15 Important Legal Documentation for Startups in India

In the eyes of the Law in India, proper and correct documentation is what establishes an entity as a valid legal entity. Subsequently, even for a startup in India to be established and recognised as a legitimate legal entity with rights and duties there is a list of legal documents required. Once you have come up with a business idea selected a business model and then finally plan to take your idea into action through business incorporation, the next step is to understand the legal aspects of a startup that will help you establish and protect your business interests.

Following are the essential legal aspects for a startup -

• There should be documentation recognising the existence, type and structure of the startup. 

• There should be documentation protecting the startup, what the startup produces/provides, permissions to carry out services/productions and protection for the rights of the startup.

• There should be proper, valid and signed agreements.

• There should be proper compliance with the legal statutes and guidelines.

• There should be proper registration of the startup with the appropriate authorities.

• Under the Startup India initiative, to be recognised as a Startup the company has to be Incorporated as a Private Limited Company, a Registered Partnership Firm or a Limited Liability Partnership.
  

Comparative Analysis: Exploring Various Company Types for Startups in India

Company Type	Benefits	Drawbacks
Sole Proprietorship	This type of company has a single proprietor only. The owner and business are the same in the eyes of the Law. The regulations are very lenient. It can be beneficial for its cost-effectiveness and flexibility.	It is a risky venture, and unsuitable from a legal standpoint as the entire liability rests on the proprietor. But from a taxpayer's point of view, it can be very beneficial as it is exempted from corporate tax and only personal income tax liability is applicable.
Partnership Firm	This type of firm requires a minimum of 2 members to incorporate. Each partner has unlimited liability and any profits or losses will be shared amongst each as per a mutually agreed ratio. It is incorporated through a partnership deed.	However, it is not a separate legal entity and its existence is dependent on the partners. Without clear agreement outlining exit strategies, roles, responsibilities, etc., conflicts can arise. A member’s death/insolvency/retirement may lead to the dissolution of the firm.
Limited Liability Partnership	This type of partnership also requires a minimum of two members to incorporate, with unlimited liability. It is subjected to lesser obligations compared to private companies. It is a separate legal entity	Public Disclosure is a very big disadvantage of LLPs. It will have to be dissolved in case only one partner is left. There is no flexibility to hold over profit.
One Person Company	A person can form a one person company with limited liability. This helps mitigate the risk of unlimited liability while also encouraging entrepreneurship. This option of company is only available to Indian citizens. It enables the owner with complete control over decisions and offers a simple and streamlined manner of business.	It can only have one director which limits the scope of business. It does not always enjoy the same credibility as is offered to other existing types of companies. It is suitable only for smaller business models. It cannot be converted to a non profit organization.
Non-Profit Organization	Non-Profit Organizations are established to serve charitable purposes. Also known as Section 8 companies, they are transparent in nature. Such companies are not allowed to allocate their profits to their members. It is a separate legal entity, with access to tax benefits.	Any profit earned by such companies cannot be allocated to its members. The prime objective of this company cannot be earning profit. It is governed by strict compliances and norms.
Private Limited Company	It is a company that has special legal status and is a legal entity in its own right, separate from the identity of its owners. The business, not the owners, is the owner of its assets, obligations, and earnings. It has a reduced risk of liability.	However, it has far higher set-up costs, and a larger administrative burden. It is open to public scrutiny and it has a duty to have transparent financial reporting.
Public Company	It is a company that publicly traded their stocks on the stock exchange market, and can have unlimited members join in simply by purchasing shares. Its benefit is raising capital through the public and spreading the risk.	It has far more regulatory requirements, such as the appointment of a suitable company secretary and a compulsory annual general meeting. There can also be struggles for ownership and disputes over control.

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Following is the list of the 15 essential legal documents required to open a company in India:

1. Certificate of Incorporation - Makes the business valid, and makes it come into existence. It includes the name of the business and abbreviations, if any along with a statement of purpose. It is provided after all the steps to incorporate the company have been completed. It includes the name of the company and its abbreviated forms, along with a statement specifying the purpose of the business.

