Introduction
A Startup is a company in its nascent stage that is founded to develop a new or unique product, service, or dimension to an existing product or service. While a Startup works like any other company, the distinguishing factor is how it is set up and how it develops as a brand. In other words, regular companies try to duplicate what already exists in the market. For instance, franchising an existing fitness products outlet of a well-known chain. This can be done by someone trying to enter the market with their respective products. But in the case of Startups, people try to create an entirely new template. For example, Uber as an idea was novel because nobody had thought about bringing legitimacy and reliance on strangers picking up strangers in cars.
In India, companies that started as Startups continue to receive significant financing and pursue alternative paths. Compared to H1 2021 (541 deals), 891 finance deals were registered in H1 2022, which is an increment of 82.8% (As per a YourStory Report). Startups ultimately raised over $17 billion, which is 1.8 times the amount they raised in the first half of 2021 ($9.4 billion). Additionally, entrepreneurs are now considering revenue-based financing, venture debt, crowdfunding, and even bank loans for investment. While the pandemic serves as an important factor for the popularity of Startups in India, there is also a certain level of government intervention that is responsible for the same. This refers to Startup India, the flagship initiative launched in 2015, aiming to bolster our country’s economic growth and create employment opportunities by nurturing Startups. Further, the ‘Make in India’ Campaign has been instrumental in contributing to a large number of Startups. Now, India has the 3rd largest Startup ecosystem with a growth rate of 15% (yearly) since 2018.
Major Legal Compliances: While Building a Startup
The following are the compliances that are required to be followed to build a Startup from scratch.
Primary Compliances: This step includes finding appropriate sites, conducting pre-study visits, submitting all necessary documents to the competent authorities for the trial, obtaining approval from relevant vendors and setting it up.
Primary Agreements: Certain basic agreements are required for service and supply matters. These could include renting space for carrying out business, primary contracts with vendors, etc.
Forms of business: There can be many business structures to decide from when it comes to registering as a Startup in India. Every single type has national legislation and regulations attached to it. For instance, the Companies Act, 2013 is used for registering a private limited company or a one-person company. Further, the Partnership Act, of 1932 is used for a partnership firm and the Limited Liability Partnership Act, of 2008 for a Limited Liability Partnership.
Intellectual Property Rights: Given that the main reason why any Startup is established is to create something new, intellectual property needs to be protected. The various Intellectual Property Rights (IPR) that can be affected are copyrights, trademarks, patents, and non-disclosure agreements. A very important initiative of the government here is the Start-ups Intellectual Property Protection (SIPP) which has been launched by the Indian Government. This makes sure that the registration for the IPR tools goes smoothly.
Taxation: These include the compliances as given under the GST Act, 2017 such as registration of the establishment under the GST Act and filing returns and those compliances as given under Income Tax Act, 1961 including Tax Audits, Assessment of Tax Liability, etc. Further, tax exemptions also have to be kept in mind.
Labour Laws: These Startups have to comply with certain labour laws and for this, they have specific legislation to follow. These include the Employee Provident Fund scheme, 1952; Minimum wages Act 1948; Contract Labour (Regulation and Abolition) Act 1970, Maternity Benefit Act, 1961, etc.
Sectoral Regulation/Compliancesg. Councils, Authorities set up under various statutes.
Special Permissione. Foreign Contribution Regulation Act if receiving funds from foreign country.
The Emerging Concepts of Startup Clinics
As seen above, the setting up of Startups becomes hard for two main reasons. Firstly, because of the numerous compliances needed to be followed by people and secondly, the fact that the kind of people who establish Startups may or may not be well versed with even the basic compliances, Startups being a heavily inclusive venture that is opted for even by those with no business experience. A Startup clinic helps in supporting and consulting these founders and their teams. It assesses whether the business idea and model are sustainable and will work in the longer run, and even helps out with the compliances. It also formulates an action plan for the growth of the Startup.
The Startup Clinic set up by i-Hub (Section 8 Company), established by the Government of Gujarat is one of the examples under which Startups and innovators get mentoring from empanelled professionals on Legal, Accounting, Company Affairs, Technology, Marketing and other important matters.[1]
With the opening of their brand-new “Legal Clinic,” the Bengaluru chapter of The Indus Entrepreneurs (TiE), a network of businesspeople from all over the world, is now offering pro bono legal advice to Startup owners who are struggling financially.
Other law firms, such as J Sagar Associates, Lexygen, Game Changers, and Nishith Desai Associates, are assisting the Startup body in other efforts and may become involved in this in the future. Currently, Doraswamy Law Chambers is providing support for TiE’s “Legal Clinic,” but other law firms are assisting the body in other ways. Furthermore, versatile organisations like Legal Startups also offer legal solutions to Startups and other firms.
