Learn more about legal aid for start-ups.
Viraj Patil, an advocate in Kharghar, recognizes that starting from start-up to commercial behemoth is complex. Most businesses must devote time to idea creation and differentiating themselves from their market competition. Even while it is indispensable and advantageous, finalizing the legal documentation to bring these ideas to life is frequently postponed.
Legal assistance for start-ups in business formation and statutory legal compliance results in a firm foundation and hassle-free operations, allowing entrepreneurs/founders/promoters to focus on more critical needs like hiring, funding and finance, and other activities that enable growth.
ParthaSaarathi LLP was established to provide businesses and individuals with rapid and convenient legal assistance. A start-up may not require the services of a lawyer, but it does require legal counsel to secure and protect itself.
ParthaSaarathi LLP was created with the needs of start-ups and small and medium businesses in mind. This team of professionals can help you launch your business with flexibility, cost-effectiveness, and tailored solutions.
Given their skills, certificates, and experience dealing with start-ups and businesses for over a decade, ParthaSaarathi LLP, led by Adv. Viraj Patil and his team of advocates and paralegals are among the finest Start-up Advocates in Navi Mumbai.
In this post, the most exemplary advocate in Kharghar will outline critical points for new businesses.
- Decide on the best legal structure for your business.
Choosing an appropriate legal structure is undoubtedly one of the most crucial decisions that any entrepreneur must make.
Individual circumstances and a variety of factors must be considered, including:
- The type of business and the industry in which it operates
- The company’s trajectory
- Tax and regulatory difficulties
- Formation and ongoing administration costs
- The amount of outside cash required and the type of finance needed
- The required level of authorized legal responsibility safety
- A wide range of stakeholders
- There must be a balance between possession and administration.
- A proposed structure for revenue sharing or distribution among stakeholders, as well as several other things.
The limited legal responsibility partnership and the personal restricted company are the most preferred entity structures for start-ups in India.
- Enterprise Licenses and Registrations
When forming a business entity in India, you must complete several registrations that are needed by law.
Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), VAT Registration, Service Tax Registration, and various additional numbers are just a few examples.
Enterprise licenses are permits provided by a government entity that allows start-ups to legally start, run, and continue a specific business within their geographical jurisdiction.
The nature of the business activity determines the majority of license requirements. Other deciding criteria could include:
The number of employees.
- The location of the business.
- The type of business ownership.
- Protection of Intellectual Property
For a start-up, intellectual property rights are a critical asset class. Developing and preserving intellectual property and registering it correctly can help start-ups gain a competitive advantage.
Under the Trademarks Act, trademark registration for the enterprise title/trade title is critical. The mere fact that a company or business is registered in India does not guarantee that others will not use a similar or identical mark.
A trademark search should be performed before choosing these business names/trade names to avoid any future issues, such as potential infringement.
All intellectual property (trademarks, copyright, design, trade secrets, discoveries, patents, etc.) must be registered in the name of the entity and never in the name of the start-up’s promoters/founders.
- Founder Equity – Vesting and Split
Founder equity must be divided among founders based on the nature of each founder’s role and their time, effort, and capital contributions to the firm.
As the firm evolves, dividing founder equity equally by default and failing to have a whole conversation about expectations and contributions leads to pressure and dissatisfaction among founding teams. Founder Shares must be subject to a vesting schedule at all times – sometimes for three to four years.
When founder stock is subject to vesting, the unvested shares held by the founder become subject to a contractual right to repurchase/transfer, usually at nominal value, if one of the numerous founders is terminated or departs the firm voluntarily. This is necessary to ensure the business’s long-term viability.
- Founder Contracts
The Founders Agreement is the most effective technique for determining the relationship between a start-up’s founders. The agreement should reflect the founders’ complete understanding of all significant aspects of the start-up.
Founder agreements should spell out the founders’ roles and responsibilities, as well as clauses outlining the start-up’s decision-making and operating structure, such as the founder equity split with vesting (described above), assignment of all intellectual property to the start-up, termination of a promoter, and so on.
- Employment Agreements
Start-ups should ensure that their employees have explicit employment contracts that spell out the terms and conditions.
While employment contracts are valuable to employees since they detail terms such as job description, remuneration, and other associated perks, different stipulations could be inserted to protect and defend the start-up’s interests, such as:
- preventing employees from forming competitive businesses (non-compete clause)
- stealing other people’s jobs, clients, or customers (non-solicitation clause)
- prohibiting employees from asserting intellectual property rights on work done or created during their employment (assignment of intellectual property rights).
- Stock Option Pool for Employees (ESOP)
Employee stock ownership plans (ESOPs) are rewards offered to employees and directors of a company to attract and retain talent. Employee stock ownership plans (ESOPs) give employees a sense of ownership.
It’s crucial to note that ESOPs don’t share. They are constructed so that they can purchase shares at a reduced price that can only be exercised after a specific vesting period determined by the company that grants the ESOPs.
We occasionally see a pool of 10% to 15% allocated to an ESOP Pool in India.
- Agreements with Third Parties
According to the advocate in Kharghar, a non-disclosure agreement should be executed before entering into a third-party arrangement and negotiating the terms.
Suppose the creation or development of the intellectual property is a part of the 3rd party agreement. In that case, it should clearly state that all intellectual property rights will vest in and be owned by the start-up. The third-party will not stake any claim on the intellectual property and will do everything possible to ensure its safety.
Breach, termination, and dispute resolution clauses must all be carefully crafted and included in all third-party agreements.
- Structured Investments
Raising funds for working capital and development is one of the most challenging and time-consuming components of running a start-up.
Investors (HNIs/Angels/Funds) in India put money into early and growth-stage companies in various formats and on a variety of terms.
When discussing the terms of a fundraising arrangement and investors’ rights, start-ups must seek adequate legal guidance.
Term sheets, which explain the transaction structure, are sometimes executed as part of the process, followed by due diligence of the start-up and the completion of investment-related definitive agreements.
- Management of Compliance
Many start-ups are unaware of the necessity of compliance. Several legal requirements apply to specific organization forms and require different event-based and annual compliance.
The start-up’s compliance with approved, secretarial, accounting, taxes, employee-related, and other relevant compliances is critical for the long-term success of any business.
Noncompliance frequently results in a levy of punitive fines against the start-up.