LEGAL CHECKLIST FOR STARTUPS
Asia’s third largest economy i.e. India, now has between 4,200 and 4,400 startups, 110 incubators, 292 active angel investors and 156 active venture capital and private equity investors, according to Nasscom. India also saw its highest surge in terms of funding deals and amount of funding in March, 2015 wherein about 42 funding deals fetched above $800 million (about 50,000 crores). India is a hotbed for startups and the political climate is in favor of mushrooming startups.
The Article is authored by Founder of CriTaxCorp, a legal firm who is also founder of a legal start-up named “Indian Bare Acts Pack”, which is a mobile app available on multiple platforms. This article is authored to provide insight to the Start-ups to keep the following points in mind from the seed stage to scaling up their venture-:
1. Signing the co-founder agreement:
In a startup, if two or more co-founders are involved, it is necessary to sign a co-founder agreement, clearly defining the equity share, roles and responsibilities etc. It can be a simple agreement where roles, responsibilities, equity and other arrangements are clearly defined which reduces the friction between the co-founders to the minimal extent possible, at a later stage. It ensures the protection of the co-founders regarding their vesting equity and long-term involvement of the co-founders with the start-up, especially as the technology handlers tend to overlook the same because they are more concerned about the products/services rather than legal intricacies.
2. Registering the startup:
It may seem like an unnecessary step for a startup to incorporate their start-up during the initial stages, but it is always advisable to follow this step. A start-up can resort to various different structures of incorporation like proprietorship, limited liability partnership, partnership, private limited company etc.
3. Maintain proper books of accounts:
It is always advisable to maintain proper books of accounts from the initial startup stage itself. It is to ensure that later on, with the growth of business and at the time of approaching any investor for funding, your finances are in order. 4. Protecting intellectual property: A startup’s most valuable asset is its intellectual property and thus, it is required to be safeguarded to the best extent possible. - Trademarks including company logo, company name and any other brand names should be compulsorily registered.
4. Protecting intellectual property:
A startup’s most valuable asset is its intellectual property and thus, it is required to be safeguarded to the best extent possible. - Trademarks including company logo, company name and any other brand names should be compulsorily registered. - Copyright registration is not compulsory but recommended
5. Compliance with labor laws and employment agreements:
A startup needs to ensure that the labor laws applicable in the geographical area, where it is located, is complied with and employees are made to sign an employment agreement, irrespective of the size of startup. Some of the labor laws are PF, ESI, Gratuity, sexual harassment etc.
Agreements with the employees/consultants/freelancers must be executed keeping in mind the following clauses:
- term of employment
- probation period if any
- Intellectual property safeguard - no poaching
- non solicitation
- terms of termination, including standard and immediate termination
- Contract of service or for service clause
6. Incorporation of Terms & Condition and Privacy Policy of Websites:
If the startup has an app or a website, it is imperitive that a customized and streamlined terms & condition and privacy policy is put in place. These T&C and privacy policy should cover all aspects of your product/service and protect you against any claim/dispute in the future.
7. Service tax/ VAT/PAN registration:
Registering of PAN of the co-founders/directors/Company is the most basic requirement to a start-up. The Service tax and VAT registration comes into play when a start-up has crossed gross receipt of Rs. 10,00,000/- in a financial year, if it is a services based startup, and Rs. 20,00,000/- if goods are sold by the start-up..
8. Compliance with Information Technology laws:
We are living in a technologically advanced era where things like e-contracts, cloud computing, digital signatures, securing confidential data from hackers, protecting your privacy are not only very common but extremely important too.
9. Funds raised from Family members/friends:
This is one of the most common practice which is adopted by the start-ups in early seed stage funding wherein they raise money from their relatives/friends either through a loan method or by share of equity. The start-ups do not put these terms into writing which leads to anger feud arguments/disagreement with their relatives/friends, at a later stage. If the start-up flourishes then the relatives/friends claim equity in the start-up an if they fail they ask return of the money as if it was a loan.
CONCLUSION
Spending money on the compliances and legal documentation is last on the mind of a start-up as it is the product which needs to grow wings at first and that is what the start-ups are passionate about. All compliances or legal documentation are not to be adhered to from the initial stage but right action at right time is the key factor and that is why we at CriTaxCorp provide costefficient services wherein start-ups can easily be complaint to all laws and strengthen their legal foundation, from the date of inception. CriTaxCorp is very passionate about working with startup as the technology intrigues us, as the Founder hails from the start-up community itself. For more start-up related issues please send us an e-mail at contact@critaxcorp.com
Asia’s third largest economy i.e. India, now has between 4,200 and 4,400 startups, 110 incubators, 292 active angel investors and 156 active venture capital and private equity investors, according to Nasscom. India also saw its highest surge in terms of funding deals and amount of funding in March, 2015 wherein about 42 funding deals fetched above $800 million (about 50,000 crores). India is a hotbed for startups and the political climate is in favor of mushrooming startups.
