Start up’s in India must adhere to a variety of legal requirements to operate legally and sustainably. Below is a detailed overview of the key legal compliances that start up’s need to follow:
1. Company Registration
Startups in India must register their business entity with the Ministry of Corporate Affairs (MCA) under the Companies Act, 2013. The types of entities include Private Limited Company, Limited Liability Partnership (LLP), and One Person Company (OPC). The registration process involves obtaining a Digital Signature Certificate (DSC), Director Identification Number (DIN), and filing the incorporation form with the Registrar of Companies (RoC).
Types of Entities
- Private Limited Company: Must be incorporated under the Companies Act, 2013.
- Partnership Firm: Registered under Section 59 of the Partnership Act, 1932.
- Limited Liability Partnership (LLP): Registered under the Limited Liability Partnership Act, 2008.
Eligibility Criteria for Startup Recognition
- The Start up should be incorporated as a private limited company or registered as a partnership firm or a limited liability partnership.
- Turnover should be less than INR 100 Crores in any of the previous financial years.
- An entity shall be considered a startup up to 10 years from the date of its incorporation.
- The Startup should be working towards innovation/improvement of existing products, services, and processes and should have the potential to generate employment/create wealth. An entity formed by splitting up or reconstructing an existing business shall not be considered a “Startup.”
2. Tax Registration
- PAN and TAN: Obtain a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) from the Income Tax Department.
- GST Registration: Mandatory if the annual turnover exceeds the threshold limit specified under the Goods and Services Tax (GST) Act.
- Tax Exemptions: Startups registered with the Department for Promotion of Industry and Internal Trade (DPIIT) can avail of tax exemptions under Section 80 IAC and Section 56 of the Income Tax Act, 1961.
3. Labour Laws
- Wages and Working Hours: Compliance with minimum wage regulations, maximum working hours, regular breaks, and overtime rules.
- Social Security: Contributions towards employees’ provident funds and insurance coverage as mandated by the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, and the Employees’ State Insurance Act, 1948.
- Workplace Safety and Welfare: Adherence to safety standards and other employment-related regulations such as the Payment of Gratuity Act, 1972, the Contract Labour (Regulation and Abolition) Act, 1970, and the Maternity Benefit Act, 1961.
- Anti-Discrimination and Harassment: Implementation of policies to prevent sexual harassment and discrimination in the workplace as per the POSH Act.
4. Intellectual Property Rights
- Trademarks: Registration of trademarks to protect brand identity.
- Patents: Filing for patents to protect innovations and inventions.
- Copyrights: Registering copyrights for original works of authorship.
- IP Strategy: Developing an intellectual property strategy and conducting regular audits to ensure comprehensive protection.
5. Industry-Specific Compliances
- Foreign Direct Investment (FDI): Compliance with the guidelines set forth in the Foreign Exchange Management Act, 1999 (FEMA) for startups receiving FDI.
- Import-Export: Adherence to Customs laws for businesses engaged in import-export activities.
- Environmental Clearances: Obtaining necessary clearances under environmental laws for startups dealing with hazardous products or processes.
- Real Estate: Approval from the Real Estate Regulatory Authority (RERA) for startups operating in the real estate sector.
6. Financial and Legal Documentation
- Annual General Meetings (AGM): Conducting AGMs and filing necessary forms such as Form ADT-1 for the appointment of auditors, Form MGT-7 for annual return details, and Form AOC-4 for financial statements.
- Directors’ Report: Preparation of a Directors’ Report detailing the state of the company, operations, net profit, dividends, etc.
- Registers and Books of Accounts: Maintenance of statutory registers, minutes of board and general meetings, and books of accounts.
7. Sector-Specific Compliances for Fintech Startups
- Payment Gateways: Compliance with the Payment Intermediary Guidelines, 2020.
- Digital Wallets: Adherence to Know Your Customer (KYC) requirements as per RBI’s Master Direction- Know Your Customer (KYC) Direction 2016.
- Insurance Aggregators: Compliance with the IRDAI Insurance Web Aggregators Regulations, 2017.
- Lending Platforms: Adherence to the Master Directions – NBFC – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017.
Conclusion
Adhering to these legal compliances is crucial for start up’s to mitigate risks, access benefits, and create a strong foundation for long-term success. Regular audits and seeking legal counsel can help startups stay updated with evolving regulations and maintain compliance. By understanding and adhering to these requirements, startups can ensure legal and operational stability, fostering a positive work environment and contributing to their overall growth and success.
Meet Siddhant Jain, a lawyer who thrives in the wild world of Business and Commercial Law—where boardrooms are battlefields, mergers are puzzles, and corporate jargon is his second language. Whether it’s navigating the maze of company law, tackling securities regulations, or guiding businesses through the stormy seas of bankruptcy and insolvency, Siddhant has done it all.
From crafting complex legal opinions on mergers to waving goodbye at company closures, Siddhant’s experience spans the corporate spectrum. When he’s not solving legal riddles, he’s busy sharing his insights through newsletters and publications, because why should only his clients benefit from all that knowledge?
If you’re looking for someone who can help you untangle the knots of business law (and maybe crack a joke while doing it), Siddhant’s your guy!
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