Entrepreneurs of 2016: Regulations to be kept in mind

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regulations for entrepreneurs

With the advent of the new Start-Up India and Stand-Up India campaign by Narendra Modi, budding entrepreneurs will be faced with new policy and regulation changes this year. Hrishikesh Datar, CEO of Vakilsearch, a legal platform for entrepreneurs, gives us an expert’s speculations and opinions into the regulations to be kept in mind for Indian start-ups in 2016.

Choosing the right business:

Initially while setting-up a business, every entrepreneur faces the issue of which business vehicle to choose. This plays a very important role as it inevitably affects the viability, visibility, profitability and sustainability of the venture. Every form of business is governed by a separate set of laws, so care has to be taken to see to it that all legal frameworks have been complied with, failing to do so leads to heavy fines and a bad image for the company. The government places a large number of requirements on businesses which leads to founders being confused and choosing the wrong type of vehicle for their business. 2016: Look out for an ease in regulations and requirements by the government to make India move up higher in the ease of doing business scale.

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Intellectual Property Law and Non-Disclosure Agreements

Start-ups have a wealth of intellectual property. A big mistake made is, not understanding the limitations of the intellectual property law and thereby not legally protecting it. For example: Most entrepreneurs think that in protecting their intellectual property rights, that they are saving their idea from being used by competitors. In actuality intellectual property law only protects the way the idea was put across. So if someone goes to a website developer to code a website on his/her business model, without a non-disclosure agreement, the developer is not legally bound and is able to produce the same work with the same model for a competitor as well. Also, filing for the right type of protection, be it a patent, trademark or copyright and clearly defining it heightens the chances for funding as well. 2016: The proposed Start-Up Law in India which aims to properly define agreements and laws pertaining to trademarks, copyrights, patents etc. Additionally this new law is said to ease regulations in terms of start-ups procuring funding.

Differences of Opinion

When friends start working together, build a new company and try to ensure its profitability, the right roles and responsibilities get blurred. Start-ups have a reputation of being 24/7 on the call jobs, thus it is very important to always have proper guidelines in place between co-founders, to ease disputes. Taking an example of 2015, this was the problem faced by Housing.com where Rahul Yadav has a major fall out with his co-founders. 2016: Look out for the proposed tax holiday to be granted to start-ups to help in scalability of the business and to ease the taxes being levied on start-ups.

Navigating the Tax Landscape

It is very important to be organized about the details of the organization and plan their taxes accordingly. It helps founders to do it right the first time and thereby saving time and money in the future due to miscalculations and errors. One of the very important aspects of this is start-up financing and its implications. For example, interest payments on loans are tax deductible, although if friends/family members lent money to an entrepreneur’s new business, they will be liable to income tax on any interest they receive. Also, start-up tax planning needs to take into account the tax consequences for investors, whether they qualify for tax relief on their savings or when they later sell their part of the business. One of the biggest problems within startups is misclassifying employees. Some companies classify their employees as independent contractors to save money on payroll taxes. If a business pays an employee as a contractor for miscellaneous income, and the government sees them as full-time employees, then the business will be fined for improper payment of taxes. This becomes problematic when a contractor leaves the job and the government can’t find record of their previous employment to provide them with any help. Although it seems quite tempting to do so to avoid paying payroll taxes, it’s not worth the risk taken, since even with the protection of being an incorporated entity, the government can still come after an entrepreneurs personal assets if they find a failure to pay the proper taxes. 2016: There is a probability that there will be enhanced tax deduction for expenses start-ups incur on training that they provide to employees. Aside from which there may be an exemption of paying service tax for the first three years due to slow inflow of revenues and tax benefits for serial entrepreneurs who sell one start-up to found another one, since they would be generating more employment opportunities. As seen on MoneyControl

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