Legal Requirements for Businesses in India

Successful business persons are they, who feel life is not always fair. They inherently understand what may be the consequences if the legal obligations are not met. The compliance of law reduces the chances of arbitraries along with biased and dishonest decisions. Austin says that “law is a command which obliges a person or persons to a course of conduct. It is laid down by a political sovereign and enforceable by a sanction”.

From registering a name for the business to safeguarding an intellectual property, one should aware about the legal responsibilities.So here are few things you may be interested in if you are thinking to commence a business.

  • Company Formation Laws
  • Business Finance Laws
  • The GST
  • Intellectual Property Law
  • HR Management

  • Company Formation Laws

    From the concept to commencement of business, it is mandatory to follow each type of company laws for a business person who wants to start a business. Starting a new business is a challenging as well as exciting process.”

    Indian Companies Act

    The New companies Act 2013 empowers Govt. of India with all the administrative buttons. National Company Law Tribunal under this act adjudicates issues relating to Indian companies.

    Registering Companies with Regional Registrar of Companies (RoC)

    Section 609 of this act enumerates the Registration Offices and RoC (Registration of Companies). Currently there are 22 Registrar of Companies (Roc) operating from various part of India.

    Ascertainment of Your Business Structure

    Identifying the right company structure for business is essential as it enable achieving business target in a smooth way. The following are the types of business structure:

  • One Person Company (OPC)
  • Limited Liability Partnership
  • Private Limited Company
  • Public Limited Company

  • One Person Company – You and Only You

    When there is only one founder/promoter for the business is available; one can go for this business structure. The person should be an Indian resident. Section 2(62) of Companies Act 2013defines“One Person Company”means a company which has only one person as a member.Section 3(1)(c) of the Companies Act says that a single person can form a company for any lawful purpose. It further describes One Person Company as a private company.

    Limited Liability Partnership - Limit to Focus

    Companies are to be registered under the provisions of limited liability partnership act 2008. The advantage of this business structure is, it gives benefits of limited liability companies and flexibility of a partnership. One partner is not obliged for the wrongful or unauthorized business transaction done by another partner.

    Private Limited Company – Puff up to the Exposure

    The private limited companies are most adorable type of business structure in India. Here minimum 2 shareholders and directors are necessary and maximum 15 directors are allowed and among them one has to be Indian resident. Private limited company registration is administered by the Companies Act, 2013 and the Companies Incorporation Rules, 2014.

    Public Limited Company – Offering the Ownership

    This business (also under Companies Act 2013) structure has limited liabilities and offers shares to general public primarily through Initial public Offering (IPO) or secondarily through two stock exchanges of India in Indian market i.e. Bombay Stock Exchange and National Stock Exchange. Due to the limited liability its growth and expansion possibilities are higher among all the business structures.

    Business and Finance Law

    The basic equation is that “The money makes Money”. A successful business always encompasses with the financing volcanos in it. The more secure and flexible financing options enable businesses to hit new high in each accomplishment.

    Empty Your Pocket First

    Yes, it's your pocket which should be empty first. It gives owner of the business structure supreme control to do what he/she wants to do. In this option collateral is the personal assets of the owner of the business structure.

    Debt Loan - Borrow and Repay

    In this category of financing option for operating needs and/or to purchase capital business structure borrows money to pay back with some interest within a specified time period. The payback could be made in regular intervals i.e. monthly, quarterly, Half yearly, Yearly or at once at the termination of the agreement.

    Broadly a business structure can avail two types of Debt option. One is Secured and Other is unsecured. In the case of secured loan, some assets of the business structure may be attached as a security to make it happen which will become the lenders property if the business structure cannot pay back the debt.So, it can distinctly derive from that,secured loan is always beneficial for the debt provider.

    You and Your EQUITY Fellows

    Co-Investment business structures are in the trending zone these days. As it offers access to funds, better assets etc to the business. Equity financing is a way to raise capital by selling shares of a business structure. When an owner of a business interested in equity financing, he/she have to relinquish control of the ownership from it.

    Government takes crucial roles with its policies for equity financing.Equity financing can be done from Initial Public Offering (IPO) and without IPO which is governed Ministry of Finance, SEBI, and RBI guidelines. Department of Economic affairs (Capital market division) under ministry of finance that is prominently responsible for formulating the policies related to methodical growth and development of the market are under the following regulations:

  • Depositories Act, 1996
  • Securities contract regulation Act, 1956
  • Security Exchange Board of India, 1992

  • The ESOP – Your Employees Your Partner

    Employee Stock Ownership Plan (ESOP) is a common method of raising funds through equity with its own advantages of creating an enthusiastic & dedicated working environment in the structure.

    As in equity financing, burdens like interest payment and service charges are not a concern once an equity purchase transaction is completed there is no extra cost to be bearable by an owner except an attorney’sfee (which also bearable by the equity buyer in some cases). This make equity investment more attractive.

    Vigorous Angelic Investors for the Stepping in to the Floor

    There are countless parameters that need to be taken into account if a business person needs funding. It is redundant to mention here that from a newly commenced start up to a bloated organization needs money in every phase of their growth.

    Angel investors are those individuals who render funds to a business structure on reciprocity with intend to procure convertible debt or ownership equity. They usually reinforce to business structures at their embryonic stages, where risks of failure are high and prepare it to receive funds from potential investors.

    What IT Says

    Coming to legal perspective, the business structures need to pay angel tax according to section 56(2)(viib) of the Income Tax Act, 1961 vide the Finance Act, 2012. According to it, the amount which will get excess of ‘fair market value ‘raised by anunlisted business structure will be treated as income and would be taxed at 30%. Introduction of above section was made at Finance Act, 2012 in the parliament for augmenting obligations to maintain transparency in diminishing of generation and use of unaccounted money.

