Why it is important for startups to comply with legal requirements?

Why it is important for startups to comply with legal requirements?

July 23, 2022 By Dinesh Parmar

With the ambitious push towards a Self Reliant India(Atma Nirbhar Bharat) through schemes like Start-Up India, PM Mudra Yojana, the Indian Government has ushered in a new era of entrepreneurship in India. As per Economic Survey 2022, “Startups in India have grown remarkably over the last six years. The number of new recognised startups has increased to over 14,000 in 2021-22 from only 733 in 2016-17”. Also, India has the fastest-growing startup ecosystem in the world. A Record 44 Indian Startups achieved unicorn status in 2021.

Seeing these staggering numbers & profits, a plethora of startups enter the market every year, and a number of startups with bright futures crash tumbling down each year due to one major reason: Compliance.

A load of startups in the rush for making quick money & achieving the coveted unicorn status often ignore the basic legal requirements like startup company registration & get trapped in legal hurdles resulting in the shutting down of business in extreme cases.

There are a multitude of reasons for a startup to comply with the regulatory needs & ensure that the business is able to sustain itself. Let’s have a look at the required reasons for legal compliance.

1. Prevent & Effectively Mitigate Litigation Troubles

Let’s be obvious, no one wants to get into the litigation hurdles in any business. It drains a vast amount of resources, time & effort. Not to forget, the toll it takes on employee motivation & business futures. The best way to prevent or mitigate the risk is to hire a corporate lawyer or firm that has expertise in the handling of such situations deftly. The legal part starts from as early as startup registration.

2. Create a Safe & Secure Work Environment

Gender discrimination, sexual harassment, and employee conduct are some of the important issues in modern times, especially in cases of start-ups, that need attention. These startups often lack proper organisational structure, have partial knowledge of laws & policies related to such issues, and in many cases don’t have a framework or department to deal with them. Any complaint or grievance by any employee or ex-employee that brings unwanted limelight onto the startup is simply bad & hampers future prospects of the business. A legal department equipped with startup lawyers or associations with a corporate law firm can help effectively address such issues & prevent them from escalating further. This in turn greatly aids in creating a safe, secure environment for the workforce which automatically boosts their motivation & performance as well.

3. Fuels Future Prospects & Growth

A startup with a legal department or legal tie-ups with corporate law firms, is in a much better place to deal with the legal cases should they arise. It also makes sure that various laws of the land are adhered to. A legal department is also helpful in cases where certain policies like non-compete clauses, startup company registration, employment contracts, and company policies & terms are to be framed. They tender the much-needed advice to prevent any legal hassles further down the line. A startup which complies with all legal & regulatory requirements follows proper documentation, comes across as a transparent workplace, that helps build trust, confidence & loyalty in the consumers & market. This in turn significantly boosts the chances of receiving much-needed investor funding & greatly increases the business survival chances of startup, which leads to it being profitable in future & maybe being the next unicorn.

4. Company Image

It is no secret, that each business wants to make profits & grow at a rapid pace. This can only happen when it builds a solid reputation in the market, is a great workplace where employees feel they are needed, and investors feel there is potential in the startup. For all these to occur, a company must have a great image & stay away from legal issues & bad spotlight. But still, some crises might be inevitable, to effectively mitigate them or prevent them in future, legal advisors for startup are necessary. They also help in responding effectively to the evolving challenges in the industry.

Some Legal Laws To Abide By:

With the above learnings, it is quite clear why should startups comply with legal requirements. Now the big question arises as to which laws, in particular, should a startup adhere to. There are many laws that need to be taken care of, but primarily there are a few which are a must. They are namely Companies Act 2013, Goods & Service Tax related laws, Income Tax laws & Labour Laws. These mainly pertain to the work conditions, the taxation & revenue part, the legal requirements of company registration, operations & structure among others. A legal services firm or startup lawyer would easily be in a position to help the startup comply with such laws.

Who can help:

The million-dollar question is who can help or who should be opted, a legal department, corporate lawyer or an entire firm? Well, the answer depends on multiple factors be it the size of the startup, startup registration & policies, the stage it is in, the revenue, or the industry it is catering to. Initial stage startups might just need some in-house legal experts, as the business grows the startup might choose to go for corporate lawyers or corporate firms. A large profitable business is bound to catch eyeballs & might run into legal troubles. A team of dedicated legal experts like ours can help fight these battles with ease & also formulate policies for successful management of such cases.

Final Thoughts:

The startup boom is real & is going to grow bigger with time, what is needed is that in the spurt to make profits & grow bigger, one doesn’t ignore compliance norms. Legal professionals act as a guiding beacon in such cases & also assist in times of need, they act as mentors who ensure that as the business grows they remain within the confines of the law. If you are a startup & looking for legal advisors, interact with us & see the difference.

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