7 Critical Legal Hassles that Every Entrepreneur Should Be Prepared For
Amongst the many new trends of the last decade, the one wave of change that has stayed is the Start-Up culture. While corporate organizations’ 9 to 5 jobs or secured government jobs have always been the safe choice for a major chunk of the population, there has been a massive boost towards the start-up work culture.
132Creating a brand name and executing innovative ideas for the contemporary times have become a vision for many individuals. Although the job of being an entrepreneur is not a cakewalk, there are many legal hurdles and hassles that disrupt the process and need to be dealt with. From the loopholes in the agreements to the trademark infringements, legal hassles are bound to arise.
While the list is not exhaustive in nature, since it largely depends on place and mode of operation, the number of employees, and the nature of the business, there are 7 critical legal hassles that you should brace yourself from and be prepared to tackle as an entrepreneur.
As the name suggests, it is an agreement entered into by the founders of the company or organizations or a start-ups enlisting their rights, profit and loss share, liabilities, obligations, dissolution, to name amongst the few. While there exist company agreements and memorandums, the primary essence of a founder’s agreement is to regulate the relationships of the co-founders.
It strives to establish clear demarcated lines of primary responsibility and functions to enable a smooth and effective management system. Also, it ensures each of the co-founders has clear obligations and corresponding rights. Further, it is essential to determine equity ownership, profit sharing, ownership of shares, assets, and funds, and liabilities for loss from personal property. While this is a subjective issue, however, it is advised to pre-determine with the consensus the money issues.
The issues that may mushroom around a founder’s agreement are:
- Profit-sharing and equity.
- Ownership of assets.
- Nature of liability in the event of loss, winding-up, etc.
- Responsibility and obligation of dealing with a particular matter or a client.
- Place of operation of the business and dealings thereto.
- Conflict of rights amongst co-founders.
- Over-selling of the brand owing to incomplete knowledge.
While the issues may vary on a case to case basis, it is important that you ensure smooth functioning by putting all relevant information in black and white.
When venturing into a new business plan or idea, entrepreneurs often, in the view of good faith, end up sharing their business ideas, strategies, trademark or other relevant details with the people assuming that the conversation is protected. This, in turn, has massive side-effects in terms of competition and implementation of the idea.
Imagine you have a brilliant idea to venture for your own business, so while you are setting up the foundation for your business, you disclose the details to one of a supplier or family friend and they either work on the same idea or provide that idea to a third party or may steal your business name which you intended to get registered. To protect this misuse of good faith, it is advised that every entrepreneur should swear by a non-disclosure agreement.
A non-disclosure agreement extends protection to the confidential information shared with a third party, as a prospective client, business partner, dealer or a friend. It may include the business idea, plan of implementation, strategies to expand, proposed trade mark, trade secrets, patent invention or technical data, amongst various others.
A Non-Disclosure Agreement or NDA is a legally enforceable contract i.e. you can approach the court in an event of a breach of contract. It establishes confidentiality between two parties, namely the owner of the protected information and the recipient of the protected information. A Non-Disclosure Agreement imposes obligations on the recipient of the information to:
- Not divulge or publish or release or communicate the protected information except without prior consent of the owner;
- To protect the confidential information;
- To not copy, use, modify, alter the information in any way not authorized by the owner of the confidential information.
- To not benefit in any way by slight modifications of the confidential information;
As an Entrepreneur, you can avoid trademark issues, anti-competitive practices, other legal issues, and primarily protect your business idea and trade secrets with the aid of a non-disclosure agreement.
At the outset, it is important to understand what can be covered under the Intellectual Property. It primarily extends to Trademark, Copyright, and Patents.
- Trademark refers to a mark, sign or symbol that you intend to identify your brand with. It is exclusive and is indicative to the public of a particular brand name.
Generally, each company bears a name, a logo or a mark used to identify themselves. This mark is capable of trademark registration if it is unique. The legal hassles you may face is that of the trademark infringement or the registration rights with the third parties. It is, therefore, necessary that you conduct a preliminary IP search on the online portal before employing a name or mark. Once decided upon, you should immediately file for its registration.
- Copyright is the legal right conferred upon a creator of creative work. It is relevant to note that copyright exists in the expression and not idea per se. An idea, no matter how brilliant cannot be protected by law unless it is put in form i.e. clothed with expression.
You can also claim Copyright protection in case of literary, dramatic, artistic works or music or sound recording, etc. You can claim protection for ideas that have been expressed or put into form.
- Patent is an exclusive right given for a novel idea, which has industrial applications and involves an inventive step.
- Further, if you have developed a device or software or made an invention which can be registered as a patent, you should contact your lawyer to check if the inventive step meets patent guidelines stipulated in your country, and propose its registration to enjoy exclusive usage.
