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Legal Provisions and Compliance For A Startup
A startup is a newly formed company or business. It comprises of only a few people who, in the starting, invest in their business/company. The initial stages of a startup require heavy investment. Sometimes, the size of a startup can be limited to only one person.
In the usual practice, the founder of a startup advertises his/her idea of starting a startup and tries to persuade the people to invest in it. Since the startups are very small, the founder seeks involvement of various persons as investors. The main purpose is to feed the growth of his business.
A startup may deal in offering a particular product or service. The founder of the startup chooses that product or service to deal in, which is new to the market and hence, which is non-existent till date.
The term ‘Compliance’ means to comply to: to conform to a particular law, rule, regulation etc.
The term ‘Regulatory Compliance’ refers to the goals of an organization which it strives to achieve. It also includes the steps which are taken for achieving these goals.
In today’s world, we all strive for transparency in almost every aspect of life. Be it elections, or selection procedures etc. similarly the startups also adopt transparent methods to win over the trust of their probable customers/consumers and maintain their viability. Their object is to maximize transparency in processing and delivering the good/service concerned.
The concept of startups is growing speedily in India as well. The points to be kept in mind while starting a startup are as follows:
1. The founder and investors must be aware of the existing laws which govern their business. For instance, if they think of making a website and working on it in the near future, then it is important for them to be familiar with the cyber laws.
2. They also need to follow pre incorporation compliance. This includes
a. Registration of the firm/company
b. Name of the designation
c. Allocation of the designation
d. Approval of the designation
3. The post incorporation compliances include
a. Applying for PAN (Permanent Address Number)
b. Applying for TAN (Temporary Address Number)
c. Registering for
· stock exchange
· making payments of taxes levied on it
All startups must register themselves within 30 days of the applicability of act and must pay CGST (Central Goods and Services Tax) and SGST (State Goods and Services Tax) on goods and services after the applicability of GST ACT from 1st July, 2017.
The next important question that bothers those who wants to do a startup is
How to comply?
The most basic thing which a businessman must understand that he must have a knowledge of the legislation and Acts that are applicable to his business. There are many state, national and foreign regulations which will impact the business of a person immediately or in the near future if he/she will not consider these regulations.
There must be written procedures and policies that must explain the mechanisms for effective regulation to all your employees and any auditors or regulators and control over these regulations will improve with time. Designate a compliance officer (required in some cases) to create a culture of compliance.
There must be an effective and organised record keeping system in your company either hard or soft copy. These records must include all your written policies and protocols, records of all or any meetings with the authorities and case files if needed.
A person must start reviewing the companies that can impact you when your business will start to grow in other cities, states and countries. Your company must have a good legal department to understand the complex foreign regulations. A company has to face various obstacles during cross-border transactions, and those obstacles can come in any form either money, information, goods etc.
Every individual must follow this compliance list if he/she is willing to do a startup`.
· Must open a bank account
· Must share their capital deposition in the bank account
· Must do GST registration
· Must provide insurance of share certificates to shareholders
· Must maintain a statutory register
· The director must disclose the share holdings
· Must file an income tax return
· Must do annual return filling
IMPORTANT LEGISLATIONS GOVERNING STARTUPS
In India, if a person wishes to get into startup business, he/she must be familiar with the following legislations as they are the governing legislations.
I. Contract Law
The Indian Contract Act, 1872 provides guidelines as to the various aspects of a contract. These are competency, consideration, what agreements are contracts, void and voidable agreements etc. The person initiating a startup must be acquainted with all these provisions of the Act before entering into any sale agreement so that it is properly enforceable by law.
II. Accounting and taxing Laws
Another important legislation by which the startup people are governed is Income Tax Act, 1960. This Act has a total of 300 Sections and lays down the rate and methods as to how the tax is to be calculated on the income of a person (resident of India). The main aim of getting into a startup is earn money by helping the society. Hence, the money earned through the startup is the income of the founder(s). so, they should know about the Act of 1960.
III. Intellectual Property Laws
‘Intellectual’ means relating to intellect i.e. mind. In legal terms, it includes
Persons who wish to enter into startup which will deal in anything related to any of the above three, must know the rights and duties under the following Acts
1. Indian Copyright Act, 1957
2. Patents Act, 1970
3. Trade Marks Act, 1999