To set up a business in a country like ours is no minor feat, especially if you are a startup entrepreneur. As a budding entrepreneur, you may not have the required legal knowledge about businesses and all the legal necessities. For this purpose, you can take the help of business setup services in India, a lot of these firms have popped up, thanks to the increasing number of startups. These firms offer all the legal advice you would need as a businessman.

In the long run, you are surely going to need the assistance of a lawyer in all your business endeavors. We have curated some legal tips and tricks which you must know as a future businessman.

• Form of Business: A lot of young entrepreneurs make no haste in choosing the private company form of business for their startups. Business in India is full of legal hassles and complexities when it comes to private companies. There are other forms of business as well, about which you should know a thing or two. For example, you are into lesser trouble if you have your enterprise registered as an MSME (Micro, Small and Medium Enterprises) or an LLP (Limited Liability Partnership).

These forms of business have comparatively less legal formalities. Additionally, these forms of business also have some rebates when it comes to taxes. Various points need to be considered when deciding the form of business. These include the type of business being pursued, the number of stakeholders, future growth and expansion plans, etc. 

• Founders’ Agreement: You have your team of the best co-founders. Now, you and your team need to have a well-defined founders’ agreement. The harsh truth is, a lot of startups meet a disastrous end. Why? Because of disagreements among the co-founders. That is why it is important to have a founders’ agreement.

Many corporate lawyers argue that this agreement is more crucial than incorporation itself. For this, you can consider a lot of budget-friendly business setup services in India. These services are well versed with startups and are also economical. This founders’ agreement will save you from a lot of headaches in the long run.

• Licenses & Clearances: Depending upon the kind of business you are engaged in, you will have to procure necessary clearances and licenses. These are obtained from the respective state governments as well as the union government. The most important of these licenses is the PAN (Permanent Account Number). This number is used to identify your enterprise in the records of the Income Tax Department. Getting a PAN is mandatory for all businesses.

Other than that, various licenses are dependent on the kind of goods or services you offer. You need special licenses if you are importing and exporting goods. Similarly, if you are operating a restaurant or another identical business, you need a different set of licenses. Not having the right kind of licenses can land you in big and troublesome litigation hassles.

• Accounts & Taxation: Improper accounts lead to poor financial management. Not only that, but it also leads to poor assessment of tax liabilities. Wrongly assessed tax liabilities are enough to put you on the radar of the Income Tax Department. Additionally, any inconsistencies in your accounts will only worsen the situation for you. Any transaction which the authorities find suspicious will pave the way for costly tax litigation. Even worse, it could lead to business closure.

Always make sure that your books are well maintained and you meet your tax liabilities on time. For this, you will need a good accountant at the least, if not a CA (Chartered Accountant). Not only will you meet out the necessary legal obligations, but also efficiently manage your funds.

• Third-Party or Vendor Contracts: A vendor is someone from whom a business procures goods, services, or both. These contracts are generally entered into at the initial stages of business. Vendor contracts generally outline all terms and conditions between you and your vendor or supplier. You must be careful when signing these contracts, as there could be hidden clauses in them. These clauses could land you in trouble in the future.

Unprecedented price rise and termination of services without prior notice are just some of the troubles caused by faulty contracts. Sometimes, people enter into what is called an unenforceable contract. As the name suggests, these contracts have no legal enforceability. As a result, money spent on your end honoring these contracts could be a total waste.

Learn some basics of contracts, as you could be entering into a contract every other day in the future. This will provide you with a strategic edge against your competitors.

There are several hassles when it comes to startups. These hassles have acted as an entry barrier when it comes to new businesses. Even though the government is taking steps in this direction, they are still not enough. This has made basic legal knowledge a prerequisite for every entrepreneur.

This article is written by Amy Johnes- A legal expert at Ahlawat & Associates – the best law firm for company secretarial services in India.