure to challenge an arbitral award? When can a court intervene in an arbitration proceeding? What are process to be followed for negotiation, mediation and conciliation? A lawyer must be able to represent his client competently in such proceedings. Therefore he/she must know the procedures and their implementation well. They also need to advise the clients as to when to go for litigation and when to opt for alternative dispute resolution mechanisms.

# Knowledge of other relevant aspects

By no means a lawyers expertise is limited to few areas. People come to you for all sorts of queries and you have to be able to answer them. So that means having functioning knowledge about possible issues in information technology laws, intellectual property laws, foreign direct investments, mergers and acquisitions, labour laws,etc.

How and why to make a disclosure schedule in M&A transactions? How to draft a scheme of arrangement for mergers? What are the operational issues pertaining to FDI? How to outsource technology work to a third party developer? What are the liability of intermediaries and Internet Service Providers? How to protect the intellectual property of the company? How to draft a franchising agreement? How to obtain a trade license in Bangalore? What is ESOP? What is the insolvency resolution process for corporates under IBC?

These are some the pertinent questions that would arise during the functioning of a business or a client. So a well equipped lawyer must know how to navigate these questions and provide an optimal solution or advise. The clients are coming to an expert lawyer who will ideally be the one stop for all their problems.

Imagine how indispensable a lawyer would be to an organisation if he/she can be the one stop solution for their client! Therefore, it is imperative for any lawyer to be equipped with the knowledge of relevant business laws. It is not only good for the business houses, but also for the lawyer’s practise. It is a win-win situation for all involved!



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