Depending on the type of your business, you may need to employ measures for different intellectual property rights protection.
As the name suggests it refers to the various compliance you are subjected to in order to effectively regulate your business. The aforementioned compliances may differ based on the nature of the organization, the kind of work, the laws applicable and the strength of the team. What applies to you can be researched with reference to laws and rules or you can give this task to your lawyer.
What regulatory compliances essentially ensure is the smooth functioning of the organization in the long run. There are policies and rules, on day-to-day issues and matters which may seem trivial in nature, nonetheless, they operate as rules of your organization and aid in the employer-employee disputes. They range from sexual harassment policies to access control policies, reimbursements policy, guest policy, lost and found policy, TDS policy, GST policy, fair usage of premises policy and Internet Policy amongst thousand others on basis of your operation of business and management thereto.
With set rules and regulations already in place, and adhered to by the employer and employee, trivial issues or essential legal disputes and hassles within the organization can be dealt with effectively to ensure smooth functioning. It is important that these compliances are brought into the knowledge of the joinee upon joining, or eventually, in the event of any modifications or alterations.
Adhering to Labor Laws
Another key aspect of the regulation of employer-employee relationships lies in adherence to the Labor Laws. Labor Laws primarily deal with essential regulations and laws that require compliance to ensure that the employees/workmen/laborers are not exploited. While the laws applicable will differ on the basis of the industry, there are a few general laws that need to be adhered to.
- Maternity Leave: Depending on the number of employees, the maternity leave will either be 12 weeks or 26 weeks, paid or unpaid, ensuring retention of job profile on return.
- Working Hours: To ensure well-being, the maximum number of hours stipulated by law is 48 hours a week which can be increased in the case of over-time.
- Sexual Harassment at the workplace: The law considers sexual harassment at the workplace a criminal offense. Laws and regulations need to be framed and adhered to along with setting up of a regulatory body if there are a specified number of employees.
- Employment of Child Labor: You cannot employ a child below 14 years of age. Further, you cannot take the defense that the applicant misrepresented his/her age as a duty exists on your part to ascertain the age.
- Weekly Holiday: Workers are entitled to 24-hour rest in a week. However, in the event of exceptional circumstances on account of the substitution of a holiday, the weekly rest day should be given in 10 days.
- Remuneration/Wages: The wages should be just and in proportion to the work to be paid weekly, fortnightly or monthly, as decided.
- Suitable Working Conditions: The place should be well-lit, properly ventilated, clean, and provide suitable machines or appliances. It should have a facility of clean drinking water and washrooms.
You may be subjected to additional Labor Laws under various legislations depending on the nature of the work. It is advised that you run a thorough check in regards to the laws applicable to avoid any litigation on account of violation in the future.
While no one begins a business venture with a plan to dissolve, you should always be prepared for future contingencies or uncertain events and have a dissolution plan in place. It ensures that the dignity and goodwill of the organization are not compromised with over the disputes and fights at the time of dissolution. What it essentially needs to include is:
- Division of equity, funds, money, business property, etc.;
- Discharge of Liabilities;
- Distribution of assets, the proportions, and shares;
- Disposition of shares, bonds, debentures;
- Rights over trademark, goodwill, brand name;
- Division of clients in the event where the dissolution gives way to separate entities still in operation;
- Provision for adjudication of disputes and desire to refer to arbitration, if any;
The factors aforementioned are merely guiding in nature. Your dissolution plan can extend beyond the following. However, it is important that you have a dissolution plan so that the groundwork is already laid down and every one operates in accordance with the plan.
Lastly, another major player in giving rise to legal hassles and disputes is taxation, the policies, and implementation. With the GST in force, you need to identify in which tax slab your products and services fall into. Once determined, the next step is ensuring you have a legitimate billing and account system wherein the correct GST is charged. You may have multiple tax rates applicable, on the basis of your products.
Further, you need to disclose your income and profits to the government and pay taxes proportionately. It is advised to pay taxes on time to avoid any late payment fees or penalties. You should also file for income tax returns after a clear assessment. In addition, thereto, you are also liable to pay taxes when you procure goods or basic necessities from suppliers and dealers.
You should not make attempts to evade tax, like not giving proper bills or non-disclosure of assets or income or profits. This may give rise to legal hassles including charges for criminal offenses and penalties.
The aforementioned 7 legal hassles are not exhaustive in nature. You may face a lot of legal hurdles and issues during the operation of your business. The list is meant to be a guiding factor to give you an insight into a few basic hassles you can easily avoid by taking appropriate measures and steps. As an entrepreneur, it is advised for you to strong-arm yourself with relevant legal protection to safeguard yourself from any future legal action or litigation that may disrupt the smooth functioning of your organization.