The Article is authored by Founder of CriTaxCorp, a legal firm who is also founder of a legal start-up named “Indian Bare Acts Pack”, which is a mobile app available on multiple platforms. This article is authored to provide insight to the Start-ups to keep the following points in mind from the seed stage to scaling up their venture-:
1. Signing the co-founder agreement:
In a startup, if two or more co-founders are involved, it is necessary to sign a co-founder agreement, clearly defining the equity share, roles and responsibilities etc. It can be a simple agreement where roles, responsibilities, equity and other arrangements are clearly defined which reduces the friction between the co-founders to the minimal extent possible, at a later stage. It ensures the protection of the co-founders regarding their vesting equity and long-term involvement of the co-founders with the start-up, especially as the technology handlers tend to overlook the same because they are more concerned about the products/services rather than legal intricacies.
2. Registering the startup:
It may seem like an unnecessary step for a startup to incorporate their start-up during the initial stages, but it is always advisable to follow this step. A start-up can resort to various different structures of incorporation like proprietorship, limited liability partnership, partnership, private limited company etc.
3. Maintain proper books of accounts:
It is always advisable to maintain proper books of accounts from the initial startup stage itself. It is to ensure that later on, with the growth of business and at the time of approaching any investor for funding, your finances are in order. 4. Protecting intellectual property: A startup’s most valuable asset is its intellectual property and thus, it is required to be safeguarded to the best extent possible. - Trademarks including company logo, company name and any other brand names should be compulsorily registered.
4. Protecting intellectual property:
A startup’s most valuable asset is its intellectual property and thus, it is required to be safeguarded to the best extent possible. - Trademarks including company logo, company name and any other brand names should be compulsorily registered. - Copyright registration is not compulsory but recommended
5. Compliance with labor laws and employment agreements:
A startup needs to ensure that the labor laws applicable in the geographical area, where it is located, is complied with and employees are made to sign an employment agreement, irrespective of the size of startup. Some of the labor laws are PF, ESI, Gratuity, sexual harassment etc.
Agreements with the employees/consultants/freelancers must be executed keeping in mind the following clauses:
- term of employment
- probation period if any
- Intellectual property safeguard - no poaching
- non solicitation
- terms of termination, including standard and immediate termination
- Contract of service or for service clause
6. Incorporation of Terms & Condition and Privacy Policy of Websites:
If the startup has an app or a website, it is imperitive that a customized and streamlined terms & condition and privacy policy is put in place. These T&C and privacy policy should cover all aspects of your product/service and protect you against any claim/dispute in the future.
7. Service tax/ VAT/PAN registration:
Registering of PAN of the co-founders/directors/Company is the most basic requirement to a start-up. The Service tax and VAT registration comes into play when a start-up has crossed gross receipt of Rs. 10,00,000/- in a financial year, if it is a services based startup, and Rs. 20,00,000/- if goods are sold by the start-up..
8. Compliance with Information Technology laws:
We are living in a technologically advanced era where things like e-contracts, cloud computing, digital signatures, securing confidential data from hackers, protecting your privacy are not only very common but extremely important too.
9. Funds raised from Family members/friends:
This is one of the most common practice which is adopted by the start-ups in early seed stage funding wherein they raise money from their relatives/friends either through a loan method or by share of equity. The start-ups do not put these terms into writing which leads to anger feud arguments/disagreement with their relatives/friends, at a later stage. If the start-up flourishes then the relatives/friends claim equity in the start-up an if they fail they ask return of the money as if it was a loan.
CONCLUSION
Spending money on the compliances and legal documentation is last on the mind of a start-up as it is the product which needs to grow wings at first and that is what the start-ups are passionate about. All compliances or legal documentation are not to be adhered to from the initial stage but right action at right time is the key factor and that is why we at CriTaxCorp provide costefficient services wherein start-ups can easily be complaint to all laws and strengthen their legal foundation, from the date of inception. CriTaxCorp is very passionate about working with startup as the technology intrigues us, as the Founder hails from the start-up community itself. For more start-up related issues please send us an e-mail at contact@critaxcorp.com
