May 9, 2008

Legal Compliance for a Startup - Part I

Being in a startup, we have come to know that along with day to day technical, marketing and other difficulties, Legal Aspects are so very important. Today, we have a guest article by Gaurav Singhal , Non Executive Director of Siddhast Intellectual Property Innovations Pvt Ltd, a company specializing in providing services in IP Consultancy, Strategy and Legal Consultancy.More details about Gaurav can be found here.So, let's start off with the article !!!

It’s a vast topic to be covered in few lines. When we move towards the naming of the venture, from that day by itself Law comes into existence, as one needs to get it registered; so that (s)he can get some exclusivity for that name and further that could help him to distinguish his company from other’s.

Let us integrate each step about how an entrepreneur should take when (s)he just thinks of starting out of his/her venture; to the level when (s)he institutes his/her venture with the Legal purview.

In this article, we would touch upon legal aspects from the stage of Idea generation to Incorporation[Pre-Funding stage].

Some of the basic elements to remember are:

Your Idea may not be YOUR idea :
One fine day, you get a nice idea and write it on a piece of paper.Here comes the Intellectual Property law, particularly Copyright law in particular. A person as (s)he writes also gets a copyright over it. But (s)he needs to get it in the shape, so that it can be used in the legal transactions and documentation as well. So, (s)he should get it copyrighted from the Registrar of Copyright. The idea need not be too abstract but it should have some specific representation.

Form a team to work out :
Get into agreement with all the team members clearly stating the purpose of the agreement and what would be the Initial share percentage if the venture works out. Try to get every liability right on paper, which would make the work smooth and well going.

Draft a Business Plan :
In drafting the business plan, one of the most important component is that it should be according to the law of the land where you are instituting your venture. The various time Lines should also to be included for that purpose. Even every small decision could be struck by the Legal structure, like if there are low prices of land and Tax Holidays in N-E but the labor laws are too tight for your industry then you can’t choose it. Or if the basic manufacturing of the product of your future venture is barred by the regional law or the Environmental laws then again, you would be debarred to practice it.

Disclosure of Business Plan :
Whenever you are disclosing the plan to anybody please get a Non Disclosure Agreement signed; otherwise it would be like throwing your idea in front of dogs to bite off cry.

Getting Funded :
Here it is important to decide whether you are going to get the fund from Bank or Venture Capitalist[VC] or some small investors. Every thing should be crystal clear in the Funding Agreement. Even a person should check out , if there has been any funding agency which is giving some special rebates for a particular industry in Legal Compliance w.r.t Environmental aspects or other financial law, taxation law or any other legal machinery.

Thanks Gaurav for all the insights and I hope you enjoyed reading the article, just like me biggrin This article would be followed by another article, which would focus on the other legal compliances ,to be kept in mind after the Post-Funding stage.

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At May 10, 2008, 11:00:00 AM , Anonymous Prateek Dayal said...

Interesting post . but I am not sure about NDA for business plan. As I have read, most VCs don't have the time or energy to do it. If you are outsourcing some work etc .. yes it makes a lot of sense

At May 11, 2008, 1:36:00 AM , Anonymous Himanshu Sheth said...

@Prateek: Nice to see your comment on my blog :) I also felt the same about the NDA since, we have also met a couple of guys.

It would be nice to see the next article from Gaurav.

-Himanshu Sheth

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