Legal Things You Should Know Before Starting a Startup in Mumbai

Startups are businesses or ventures focused on bringing a single product or service to market. Here’s everything you need to know about a startup in India.

A startup is a business that is in its early stages of operation. These businesses generally begin with high costs and limited revenue, so they seek capital from various sources, including venture capitalists.

These companies want to disrupt industries and change the world on a large scale. Startup founders dream of providing society with something it lacks but has yet to create, resulting in eye-popping valuations that lead to an IPO and an astronomical return on investment.

Let’s get in-depth and learn about the startup laws for a startup in Mumbai.

What is a startup?

Startups are businesses or endeavours concentrating on a specific good or service the founders want to market. These businesses typically lack a fully developed business model and, more importantly, adequate capital to move on to the next stage of development. Their founders initially fund the majority of these businesses.

Many startups seek additional funding from others, including family, friends, and venture capitalists. Bangalore in India is well-known for its strong venture capitalist community and as a popular startup destination but also widely regarded as the most demanding arena.

Startups can use seed capital to fund research and development of their business plans. A comprehensive business plan or strategy outlines the company’s mission statement, vision, goals, management, and marketing strategies. In contrast, market research helps determine the demand for a product or service.

Indian laws for your startup

Every business has employees or labourers who help it run smoothly and efficiently daily. Many labour laws exist, such as the Minimum Wage Act, gratuity, Provident Fund payment, paid holidays to workers, maternity benefits, workplace harassment, bonus payment, etc.

The Indian government has exempted a startup from labour inspection if it regularly follows all of the country’s major labour laws for its employees’ benefit. The laws are:

  • The Industrial Disputes Act, 1947
  • The Trade Unit Act, 1926
  • The Payment of Gratuity Act, 1972
  • The Employees’Employees’ State Insurance Act, 1948.
  • Building and Other Constructions Workers’Workers’ (Regulation of Employment and Conditions of Service) Act, 1996
  • The Industrial Employment (Standing Orders) Act, 1946

Proper employee and worker policies may aid in increasing employee morale and efficiency in the workplace.

Know more about Indian laws for your startup below:

Legal things you should know about before starting a startup

For every business to function efficiently, some basic legal responsibilities and acts incorporate eight legal points you should know about. The eight legal points are:

  • Formalisation of business structure

    Understanding and applying proper business structures is necessary because different business structures have various business applications when conducting business. A proprietorship, partnership, limited liability partnership, and private limited company are all examples of business structures.

    The legal status of a business explains that a proprietorship and partnership do not have separate legal entities, and liability is on the promoter himself. In contrast, a separate legal entity gets recognised in a limited liability partnership, and the promoters are not personally liable for the liabilities. An expert startup lawyer in Mumbai can evaluate your business and help you determine the best business structure.

  • Licensing your business

    Every business requires licenses based on the type of business conducted. To avoid legal battles at the outset, The appropriate licensing issuing process must begin before the launch of a startup to avoid legal conflicts at the outset. All of the licenses differ from one business to the next.

    For example, if an e-commerce company must get established, VAT, service tax, registration, and professional taxes must be paid.

    The shop and establishment act of 1953 is the most commonly used licensing under the law for most businesses in India.

  • Tax and accounting regulations

    The startup India government scheme provided many tax breaks for startups. Businesses require different tax policies based on the tax and business structure used.

    A startup can use the first seven years of existence for tax exemptions. The company must get registered as a limited liability partnership. The total annual turnover for the initial years cannot exceed 25 crores.

    Every firm or business must keep proper accounts and conduct tax audits to comply with the country’s taxation rules.

  • Protection of intellectual property rights

    Startups frequently come up with novel and unusual ideas that can get protected in this world under specific laws. Innovative property rights can include innovative products, improved processes, or procedures for making something better.

    The intellectual property rights startup scheme gets linked to the Startup India program. This scheme would ensure intellectual property protection and commercialisation, as well as the management of trademarks, copyright, and designs involved in the business startup.