Examples of Startup Clinics in Leading Law Schools
Penn Law, Entrepreneurship Legal Clinic, University of Pennsylvania Law School [2]
The Entrepreneurship Legal Clinic (ELC) at Penn Carey Law was founded in 1981 in partnership with Wharton to provide free transactional legal services to Philadelphia-area Startups and small businesses. It provides various services to entrepreneurs like pre-venture counselling, tools for the beginning of a Startup, additional resources, etc. Aside from litigation and a few other exclusions, such as public securities work and patent work, they can perform virtually everything that arises from operating a business.
Startup Clinic, University of Miami School of Law[3]
This is mainly a student-controlled clinic which helps in a lot of Startup activities like regulations, organisation, client development, traction, etc. Certain specific things that the clinic facilitates for Startups is selecting the particular mode of business, debt-equity evaluations, help in applying for patents and trademarks, etc. However, enrolment is limited.
School of Law, BU/MIT Startup Law Clinic [4]
This is a collaboration between two prestigious universities, Boston University School of Law and MIT. It operates in a two-fold manner; Startup Law Clinic and Technology Law Clinic. The Startup law clinic provides specific advice on corporate, intellectual property and transactional nature. Further, they do not provide Tax advice and also do not give patent prosecution services. These include advice on equity compensation, initial intellectual property advice, etc. The technology law clinic operates in a similar manner but focuses on innovation-related activities, experiments, etc. Certain examples include media law and pre-publication review, data privacy, digital civil liabilities, negotiation, etc.
Suggested Model in India
In India it is mandatory to have Legal Aid Clinics in Law Schools and carry out legal aid and awareness activities. Some law schools also run dedicated clinics for consumer, woman, child, human rights etc, as per the need and resources available.
Model 1
As per primary suggestion, leading law schools in the state can take up, lead and setup Startup Law Clinics in their premises on a voluntary basis with the student team who wants to develop a career in business and corporate laws. This will have a two-fold positive consequence, one, Startups will have assistance in legal aspects, and students will have hands-on experience in dealing with procedural aspects of corporate laws. Big Corporate houses can also support these clinics by way of financial and infrastructure support.
Model 2
Furthermore, the Startup Division of Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry can invite an expression of India from Law Schools across the country for setting up of Startup Clinics on or off the campus. The department can provide some funding for this, similar to how recently, Department of Justice, Ministry of Law and Justice introduced Pro Bono Club Schemes in which the department gave financial support to certain select law schools. So far 70+ law schools have been granted permission for the same.[5]
Conclusion
It can be seen that setting up a Startup from scratch can be a tedious task, especially if one does not have enough legal support. The success of the Startup revolution in India, hence, necessitates legal Startup clinics. But despite having laws and government mechanisms to support legal Startup clinics till a certain extent, there are not enough outlets for the same. We must remember that the onus of setting up as many legal Startup clinics as possible is not only upon the government or law-making bodies of our country, it is also upon the citizens.
[1] Education Department, Government of Gujarat, ‘i-hub Gujarat’ (ihubgujarat.in) <https://ihubgujarat.in/startup-clinic> accessed 15 November 2022
[2] University of Pennsylvania law School, ‘Entrepreneurship Legal Clinic’ (law.upenn.edu/) <https://www.law.upenn.edu/clinic/entrepreneurship/startupkit/> accessed 8 November 2022
[3] University of Miami school of Law, ‘Startup Clinic’ (law.miami.edu) <https://www.law.miami.edu/academics/experiential-learning/clinics/startup/index.html> accessed 8 November 2022
[4] BU School of Law, ‘BU/MIT Startup Law Clinic’ (sites.bu.edu) <https://sites.bu.edu/startuplaw/> accessed 15 November 2022
[5] Nyaya Bandhu (Pro Bono Legal Services) ‘SOP on Pro Bono Club Scheme’ (probono-doj.in) <https://www.probonodoj.in/static/pdf/Revised%20SOP%20on%20PRO%20BONO%20CLUBS%20at%20Law%20Schools.pdf> accessed 15 November 2022
This article has been authored by Dr. Kalpeshkumar L Gupta (Founder, Legal Startups) and Ria Bansal (Law Student, Rajiv Gandhi National University of Law, Punjab). This blog is a part of RSRR’s Excerpts from Experts Blog Series, initiated to bring forth discussion by experts on contemporary legal issues.