Complete List of Legal Requirements Before Starting Your Company

Legal Requirements for Startups in India


Effective start-ups are powered by committed founders who are focused on building innovative ideas that offer consumer delight. Although it is very necessary to have a strong concentration on consumers and the industry, it is equally vital to have a complete understanding of the basic laws, regulations and rules that contribute to the smooth operation of the business.

Starting a company is a difficult job. It needs many legalities and procedures that have to be followed in order for the company to operate easily and to make full profits. First of all, a company that actually steps into the industry needs to have a solid base.

It is necessary that entrepreneurs are informed about the latest laws regulating their business and industry. Here are some significant legal concepts that start-ups and entrepreneurs in India must be informed of before starting work on a startup:

1) Choosing a Business Model

The first thing to start a company is to be specific about the nature and type of the company. This is an essential decision: the right form of business enterprise would benefit your business strategy and help you boost your business expansion. You will also be able to avoid high tax taxes and avoid personal liability in the case of failure.

Founders would need to incorporate the company as a particular form of business – sole proprietorship, partnership, private limited, public limited, limited liability partnership, etc. It is really important to have this clarification from the beginning, as this would be a vital part of the vision and priorities of the organization, both in the short and long term.

Each type of company comes with its own set of legal rules and requirements, and companies should pay particular attention to them before starting up the business.

Another key question that new entrepreneurs should be asking themselves is whether they are looking to obtain external funding or to bootstrap their company. A private limited partnership is an ideal choice for start-ups looking to generate funds, as it has the flexibility required to handle external investments and company shares.

2) Licenses and Permits Needed to Start a Business

Licenses are an important part of running every business. Several licenses are available in India, depending on the type, scale and nature of the business operation. Recognizing and obtaining the appropriate licenses for your start-up will always be the right way to kickstart a company.

The common license available to all companies is the Shop and Establishment Act, which applies to all premises where trade, service, or business activity is carried out. Other business licenses differ from business to business. Some of the basic licenses are:

GST Registration:

The most common type of license is GST registration. This License is accrued by the business houses which are involved in the E-commerce business and the business which has a turnover of more than 20lakhs for service and 40lakhs for goods oriented business.

Udhayam Registration: 

Udhayam registration is a recent Government program to help small enterprises. The Udhayam registration has come as a replacement for Udyog Aadhaar Registration/ SSI Registration or / and MSME Registration. Once Udhayam registration has been registered for a company, it may benefit from various subsidies and schemes specially offered by the Government to support small businesses in India.

FSSAI License or Registration: 

FSSAI represents the Food Safety and Standards Authority of India, an independent body under the Ministry of Health and Family Welfare of the Government of India. The Food Safety and Standards Act, 2006 was implemented with the sole aim of promoting food hygiene and safety in India.

FSSAI registration process has been increasingly necessary for businesses. Even online food distribution apps such as Zomato, Swiggy and UberEats allow restaurants to enroll with them only if they have an FSSAI license to ensure the hygiene of the restaurant.

Import Export Code

Any company operating in India associated with the import and export of products for business use is expected to have a 10-digit Import Export Code. Import and export code is often referred to as IEC code. Import Export Code for Lifetime Validity

The  IEC Code is provided by the Directorate-General for Foreign Trade (DGFT), an independent entity under the Ministry of Trade and Industry, Government of India.

Shop and Establishment Act License

The Shop and Establishment Act was established to govern the conduct of industry, such as operating hours, child labor, payment of salaries, protection and general health of workers. License or registry of the Shop and Establishment Act shall be issued by the Governments of the State and shall vary from State to State. Therefore, on the grounds of the State in which the company is located, the government authority concerned must be consulted to acquire the Shop and Establishment Act Certificate.

3) Better Understanding of Taxation and Accounting Concept

Taxations are part and parcel of any kind of business. There is a wide range of taxation, such as central tax, state tax and even municipal taxes, which may apply to some companies. Different business and operational sectors are attracting various taxes, and understanding this beforehand can prove beneficial.

The Government of India recently initiated the ‘Startup India’ program to encourage start-ups and implemented a range of exemptions and tax holidays for start-ups and new enterprises. Under this initiative, start-ups can benefit from income tax exemptions for a term of 3 years, as well as tax deductions for earned income and investments below Normal Market Value.

4) Ensure Rights of Intellectual Property

Intellectual property is the secret formula for most companies today, particularly tech-centric companies. Codes, algorithms and scientific results, among others, are some of the most popular intellectual properties held by entities. Startups can utilize the ‘Scheme for Startups Intellectual Property Protection’(SIPP)  under the Startup India program.

The scheme was established to promote and mentor creative and emerging innovations among start-ups and to help secure and commercialize intellectual property. In order to implement the scheme effectively, the Facilitators have been named by the Controller General for Patents, Trademarks and Design.