Legal Guide

What Are The Legal Aspects Of A Business?

by Bhavya Choudhary · 4 min read

Legal aspects of business

Introduction

In India, several legal laws are mandatory to run a business effectively. They are considered to be indispensable, and these basics help to embark on a successful business journey.

For years, these laws governing every commercial startup have been imperative as they reflect the understanding and the policy hierarchy of the country’s business law and the Government. The legal aspects of Business ensure that the statutory structure of the country is parallel to the business framework.

Any new startup or existing organisation should follow and adhere to the legal aspects of the Business to frame its goals and objectives in the right manner. The Companies Act of 1956 regulates the factors that identify an organization and its obligations. 

Legal structure and selection of a Business

  • The initial step is to decide what type of Business is to be commenced. The owners and founders have to form a mutual decision about the specific business type, such as public limited, private limited, sole proprietorship, partnership, limited liability partnership, etc.
  • The type is selected at the beginning to ensure the business can set its objectives and goals accordingly and can take prompt actions in the short /long term.
  • Before incorporating any business or organization, it is very crucial to understand and acknowledge that each type has its own set of instructions and regulations, which are to be followed accordingly. The legal aspects of Business are introduced as the base of any organization.
  • It is preferable to have a founder’s agreement as its first step. It is a document that outlines the roles, duties, obligations, exit clauses, and operational and executional details of a company and its owners. 
  • It reduces the chances of confusion and litigation while running an organization. The legal aspects of Business act as a definitive foundation to scale any business.

Choosing Business Licence

  • For running a business smoothly and efficiently, licenses are a fundamental necessity. Several licenses are available for businesses depending on their scale and type. 
  • In the legal aspects of Business, it is mandatory to obtain the required licence beforehand to avoid unnecessary lawsuits or business altercations.
  • Business law is introduced to help an organisation operate freely. The Business must be registered with the concerned official registrar to come into effect legally. 
  • The Shop and Establishment Act is applied to every Business where any trade, service, or profession is exercised. There are various licences applicable that are under the legal aspects of Business depending on the type of industry.

Some common licences are:

  • Service Tax registration
  • VAT registration
  • Food Safety licence
  • Health trade license
  • Prevention of Food adulteration Act

Accounting and Tax Laws

  • The legal aspects of business state that Certain business types have to pay taxes on their operation depending on the scale and nature. There are state tax, local tax, or central tax that applies to their working sector.
  • The Government has recently announced the Startup India initiative that will promote new business startups and exempt a few taxes on their operating sector.
  • The book of account should be maintained comprehensively, with every record entered on a timely basis to avoid future complications.
  • Every legal aspect of Business mentions that ensuring the auditing of accounts decreases the chances of account discrepancies. The invoicing and accounting can also be made using different kinds of software online, which increases efficiency and production.

Acknowledging Labour laws

Several labor laws are the legal aspect of Business that come into effect when an organisation hires an employee under it for any duration. The owner or the founder must take legal advice from the company lawyer to assess each law that applies to the company. Acknowledging and understanding these labour laws are another legal aspect of Business.

Nine laws are applicable under the Startup initiative by the Government. These are

  • The Trade Union Act, 1926.
  • The Industrial Disputes Act, 1947.
  • Building and other construction workers Act, 1996 (Regulation of employment and service conditions.)
  • The payment of the Gratuity Act, 1972.
  • The Industrial Employment Act, 1946.
  • The inter-state migrant workmen Act, 1979.
  • The Contract Labour Act, 1970 (abolition and regulation.)
  • The Employees State Insurance Act, 1948.
  • The Employee’s provident fund and miscellaneous provisions Act, 1952.

Startups may also hire part-time employees or freelancers to complete the tasks; all the policies should cover details of employment also. It helps in increasing productivity as the employees stay loyal and morally boosted. The Government offers startup tax exemptions and laws to facilitate the legal aspect of the Business.

Intellectual Property Protection

  • Every Business has its intellectual property or trademark information which is secret and very confidential. These include data, codes, contracts, algorithms, and any kind of research finding.
  • Many technologies and schemes have emerged to safeguard the company’s interest which is subjective to the legal aspects of a business. 
  • The organization founder can nominate a power of attorney to formulate security and envision the use of proper commercialization of the property.

Contract Management

  • The contract ensures smooth running and avoids conflicts between the parties, who are either founder or the owner. It helps to determine the terms and conditions of an organization and acts as a crucial part of the legal aspects of Business in India.
  • The management and contract have a lot of legal provisions to be followed, and they can take legal advice from a company lawyer to understand the rules regarding the legal aspects of a business. 
  • Non-disclosure contracts are also very necessary between an employee and the company to keep information secure by prohibiting sharing of any kind of data or sensitive information.
  • The NDA should also be adapted in case the company has a power of attorney to verify that the data will be safeguarded for the company.

Conclusion 

There were several myriads of challenges for the company when it commenced. These are controlled by the laws imposed by the Government. Any kind of negligence with the legal aspects of Business can cause long-term side effects.

Taking legal consultation can help solve queries as there are different types of lawyers for each domain. They will help and guide the client throughout the procedure.

Bhavya Choudhary

Written by

Bhavya Choudhary

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