INITIAL LEGAL GUIDE FOR STARTUPS!

Once a Startup entity is incorporated, usually the founders are unclear about what next is to be done with respect to its legal and compliance matters. Decision whether to have an in-house legal and compliance team or to outsource the same has to be considered too. In my opinion, this entirely may vary from case to case basis considering various parameters such as the industry in which Your Startup business falls, nature of Your Startup’s business model, products & services in which Your Startup is involved, budget allocated for incurring expenses towards legal and compliance matters, etc. It is better to approach a professional to understand the nitigrities of the same before deciding further.

 

In this article, I have listed down basic requirements that Your Startup entity might need for legal and compliance matters, to give a preliminary insight:

 

  1. DOCUMENTATION OF STANDARD DRAFTS:

Whether Your Startup is a private limited company, limited liability partnership, sole proprietorship, partnership firm or any other body corporate, it is important to get basic documents drafted and kept in place. The same shall include but limited to the following:

 

Business related documents:

  1. Non disclosure agreement draft to be entered into with Your prospective clients/ business partners as well as employees protecting Yourself from any data leakage incident;
  2. Terms & conditions of the Invoice/s to be raised along with necessary details to be mentioned in the said Invoices;
  3. Terms & conditions of the Purchase Orders depending upon Your business;
  4. In case Your Startup has a website, it is must to have website terms & conditions and privacy policy in place;
  5. Considering Your industry and business model, You may need drafts of documents/ agreements with Your prospective clients, vendors, business partners, etc. enumerating terms of scope of work, consideration terms, limitation of liability terms, indemnity clauses, jurisdiction clauses, etc. It is advisable to have documents/ agreements entered into with Your prospective clients, vendors, business partners in writing to eliminate risk of future disputes.

For example: If a company is into food and beverage industry running a franchise business model it may need-

  • Franchise Agreements depending on FOFO (Franchisee Owned Franchisee Operated), FOCO (Franchisee Owned Company Operated), COCO (Company Owned Company Operated) model;
  • Standard Operating Procedures (SOP’s) and operating manuals, brand manual, etc. for running Your business model;
  1. Registration forms/ KYC list drafts while on-boarding new clients/ vendors/ business partners.

 

Employee/ HR related documents:

  1. Drafts of Offer letter, confirmation letters, appointment terms and other ancillary documents for Your employees;
  2. Policies formulated including HR Policy, Leave Policy, POSH Policy, Travel Policy, etc. that govern the employment terms of Your employees;
  3. Determining salary structure and accordingly maintaining Salary slips to avail maximum tax exemptions;
  4. Formulating organization structure and hierarchy/s to determine the designation and levels You want to build in Your organization. This also helps Your Startup entity to determine and smoothly formulate Employee Stock Option Schemes in future, if required.

 

Internal documents/ agreements:

  1. It is advisable to have Agreement between the founders of the company in place enumerating rights and responsibilities of each founder in the company, exit clause- in case one of the founder wants to exit, rights over any intellectual property developed by any founder, non-compete and non-solicit terms, casting vote terms, etc;
  2. It is very important to execute Agreement between the shareholders of the company detailing the manner in which the company will operate and take decisions including restriction on transfer of shareholding of the company, exit terms, reserved matter items, etc.

 

Through my professional experience, I have observed that having such internal agreements in place create a better impact during investment transactions and raising funds.

 

  1. LEGAL COMPLIANCE AND OBTAINING NECESSARY LICENSES/ PERMISSIONS/ REGISTRATIONS
  2. It also important to make sure that Your Startup is complaint with all statutory laws that may be applicable to Your Company based on various parameters. Here are few examples to understand the same:
  • If Your Startup is into manufacturing and selling of food & beverage products, then Your Company might have to comply with Food and Safety Standards, obtaining necessary licenses not limited to FSSAI, ISI, etc.;
  • If Your Startup is running a restaurant, it is essential that it has proper licenses in place such a fire license, trade license, environment license, shop and establishment license, FSSAI license, liquor licenses, in case restaurant will be serving liquor too, etc. in place;
  • Say, Your Startup is marketing its products using multi level marketing technique then it is essential to comply with the guidelines issued by Indian Direct Selling Association (IDSA) with respect to direct selling activities.
  • Supposedly Your Startup is a NBFC engaged in the businessof loans and advances, then it is very essential that it complies with all NBFC regulations and obtained necessary licenses thereunder as formulated by necessary authorities and RBI.
  1. Founders also need to ensure that apart from business and trade licenses, Your Company has to obtain necessary licenses and registrations under labour laws not limited to shop and establishment license, PF registration, ESI license, labour welfare registration, etc. and ensure that periodic compliance and form filing of the same is in place.
  2. It is also essential that Your Startup entity has obtained PAN before starting its operations and has GST registration certificate, as and when it crosses the threshold limits prescribed under taxation laws.
  3. It is also advisable to get Your Startup registered under MSME and Startup India portal to avail various benefits provided by the government authorities.
  4. It is also very crucial to protect the brand and other intellectual property of Your Startup and hence getting trademark, copyright, patent registration, as applicable is a must.
  5. REVIEW/ REPLYING TO THE DOCUMENTS/ MAILS RECEVIED BY STARTUP’S

It is important to get all the legal agreements and documents reviewed from a professional which Your Startup receives while doing business before signing the same which may include service agreements/ good/s agreements/ consultancy agreements, rent agreements/ business association agreements, etc. to ensure that You and Your company is protected and indemnified in the best interest. Further, it is also essential to formulate a proper process for execution of the said documents/ agreements to make sure that all documents/ agreements are valid, duly stamped, signed and sealed by requisite parties.

 

It is common that founder may receive notices/ letters from third parties including their clients, business partners, government authorities etc. while doing business on various subject matters. It is crucial to take a legal opinion on whether such notices/ letters have to be replied and if yes, to duly provide appropriate reply for the same.

 

  1. LEGAL RECORD KEEPING

Lastly, it is also very crucial that all the documents/ agreements executed by Your Startup are properly recorded and made available to requisite people in correct form may be digital or hard copy or available on the server, as the case may be. Hence, You need to ensure that a smooth process is in place to keep legal record of all the documents/ agreements executed by Your Startup, to avoid misplacement of important documents/ agreements.

 

It is a fact that managing and operating business is not a cake walk. Further to add to it managing business in a manner to ensure that it is complaint with all laws and has best practices in place is even more difficult. It is better to shed some money and hire a professional to ensure that Your Startup is non-complaint-proof, rather than paying penalties and interest in future which might burn a hole in Your pocket!

 

Kindly note the above list is only a preliminary guide for Your Startup entity. In my further series of articles, I shall be providing an in-depth guide on each and every point mentioned herein separately.

 

Published by

Adv Pooja Rambhia