    Venture One’s Fortune from Outset to Right Around the Development

    Unlike Angel investors Venture Capitalists are a division of an organization and usually consists of a group of financial experts instead of an individual with objective of visionary entrepreneurs. In Last few years several successful start-ups have taken it on trust.

    Venture Capital funds governs and regulated by SEBI Act, 1992 and SEBI (Venture Capital Fund) Regulations, 1996.According to section 14, Chapter IV of Securities and Exchange Board of India (venture capital funds) regulations, 1996 no venture capital fund shall issue any document or advertisement inviting offers from the public for the subscription or purchase of its units.

    Discretion of the Board

    The Board may at anytime call upon the venture capital fund to file reports as desired within stipulated time and conditions for observing activities carried on by the venture capital funds. Further, it may appoint one or more persons as inspecting or investigating officer to take on inspection or investigation of instruments related to venture capital funds.

    CROWDFUNDING – The Joy of Donation

    In recent years, this new concept has been remarkablyevolved. It is based on the power and wisdom of the crowd. It not only creates new jobs and enhance the country’s economy, also stimulate the investors to invest. Several social media and websites accelerate the investment by these pooled investors out with traditional investors i.e. entrepreneur’s family, friends and relatives as well as angel investors and venture capitalists.

    The GST – Conqueror of the Taxation System

    Goods and Services Tax (GST) is an indirect tax imposed on the supply of goods and services w.e.f. 01.07.2017. It has eradicated many of the indirect taxes i.e. Central Excise, Service Tax, Value Added Tax, Entertainment Tax, Luxury tax etc. It is a transparent system of tax administration. As GST merged all the previous taxes, business structure need only GST registration along with uniformity, simplification and a centralized registration.

    Easy Registration provides easy hassle-free registration with in no time. Entire process is online. The business structures having branches many states all over the India need not have to enrol itself with every state’s tax laws rather than complying a uniform GST law.

    Getting a Loan

    IT return along with GST filing enables a firm to get a loan from any commercial bank comfortably.

    Collecting Tax from Customer

    The primary benefit is of collection of tax legally and passing on to the suppliers is possible with the help of GST registration.

    Tenders Matter

    GST enabled firm easily can apply for tenders of State and Central Government.

    Intellectual Property – Key Aspect Towards New Things to Happen

    The modern industrialized nations are gradually converting into branded civilizations with distinctive recognitions.The said conversion is evident in this commercial arena, where the goods and service providers are categorising themselves as brands.Brand provides identity to a commodity or service and ensures uniqueness of a good or a service. It generates pledge on behalf of company to render equivalent quality of goods and services each time.

    Intellectual Property is basically non-physical and based on a human creation and hence it should be encouraged. Copyrights, patents, trademarks, and trade secrets are the most commoncategories.

    What Is the Need Behind This

    In case of tangible property any one can protect it easily with some shield or making boundaries etc or consulting with a security advisory body.

    Broadly there are four types of Intellectual Property which can protect your idea i.e.Trade Secrets, Trademarks, Copyrights andPatents.

    Trade Secrets - Its Worth to Value Information

    It can include any valuable information whose confidentiality should be cherished by its owner like customer lists, recipes and formulas, methods, formula, techniques, business plans, research and development information etc.

    Trademarks – Identity of Brilliance

    This refers to a distinctive type of sign, design or expression produced or provided by an individual or by a company.

    Copyright – A Right Given to the Actual Creator

    When absolute right to be provided to the creator of any innovative work, Copyright comes in to play. It basically stays alive in original literary, dramatic, artistic or musical forms. The copyright act 1957 came to effect from January 1958. Under the control of Registrar a copyright office has been established.

    Patents – A Path to Measure Inventions

    This type of intellectual property restrain others to make, use, sell or import an invention and help the inventor for a limited period of time. In every country there exists a patent law which comes under civil law. In India, The primary objective of patent law in ancient time was to encourage inventors to reveal their secrets vis-à-vis investments.

    HR Management Laws - Alternative to Fizzle Out

    Article 16 of Indian Constitution guarantees equality of opportunity for all citizens in matters of employment or appointment to any post under the State. No citizen shall, on grounds only of religion, race, caste, sex, descent, place of birth, residence or any of them, be ineligible for, or discriminated against in respect of, any employment or office under the State.

    HR managements play a vital role to grow a business in efficient manner. The onus is on the HR managers in each phase like recruitment, training, appraisal and grievance redressal.

    Payment of Wages Act 1936, Payment of Bonus Act 1965, Employees Provident Funds 1947 etc deals with the pay, compensation and rewarding of the employees. While The Factories Act 1948, Maternity Benefit Act 1961, Sexual Harassment Act 2013 etc deal with health and safety of the employees.

    Child Labour Regulation Act deals along with Article 24 to Prohibition of employment of children from workplace.

    These several laws help HR managers to comply the legal requirements of a business structure which smoothen the process of grievance redressal and creates a significantly amiable environment in a workplace to generate revenues for it.

    Content Inception Can be Your Legal Writing Partner

    As far as successful business structures are concerned, awareness of the legal aspects and correct interpretation of legal documents is absolutely necessary. With an in-house team of legal experts, Content Inception (CI) has been providing legal interpretation as well as legal writing services. Providing a plethora of content development services , the writers at CI are subject matter experts that ensure clear understanding of all the legal matters for precise documentation. For more information on our services and for a custom quote, contact us today.

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