Laws Every Indian Startup Must Know Of

The legal principle ignorantia legis neminem excusat (Latin for “ignorance of law excuses no one”) illustrates that a person who is unaware of a law may not escape punishment for violating that law only because the person had no knowledge of it. So when entrepreneurs tend to overlook the importance of legal and secretarial compliances because they are mostly unaware of the applicable laws and statutory compliances, there is no pardon for it. Avoidance to comply with the laws may sabotage the growth and progress of the startup along with several other serious consequences such as imprisonment, hefty penalties, negative publicity of the startup, etc.

It is very necessary for entrepreneurs to have knowledge of the applicable Laws, otherwise it would become very burdensome for him to tackle and resolve several basic problems. Basic knowledge of certain laws and regulations, irrespective of the type of startup, is very necessary for an entrepreneur. Here is the checklist of basic laws applicable to all startup type in India:

Companies Act, 2013
The Indian Companies Act governs the incorporation, operations, restructuring, and dissolution of startups. The Act further regulates the responsibilities of a startup as a company and the entrepreneur as director.

Indian Contract Act, 1872
The Indian Contract Act, 1872 prescribes the law relating to contracts in India. It governs the grounds on which contracts or agreements of a startup are executed, operated and terminated. Further it regulates validity, formation and enforceability of the contracts or agreements.

Foreign Exchange Management Act, 1999 (FEMA)
FEMA governs the Indian foreign exchange and it regulates the investment of capital in startups. It’s basically concerned with compliance related to fundraising.

The Competition Act, 2002
The Competition Act governs the fair competition in the startup ecosystem. Under this the Competition Commission of India was established to prevent the activities that have an adverse effect on startups because of anti-competitive business practices in India. This led to prohibition of agreements or practices that restricts free trading, to ban the abusive situation of market monopoly, and to promote a fair and healthy competition in the market.

Income Tax Act, 1961
The Income Tax Act governs the tax treatment of capital gains, mergers, demergers and sale. The IT authorities strictly govern startups and entrepreneurs with stringent checks and harsh penalties. Several incentives were announced by the Government in Budget 2016 regarding the levy of Income Tax on Start-ups in India. These incentives were further enhanced in Budget 2017.

The Central Goods and Services Tax Act, 2017
Goods and Services Tax (GST) is an indirect tax levied in India on the sale of goods and services. With simple taxation process and increased efficiency in logistics, Startups do not have to run around to tax offices since the entire GST process starting from registration to filing returns and payment of GST tax is online, hence making it beneficial for the entrepreneur.

Intellectual Property Laws
Intellectual property is a category of property that includes copyrights, patents, and trademarks. The main purpose of intellectual property law is to encourage the creation of a wide variety of intellectual goods by the startup ecosystem. Every startup has IP Rights, which it needs to understand and protect as it uses trademarks, logos, designs and products that help create value in the market. Intellectual Property includes the following:
Copyrights and Related Rights
Industrial Designs
Trade Secrets

Nurturing a startup includes many things and one of the initial steps is knowing basics of the startup laws. Therefore, basic legal education is very important for all entrepreneurs in their daily lives to make their startup run successfully and smoothly. The above are just certain basic laws for a startup to be aware of but legal awareness is something that every entrepreneur must be made aware of.

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