The excitement of starting a business many times leaves the promoters to oversee the legal formalities. However, the cost of registration and other formalities must also be considered coupled with the consequences of creating a legal identity for your business. Hence, it is always good to learn about the basic laws related to business. Regardless of your business type, these are the few laws and formalities you should know.
1. Opting for a business structure that suits activities
Starting a business should come along with a thought of deciding the structure and the type of business format as per your business requirements. You may well stay confused with choosing the right business structure as two more people can choose partnership business or even opt to Register LLP Company in India.
Plenty of factors come to play when doing so as it involves the business nature, compliance requirements, tax efficiency, corporate flexibility, the cost of formation, etc. Therefore, one should keep in mind such factors before registering for a business. Based on your requirements regarding partnership, liability and conversions, the business organizations are formed and regulated by certain acts and your business needs to abide by those.
2. Government Funding, Schemes and Subsidies:
Check ‘Start-up India’ initiative by Indian Government that speaks how startups can claim tax exemption for 3 years, even from capital gains and investments above Fair Market Value. But, ensure to fulfil the eligibility criteria to leverage this initiative.
MSME Act leverages several benefits the small and medium scale businesses to exist and grow swiftly. Propitious subsidies, rebates for IP registration, MUDRA Loan, and other financial assistance are few among numerous benefits.
3. Follow the Licensing Regulations
Obtaining licenses is the next essential step as it regularizes your business, giving it a legal affirmation it needs. Check if your business requires specific licenses for functioning legally.
These are some of the licenses that could apply to any new business:
Shops and Establishments Registration: This state-based registration applies to any business entity established for a commercial purpose under local Government.
GST Registration: Compulsory registration for all business entities whose turnover exceeds ₹20 Lakh a year (10 Lakh for north-eastern States). The repercussion of not registering one’s business despite being liable is serious and hence, it is best to have a voluntary registration.
Activity-based licensing requirements: Some of the registrations would be required according to the type of business, for example, FSSAI is necessary for any food or food packaging related business. Similarly, the Import and Export code is necessary for any business indulging in import and export activity from India.
4. Protection of Intellectual Property
The dynamic environment confronted by the startups also leads to a high level of competition. To stand out amongst the rest, protecting IPR becomes vital for a startup in this era. The startup should offer no opportunity to affect brand or product value negatively. IP protection not only provides a chance to stand out but rewards in financial terms as well. IP is an asset to any startup since it has a commercial value. There are three laws through which a startup can protect its IPR.
- Trademark: The logo and trademark registration protect your brand. This could be anything – an idea, concept, product, symbols, process, logos, etc. that can evoke a connection with your brand
- Patents: A product or a process that is true to test of the invention and also creates a better value and efficiency can be protected through patents.
- Copyrights: Original works and content created by you, whether it is a write-up, a website, or musical composition, you might consider it to protect under copyright.
5. Contract, Dispute and Limitations
Businesses enter into contract since its idea of inception and therefore, contracts are indispensable to them. It leads to a need for entrepreneurs to learn about fundamental principles on validating the contracts and its enforceability.
Every business faces disputes during its existence – be it small or big. Therefore, setting up a dispute mechanism is important, whether for internal or external parties. Arbitration and Conciliation law is a special Act dealing with dispute resolution mechanisms.
Periodic limitations bound enforceability and debt recovery transactions. Therefore, the startups must know when to enforce and claim their rights over third parties as per the Limitation Act, 1963.
6. Adhering to taxation compliances
Business owners are advised to pay attention as per the applicable taxation structure that their business falls under. Taxability can undoubtedly affect the business outcomes and hence you must plan it accordingly. It is best to get accustomed to the business taxation and accounting since it is a pre-requisite for filings and annual legal compliance with respective authorities. Since other indirect taxes are abolished, it is important to get acquainted with the GST as it is classified under multiple tax slabs for different goods and services are.
The activity involving regulations is of utmost importance, including filing monthly, quarterly and annual GST filing. The startups should also consider declaring tax liabilities at the time of incorporation.
7. Employment and Workplace Safety
It is obvious to hire people with work. The employees are protected with labor laws. As a business owner, be sure you understand laws about employee rights and how they must be treated. Although there are plethoras of laws that likely apply, there are a few you should be aware of before hiring your first employee.
Minimum wages, Payment of wages, Gratuity, Provident funds and Bonus Act are few of the most critical labor laws to understand and observe. Prevention and redressal of sexual harassment and Maternity benefits are for the protection and benefit of working women. Small businesses should stay aware of and follow these seven SME laws to ensure the smooth functioning of their markets. Being legally compliant is one of the many ways to succeed in the business in the longer run.