2. Non-Disclosure Agreement - It is a legally binding contract between two parties that establishes a confidential relationship between the said parties. Such an agreement is aimed at protecting the trade interests of a company and therefore, plays a very key role. It identifies confidential information and lists down guidelines to maintain the same. It also specifies the time period for which such an agreement is binding. Since it is a legally valid and binding contract, it also subsequently has liabilities for breach of the non disclosure agreement. 

3. Director Identification Number - Is an eight digit unique identification number with a lifetime validity which is allotted by the Central Government to any person intending to be the director of a company. Each director can only be allotted one unique identification number. 

4. Permanent Account Number - This is a ten-digit unique identification alphanumeric number assigned to entities that are liable to pay tax. A PAN card issued to a company is different from those issued to individuals. It includes the name of the corporation along with the date of incorporation. It is used for corporate taxation and business transactions.

5. Good and Services Tax Registration Number - This is a distinct 15-digit identification code allotted to each taxpayer (any business entity) registered under the GST regime. It is based on the state code, PAN, entity code, and check digit. It provides legal recognition of the business entity as a supplier of goods or services. It ensures that the business is compliant with tax norms.

6. Shareholders Agreement - This document determines the relationship between the shareholders and also proves beneficial in case a co-founder decides to leave the company. 

7. Trademark - Assists in building the brand, and seeking protection for the company name and brand. It prevents competitors from stealing the brand name or concept.

8. Article and Memorandum of Association - The Article of Association constitutes a legal deed that incorporates the legal norms, rules, and process for the management and operation of a company. The Memorandum of Association is a legal document that builds the foundation of the existence of a company. It calls for the documents for forming a company that outlines its objectives and fundamental details.

9. Founders Agreement - The agreement should specify the founders’ relationship, the likelihood that all work will eventually belong to another organisation, and a basic communication and conflict-resolution provision that will help avoid conflicts.

10. Intellectual Property Agreement - Intellectual Property is an inclusive term for intangible assets or assets that are not physical. An individual’s intellectual property rights are infringed when a third party engages in unauthorized use of the asset. Startups often rely heavily on intellectual property, as the company’s portfolio evaluation is what attracts reputable investors. It is important to have full control of intellectual property.  It is usually in the form of Patents, Copyrights, Trademarks, Franchises, and Trade Secrets. 

11. Employment Agreements - Employment agreements form the basis of the personnel in the organization. It consists of the rights and obligations of the employees and also contains guidelines as to how disputes would be resolved within the organization.

12. Licenses - Any company must also have licenses to operate. Several licenses are applicable in India, depending on the nature and size of the company. Lack of applicable licenses will result in expensive litigation and needless legal battles. 

13. Bylaws and Business Plan -  Every company requires a set of operating rules or principles that govern the area. Bylaws serve as these rules. Business Plan refers to the type and structure of the business and protects from liability.

14. Website Terms and Conditions - It is an agreement between the website proprietor and the site’s users and contains restrictions on how the portal may be used.

15. Employee Identification Number - Issued by the Income Tax Department to both businesses and non-profit organizations for taxation purposes.

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Frequently Asked Questions (FAQs) about Startup Registration in India:

Question) How to start a private limited company in India ?

Answer) To start a private limited company, the first step is to apply for a Digital Signature Certificate, then to apply for the Director Identification Number, next step is to apply for name availability, then file for the AOA and MOA to register the company, then apply for the Permanent Account Number, then finally the Certificate of Incorporation is issued and the final step is to open a current bank account in the company name.

Question) What are the documents required to register a company in India ?

Answer) To register a company proof of its existence and ownership is required. This proof can be provided through various documents including Identity Proof, Address Proof, Residence Proof, Notarized Rental Agreement, NOC from the property owner and a copy of the sale deed or property deed (for own property).

Question) How many people can form a private company in India ?

Answer) In a Private Company, a minimum of 2 directors and 2 members are required. All these members have limited liability and the maximum number of Members has increased from 50 to 200.

Question) What is compulsory for a private limited company in India ? 

Answer) Under Section 134, all private companies must hold an annual general meeting. These companies are required to keep their meetings within six months from closing their Financial year.

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