After the announcement of Start-Up India in 2015 and its launch in 2016, the start-up initiative in India has boomed like never before. Government Schemes have provided various incentives to start-ups and incubators, and funding to start-ups has reached an all-time high in 2021 despite the Global Pandemic.
It is essential to understand the legal aspects at various stages of a start-up/ new business. At the initial stage, the start-up/new business is usually structuring itself.
In this stage, the founding member or members decide upon the entity’s nature to establish their start-up / new business under, for example, sole proprietorship, partnership, one person company, limited liability partnership or a private limited company. Incorporation of the entity requires the founding member or members to enter and frame incorporation documents, such as partnership deeds, memorandum of articles, articles of association, etc., prior to registering their entity.
Location of the business plays an essential factor in conducting the business and establishing the jurisdiction for the transactions to be entered into by the start-up/ new business. Even though start-ups/new businesses may run entirely online today, it is critical to have a base location that can be used as the jurisdiction to sue and be sued and subject their transactions and businesses to the laws of the land. This location may be leased or rented, and now we also have co-working spaces. Depending on the nature of the location, appropriate lease, leave and license or rental agreements will have to be executed and registered in accordance with the local laws. While choosing a location for the start-up /new business, it is integral to ensure that the nature of the business to be carried out at the location selected is in line with the use and purpose of the location premises and permitted under law. There are various licenses and clearances required to be obtained from the municipal authorities depending on the nature of the business of the start-up/ new business.
Everyone agrees that to a start-up/ new business, its intellectual property that forms the setting stone. Protection of the intellectual property of a start-up / new business/incubator is one of the most critical aspects.
What is intellectual property? - As per the World Intellectual Property Organization (WIPO), Intellectual Property refers to creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce. Primarily, there are nine categories of Intellectual Property:
Copyright and related rights
Trademarks including service marks
Geographical indications
Industrial designs
Layout designs of integrated circuits
Trade secrets
Patents
Patenting of micro-organisms and
New plant varieties (seeds and other propagating material)
In India, bases the various decisions held by the Supreme Court of India and the High Courts of different States, the attributes of Intellectual Property Rights can be summarized as under:
Intangible and Incorporeal in nature;
Creation of the mind;
Article 300A of the Constitution of India even protects Intellectual Property;
They are negative rights which means it is a right to exclude others from using the property generated by the owner;
Intellectual property rights represent monopoly of the intellectual creation of the owner of such rights;
The peculiarity of intellectual property is that, unlike real property, its boundaries are unset;
Intellectual property such as trademarks, copyrights and know-how fall within the definition of ‘plant’ for the purpose of taxation;
The situs of the owner of an intangible asset would be the closest approximation of the situs of an intangible asset
Given the broad construct of intellectual property, it is good practice to enter into appropriate non-disclosure agreements and confidentiality agreements for any transaction, including even a meeting/ discussion with prospective investors where intellectual property or sensitive information or know-how would be shared with such persons in the ordinary course of the transaction. Non-Disclosures and Confidentiality agreements are also entered into with the employees and consultants, and the founding members.
The employee and consultancy agreements shall be in the form and manner best suited to the start-up / new business and must frame the essential role, responsibilities and liabilities of the employees or the consultants. Further, founder members’ employment agreements in the event of the private limited company are often overlooked. Depending on the nature and role of the employee or consultant, it may also be advisable to enter into non-compete agreements/non-solicitation agreements with the employees or consultants. Further, it is integral for a start-up and an incubator to enter into Intellectual Property Assignment Agreement, ensuring that the intellectual property remains with the start-up/incubator/new business.
Every start-up/new business should have a Human Resources Handbook or a list of policies to govern the employees and consultants shall always be in place which shall include Prevention of Sexual Harassment Policy, Health and Safety Policy, Data Security Policy, Social Media Policy, Code of Conduct with customers/clients, Probation Policy, Leave policy, employee benefits policy, travel and expense policy, complaint procedures and internal dispute resolution procedures, etc.
It is common for start-ups/ new businesses to use third-party software or /and have a website/ application. However, the legal connotations are often disregarded, for example, entering into a software license agreement, software development services agreements, equipment or technology leases, clickwrap agreements, shrink-wrap agreements, strategic alliance agreements, etc. These protect the start-up / new business from unforeseen liabilities.
For a start-up / new business to be successful, it should be making profits, and in addition to several factors that contribute to the profit-making, one of the essential ones is ensuring that the customer/clients are abiding by the transaction agreed to, engagement documents, customer contracts, supply agreements, distribution agreements, etc. shall be executed with the customer and clients to ensure fulfilment of the transaction and in case of non-fulfilment availability of legal recourse.
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