Legal and Ethical Issues Faced by The Start-Ups in India

 Main Body-

Start-ups are the small companies at their initial stage of operation, founded by one or more entrepreneurs with a limited amount of capital and experiences are known as the start-ups. These are focused on bringing a new product or a new service which they believe will meet high future demand. Start-ups play a vital role in bringing innovation, creating employment opportunities and fostering competition in the business world which in turn significantly contributes to the economic development.

Inspite of several schemes launched by the Government to promote entrepreneurships and innovation. The entrepreneurs still face various legal and ethical challenges while building a Startup.  Thus, the start-ups must navigate through the complex legal requirements and follow an ethical behaviour as non-compliance and ethical misconduct may lead to serious consequences like fine, punishments, revocation of licenses, etc. which in turn can cause an adverse effect on the limited capital of the start-ups.

Legal Issues faced by the Start-ups-

1.      Issues with Licensing and Permits

2.      Issues with Marketing and Advertising

3.      Issues with Privacy and Data protection

4.      Issues with IPR

5.      Tortious Liability

Licencing and permit issues- Start-ups often face several challenges related to licensing and permit. In order to operate legally the start-ups, need different licenses and approvals or permits depending on the kind of business activities they are intending to carry. Without proper legal awareness the start-ups are at a risk of facing penalties, thus, the its very important for the businesses to understand and ensure compliance with the local laws in order to avoid these penalties. These licenses include FSSAI licenses for food businesses, GST registration certificate to ensure tax compliance, Import and Export Code for carrying out international trade, Udyog Aadhar registration for small and medium enterprises in order to enjoy government benefits. These licenses are costly and can be time consuming as they involve several documentation processes. Moreover, the businesses that deal in certain products like alcohol, firearms, drugs etc must acquire specific kind of licenses from the appropriate authority in order to comply with the legal requirements. Failing to which can result in punishments like hefty fines, penalties and even criminal charges.  

MSME Udyam Registration- MSME Udyog registration, commonly known as Udyog Aadhar, is a government-mandated process for recognising India's Micro, Small, and Medium Enterprises. It provides them with formal recognition and access to a variety of government advantages and programmes, such as financial aid, subsidies, and other support system mechanisms that promote entrepreneurship and the growth of small businesses. It brings numerous advantages-

1.       It offers access to government programmes and subsidies.

2.      Provides preferential treatment in government procurement tenders.

3.      Enables businesses to access financial assistance packages that reduce operating expenses.

4.      MSME's have greater access to credit facilities and loans with lower interest rates.

5.      MSMED Act protects against delayed payments and promotes financial stability.

GST Registration- Start-ups need to understand and comply with the GST requirements to ensure legal compliance. GST registration for the start-ups has been mandated by the government of India if the annual turnover of the Startup is exceeding the threshold of INR 20 Lakhs, failing to which is considered as an offense. Although it is important for the businesses above the prescribed threshold to register but the start-ups that are below the threshold can also opt for voluntary registration to reap the benefits of ITC i.e., input tax credit, reducing their overall tax liability services. It also lends legitimacy to the businesses and makes the business reliable and credible.

Advertisement and marketing- Every business must advertise and market itself in order to grow, but making false claims or promoting prohibited content can result in not only legal penalties, but also damage to the company's reputation and goodwill, which is extremely detrimental to businesses, particularly start-ups that are in their early stages. For example, the Tobacco Prohibition Act prohibits the advertisement of any type of tobacco; moreover, advertising prohibitions apply to legal and medical experts.

Data Protection and Privacy Issues- With the advent of technology, the usage of digital devices has increased across all age groups, and the COVID-19 epidemic has added to this by transferring businesses, schools, and courts from offline to online mode. While this transition has provided convenience in certain sectors, it has also raised concerns about privacy. To ensure that these privacy issues are not raised, start-ups should design data privacy policies in a brief and simple way that are available in the regional language so that consumers can read and understand the terms and conditions before signing up for it. Furthermore, in order to reassure consumers that their data and personal information are secure, companies should engage into an agreement with them; this will help users regard the business as trustworthy and dependable, resulting in goodwill for it. In the start-up’s privacy policy, it should be stated explicitly what personal information will be gathered and how it will be used.

Issues with Intellectual property rights- Intellectual property rights are exclusive rights granted for a set amount of time to innovations or works. They safeguard innovations, designs, logos, creative and literary or dramatic works, as well as secret information, which is critical for a business's success. Start-ups must protect their ideas or plans to prevent them from being stolen by others. The start-up should also ensure that what they want to accomplish or sell is already protected. So that they do not encounter issues such as trademark infringement or other IP breaches after investing a significant amount of money into their company. Start-ups should seek to protect the given IP rights i.e., Trademarks, Copyrights, Patents, Trade secret and confidential Agreements.

Contract management- A contract is defined as any legally binding arrangement. Any start-up enters into a variety of contracts with employees, suppliers, and other parties. Before drafting or signing any type of agreement, the Startup should search for examples of current businesses to acquire some ideas, which will also aid with drafting a suitable contract.

Tortious Liabilities- Tortious liabilities may emerge when someone does a banned conduct or fails to perform an act required by law. A start-up may suffer tortious liability if its actions are not carefully considered. Start-ups should use caution while handling and managing raw materials, noise, fire, vibrations, smell, and so forth.

Ethical issues faced by the Start-ups-

Any business operated or establishes in order to generate profits, but a good entrepreneur should always be ethical and do its duty towards the people, consumers, community and the company.

1.      Startups should avoid activities that harm consumers and actively seek constructive criticism, since a business cannot thrive without them.

2.      Employees are crucial for every business, whether it is a start-up or a large multinational corporation. They should be respected, paid on time, and have their grievances addressed in order to keep them motivated.

3.      Start-ups must comply with environmental regulations by obtaining legal permissions and avoiding damaging operations.

4.      Start-ups should support social concerns including the environment and education, as well as respect religious sentiments while advertising their products or services.

5.      Start-ups must comply with labour laws, including working hours, wage payment, and other requirements.

6.      Start-ups should not misuse national emblems or logos.

CONCLUSION

In conclusion, start-ups confront a variety of legal and ethical challenges that can have a significant influence on their growth. Thus, it is critical to properly negotiate complicated legal issues such as GST registration, getting relevant permissions and licences, and so on in order to avoid penalties resulting from noncompliance. Furthermore, businesses must adhere to ethical requirements in terms of customer relations, employee treatment, customer treatment, responsibility for the environment, and community engagement in order to foster goodwill and be perceived as dependable and trustworthy by all. By properly recognising and resolving these legal and ethical problems, a company may develop effectively over time.