Technology Startup To Law: “Why Do I Need You?”
Law to Startup: “My answer is right here in this article”
Being a legal intern in a startup company is an innovative step in itself. The question that comes our way is, “Why would any technology startup need law at all?”
Is there even law for startups in the first place? Aren’t those things for large corporations?
We may think that the startup is a new entity, which besides being a new player in the market, is also an absolutely compact team working for the development of products and software for clients.
However, it may surprise us to know that amongst all the technological madness going on in a company, there is a constant role played by law throughout the working fabric of the company. There is law for startups – laws for code written in the company in the form of intellectual property law. There is law governing every marketing strategy that is adopted by the company to promote itself in the form of consumer protection laws and unfair trade practices laws. There is an active operation of law at all facets of work, organisation and interpersonal relationship between the members in the team and in the organisation as a whole in the form of employment or labour laws. Thus, our question about the relationship between a technology startup and the law comes to be answered here.
For me, as a legal intern, it became necessary to establish this relationship and work from there. In this blogpost, I share some of our experiences on how law affects the functioning of a startup in the initial phases along with basic legal information that, lawyer or not, every entrepreneur is better off for knowing.
When we are talking about law for a startup company, we do mean to talk about a “company” nonetheless. An organisation cannot be called as “company” in India, if it is not registered as a “Company” under the Companies Act, 2013. There are several steps which one needs to follow to register a company under the Companies Act.
- Application for DIN: Before incorporating a company, the existing or intending directors of the Company must apply for Director Identification Number (DIN) by filing the e-Form DIN 1
- Acquire/Register DSC: A Digital Signature Certificate can be acquired by a licensed Certifying Authority. It can be registered with the Ministry of Corporate Affairs by linking the DSC to respective roles
- Incorporating a Company – Approval of Name: The first step in the formation of a company is the approval of the name by the Registrar of Companies (ROC) in the State/Union Territory in which the company will maintain its Registered Office. There shall be a list of four options for names proposed for the company. After a name is registered, it remains valid for 6 months within which the Memorandum of Association and the Articles of Association have to be filed. We found it’s easier when you have a name that also explains your business. WukiLabs Technologies had a higher chance of approval than just WukiLabs
- Memorandum and Articles of Association: While the Memorandum specifies the objectives and purposes for which the Company has been formed, the Articles lay down the rules and regulations for achieving those objectives and purposes. Usually, any legal agent you might have contacted to get these done on your behalf will give you some generic drafts anyway. However, we found that the most important things are to firstly, ensure that generic text is suited to your business and secondly, sit and write out at least 3 to 5 bullet points under your purpose yourself – points that are focussed enough to help anyone understand you’re your company is about and yet broad enough to give you room to expand into new and related businesses
The Directors are typically required to file the following forms within 60 days of approval of name:
- Form 1 : Application or declaration for incorporation of a company
- Form 18 : Notice of situation or change of situation of registered office
- Form 32 : Particulars of appointment of managing director, directors, manager and secretary and the changes among them or consent of candidate to act as a managing director or director or manager or secretary of a company and/ or undertaking to take and pay for qualification shares
Certificate of Incorporation
Certificate of Incorporation marks the birth of the company. We jumped in joy when we finally got ours! That itself felt like the greatest achievement. We thought our interaction with law for startup life was over… at least for the time being.
A certificate of incorporation is a conclusive piece of evidence to show that the company is an existing legal entity. The Certificate of Incorporation also acts as a shield for the company against any claims that the requirements for the incorporation are not fulfilled. This principle has been upheld in the previously decided Supreme Court of Haryana State Industrial Development Corporation Ltd. vs. Mawasi and Ors.
We found, painfully so, after over a month of working towards finally getting that incorporation certificate that for registration of a company, there are certain additional licenses and registrations which need to be complied with. These include registration for Service Tax, VAT/Sales Tax, Employee’s Provident Fund, all depending on the nature of your business and size of your workforce. The company must also apply for a company PAN and a Company TAN which will aid the company to deal with their tax identification and income taxes.
Intellectual Property Issues
- Trademark filing: Once the name of the company is approved, it is useful to get a Trademark protection for the company. For example: We got “Wuki” in WukiLabs protected as a registered Trademark so we can use it not only in WukiLabs but also in other product names that we want to brand as our products with “Wuki”. This gives a strong hold on the market as a distinct entity. What should be kept in mind is that the name which is registered as a trademark must be worthy of defining the company. The Trademark is not only to be kept as an identity for the company but also to identify the ideas that the company professes. A trademark application can be filed by filling in the application forms such as TM-1, TM-2, TM-3, etc. as per the nature of the trademark sought for. Once the trademark is approved or registered one can use the symbol (R), until then the Name can be suffixed with “TM”
- Domain Names Issues: there is a growing commercial interest for the companies in the cyberspace as well. These commercial interests directly or indirectly stems from the domain names that the companies acquire for their website. But, since the trademark laws and the cyber laws for registration of the domain name are not in sync, there are a lot of instances of cybersquatting that take place in cyberspace. In such cases, a person may acquire a domain name based on a name which, actually, may be a trademark acquired by another person or company and such a registered user of domain name may try to sell the same to the company with the trademark registration for the name at an exorbitant price. To check such attempts, the company must be cautious and must immediately register the domain name abased on their trademark. We went the other way, got the domain name first, applied for the trademark later. The importance of domain names in adhering to commercial interests has been expressly laid down by the Supreme Court in the case of Satyam Infoway v. Siffynet Solutions
These were a few of the basics some of which we knew, some of which we learnt, a few times – the hard way. We hope these help you, to get things done, for the lack of a better phrase…the easy way. Good luck!
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