Are you finally ready to turn your small business idea into a reality? As we know, it requires a lot of preparation before launching the business.
Becoming an entrepreneur is not easy. It’s a path full of uncertainties. Forming a business plan and securing funding are everyday agenda items for every entrepreneur. Another thing that entrepreneurs should add to their to-do list is to take time to review common business laws that may affect the business.
Starting a new business is no simple task. It includes several things where every entrepreneur should know the basic steps of the start-up laws and look at the vital business laws which help you for a long journey. At the same time, there is no substitute for expert knowledge, a framework of fundamental concepts which allows a ready reckoner for the daily challenges that entrepreneurs face.
It’s always good to have basic legal knowledge when running a business. Here are some major small business law categories that you need to take care of depending on the type of business you are pursuing.
Company formation Law
The most crucial thing is understanding what kind of organization you want to set up and applying proper business structure. Different business structures have various cons and pons that one must understand. Structuring the business depends upon the business's short and long-term objectives, goals, and visions. Before deciding what kind of business you want to pursue, reviewing the practicality, suitability, and profits expected from the organization to achieve the company's goal is essential.
Depending on the size and nature of the legal business entity, entrepreneurs need to register a business name. In India, the Companies Act 2013 defines the law for each type of company while starting up a business; you have to select the type of business, Like:
- Sole Proprietorship
- Limited Liable Company
There are various pre-and post-incorporation requirements that every entrepreneur needs to accomplish while setting up your business, beginning with registering your company with the Ministry of Corporate Affairs.
Separate laws govern each form of business, and not complying with these laws results in heavy fines before an organization can even start making a profit. Read the laws and regulations governing these set-ups carefully to avoid penalization for non-compliance.
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A company needs licenses accordingly based on the type of business carried out. Before starting a business, the entrepreneur must apply for appropriate permissions to avoid legal battles at the inception.
All the business licenses vary from one business to each other. The standard licensing applied for most companies under the law is registered under the shop and establishment act, 1953. They obtained Professional Tax registration and PAN registrations for commercial invoices and billing.
For instance, if you are setting business for activities like manufacturing and export-import, you may need a bunch of licenses like Import and Export Code, GST, IEC, STPI, Factory license, etc.
Entrepreneurs can even register under the 'Start-up India program' launched by the Government of India, which offers tax exemptions. But there are some conditions needed to be qualified:
The business's lifespan should not be more than seven years and not more than ten years in the case of biotech.
It should be registered as a Public or Private Limited Company or Limited Liability Partnership (LLP).
The annual turnover of the business should not exceed 25crores.
The existing business shouldn't be formed by reconstruction or split into a new company.
Business Finance Laws
Entrepreneurs can fund the business in three forms –
- Equity financing (when investors have shares in your business)
- Debt financing (when you take a business loan.)
Suppose you are getting equity funding from Venture capital firms or angel investors. In that case, you must have chalked out documents such as – a letter of intent, shareholders agreement, and share subscription agreement.
If you are getting debt financing (borrowing a loan from a bank). You need to get an application for loan sanction papers, sanction letter, loan agreement letter, and collateral documentation.
Tax and Accounting Laws
There are cases where many businesses fail on this point and face massive fines, the possibility of imprisonment, and highly unproductive lawsuits and criminal cases concerning tax bills simply due to their negligence and ignorance, usually both combined. Moreover, neglecting/ignoring the law is no excuse.
Every organization, be it involved in any business, has to pay some other taxes to the State, Central, and local/provincial governments, as the instance may be. A Businessman needs to have a basic knowledge of the Sector and area and its taxation, which can help in maintaining the financial & legal health of the organization.
As citizens of India, your business should be aware of the categories of tax it falls in. If the turnover of your business is more than Rs 40 Lakh, then your business must register for the Goods and Service Tax.
Depending on your business structure, you will also have to file taxes. We now have a simplified tax structure that has combined various taxes into one central tax.
Labour / Employment Laws
Every organization must adhere to labour laws regardless of how big or small. When a company has established and hired people to work for the organization, the organization is subject to several labour laws irrespective of the size. It includes employee privacy rights, federal regulations, disability and discrimination acts, etc.
If an organization neglects labour laws, it would attract liabilities and face negative reviews.
If you are planning to hire people, you must have employee agreements and stand by the labour laws.
A businessman is required to be aware of the following Labour laws for the business to prosper:
- The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
- The Employees’ State Insurance Act, 1948.
- The Industrial Disputes Act, 1947
- Minimum Wages Act, 1948
- Payment of Wages Act, 1936
- Payment of Bonus Act, 1965
- Payment of Gratuity Act, 1972
- Factories Act, 1948
- Building and Other Constructions Workers’ (Regulation of Employment and Conditions of Service) Act, 1996
- The Sexual Harassment of Women at Workplace (Prohibition, redressal, and prevention) Act, 2013
- The Industrial Employment (Standing Orders) Act, 1946
- The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979
- Maternity Benefits Act, 1961
- Employee Compensation Act, 1923
- The Trade Unit Act, 1926
- The Contract Labour Act, 1970
Know more about Labour Laws in India
Information Technology Laws
We all live in a world where businesses are required to be high in a digitalized world where IT laws in the industry can handle things like e-contracts and digital signatures. Protecting the organization's private data is also essential.
The government of India has introduced the Information Technology Act – cyber laws that help protect online privacy and identity. All the critical care needs to be taken care of to avoid any data leaks.
Intellectual Property Laws
Intellectual Property is the legal right that works to protect the person's innovative idea, invention, and artistic work. It gives a legal right to the creative vision so that no one can copy the same, and that's why intellectual property is an important business. It includes copyright, trademark, patent, etc.
The business intellectual property can be in the form of codes, designs, or programs. Intellectual property rights can be sold or licensed and thus has a financial value apart from technological application.
Doing this will ensure you avoid intellectual property theft and boost your profitability via royalties!
Entrepreneurs who begin on a journey of success must search through all the legal factors affecting their business while running its operations. Most entrepreneurs spend a lot of time understanding their business and neglect various legal and regulatory compliances, including corporate laws.
An overview of these laws is essential for business owners, but when you seek an in-depth understanding about these laws, it's crucial to consult a corporate lawyer. They can provide the necessary expertise and guidance. Contact us today to clarify all your legal doubts.