Legal Compliances for Software and IT Companies

Last Updated at: Jul 06, 2021
Legal Compliances For Software And IT Companies

The Indian Parliament has passed a recent bill to amend taxation laws. The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Bill 2020 will replace the Taxation and other Laws (Relaxation of Certain Provisions) Ordinance, 2020, promulgated in March. It seeks to make faceless assessments applicable to at least eight processes under the I-T Act, including for collection and recovery of tax and gathering of information.


It is said we as a modern civilization, are still on the brink of human imagination and possibilities.

With the emergence of several initiatives like Start-up India, Make in India and Digital India there has been a renewed importance of innovation in the technology space, especially because it underpins almost every other business and industry. Through bolstered online shopping, concepts like the Internet of Things quickly catching up and cloud computing growing by leaps and bounds, it is not surprising to note the growth in tech-businesses operating as Software as a Service (SaaS), Platform as a Service (PaaS) and Infrastructure as Service (IaaS). After finalizing the business structure for your idea and getting business space, employees and other formalities sorted, here are the various compliances necessary for starting and running a software company:

  • Securing a Domain Name

Whether you register for a partnership, LLP or a company form of business, all registration documents require specification of a business name. Since the name of your software company will become your defining identity, it is of foremost importance to secure ownership over your domain name, as almost all your clients, suppliers and investors would want to see your online presence.

  • Ownership over intellectual property

It is also ideal for early-stage business to secure ownership over intellectual property, such as brand-name, trademarks, and patents. This is so because, in the case of a possible infringement, such as someone else using the same name, logo or goodwill, it is easier to establish your rights over IP. Most investors while taking a call on your start-up businesses worth, also factor in the IP value that you may gain in the future. For those into inventions of a scientific nature, it is absolutely imperative to seek a patent registration at the earliest as the average time taken from filing to the actual grant is about five years in India.

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  • Insurance, an absolute must

Since most software companies have the largest asset base in the form of back-end technology and data rooms, it is very important to get insurance for assets from natural disasters like fire, heavy rain and also get appropriate cover for risk of default in case you take debts with your asset base as collateral.

  • Safeguarding yourself against Data Leaks

While this does not count as a statutory compliance, carelessness in the IT space can be catastrophic. If dangers of heating, short-circuiting and WiFi troubles weren’t enough, a possible data leak poses threats that may have far-reaching consequences, the effects of which may be hard to undo.

With the GDPR enforcement, there is an even stronger need to protect the sensitive information of your clients and also undertake additional measures where consent is required for data collection.

  • Security, Accountability & Audit

Under the GDPR, the privacy policy has to be published on the website and made accessible. It must state the type of data collected, the purpose of collection, disclosure of information and reasonable security practices and procedures. Moreover, managerial, technical, operational and physical security control measures for data protection have to be specified. According to Rule 8 only IS/ISO/IEC codes of best practice and the codes duly approved and notified by the Central government shall qualify as security standards. Organizations are also obligated to perform a yearly audit of such practices and procedures.

  • Negotiating Confidentiality Clauses & Copyrights

From scouting for the best of coders and developers to offering them competitive packages, software development is a highly people-centric industry where skills play an important role. However, it is imperative to negotiate confidentiality clauses with your employees to ensure that programs developed and codes written during their employment vest with your organization and not with those creating them. This can be done by including strict clauses in the employment contract about copyrights and heavy penalties for breach of confidentiality.

    • License, Permits and Other Approvals
      As a startup working in any sphere, where food industry or fiber-optics and computing technology, all the sectors would require some level of getting approvals. It’s a good idea to speak to senior players in the same business who may be able to enlist permissions needed before you begin.  Getting all your regulatory papers in place is likely to give out the impression to a prospective client, supplier or investor that you have done your basic groundwork right. It may also help you navigate through contingency clauses which are often inserted by smart lawyers to avoid their clients from potential losses due to the rejection of licenses.
  • Outsourcing filings

When you scale your IT Start-up to a larger level, the floodgates of taxation, labor legislation and corporate compliances may open. In such a scenario, it’s prudent to outsource such work, which is likely to help you focus on your core competencies and meet deadlines better.


Avani Mishra is a graduate in law from the National Law Institute University, Bhopal. She qualified the Company Secretary course with an All India Rank 1 and is a recipient of the President’s Gold Medal for her academic distinctions. She also holds a B.Com degree with a specialization in Corporate Affairs and Administration.