    Under these regulations, the government has reduced patent fees for new startups by 80%. The intellectual property registration panel would also be responsible for informing market participants about the process of filing for patents or other intellectual property.

  • Foreign direct investment

    Foreign venture capital investors are subject to regulations to encourage foreign investment in startups (FVCI). Schedule 6 of the Foreign Exchange Management Act (FEMA) of 2000, as amended in 2016, has been used to regulate investments.

    Under Schedule 6 of Notification No. FEMA, any foreign investor, may contribute 100% of the capital of an Indian startup engaged in any activity or business.

  • Management of business contracts

    The Indian Contract Act of 1872 determines a valid legal contract. Section 10 of the Contract Act must be met for a contract to be valid.

    The first contract in business is the employment contract, which must be properly drafted. Salary, stock options, job scope, and so on should all get thoroughly discussed.

    Non-disclosure agreements would also benefit the startup because, to get started, the startup host must share ideas about how things will work with investors, suppliers, and customers. There is a high risk of misusing ideas. As a result, nondisclosure agreements aid in preventing the spread of information.

  • Business dissolution

    When a business gets established, the laws governing the winding up must be understood because no one knows when the worst will occur. The winding-up process is systematic with three exit options: fast track, court or tribunal route, and voluntary closure.

    The company should not have any assets or liabilities left after the fast-track exit, and no past business must be entertained in the process of winding up. The company’s name can then be removed from the registrar of companies (ROC).

    During a voluntary closure, the company must settle all accounts, which means that the shareholders and creditors must be on the same page.

    Lengthy court proceedings are involved in the court or tribunal closure, which is a hectic procedure for the stakeholders.

    As a result, these are the fundamental legal steps for establishing a startup framework. Legal knowledge aids in understanding the process of establishing and reaping the benefits provided by the government under various schemes for efficient working and establishing a startup. Hiring an expert startup lawyer who can help you in every step is also advised, as they are professionals with legal knowledge like no other.

Take help from startup consultants in Mumbai.

Business consultants for startups in India are highly beneficial to entrepreneurs with a business concept but lack the knowledge, resources, or experience to see it through. When hired for the right reasons, startup consultants in Mumbai can provide tremendous benefits to startups.

Startup consultants can help a startup business in the following ways:

  • With expert advice, experienced staff, and an unbiased approach, startup consulting experts work tirelessly for various organisations to overcome unexpected and dynamic challenges. Their feedback on performance, organisation and other critical aspects sheds light on your startup’s current state and provides specific direction to improve it.
  • Startup consulting experts work to reduce costs and save time in the long run by focusing on your company’s long-term profitability. They can also identify problems with your internal structure and processes that may be causing ineffective day-to-day work and causing deadline issues.
  • Startup consultants in Mumbai have access to valuable resources that can provide your startup with the critical edge it requires during its growth phase and enable you to make informed decisions.
  • Experts in startup consulting services understand how to identify a startup’s market potential and develop a detailed plan to pursue it. As a result, these experts can offer helpful advice on management, strategy, marketing, and finance.
  • These experts assist in outlining individual business steps to get started and expand their reach in the larger economic market. A new business must carry out all necessary actions to be successful. Experts collaborate with clients through various agencies to ensure better results and proper execution of objectives.
  • Clients who use business consulting services save time on time-consuming marketing and sales research. This research can help a startup implement a more results-driven strategy.

To Conclude:

The number of startups has increased dramatically in recent years. The Indian government launched several programs to catalyse the startup culture and aid startups with several tax-saving schemes.

However, to make a startup successful, you must be aware of all the rules and regulations that apply to it. In other words, you must understand Indian startup law. If you are a startup based out of Mumbai or are planning to start a business in Mumbai or any part of India, consider the laws mentioned above to start your startup in Mumbai successfully.

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