What are the Legal Documents Required To Set Up a Small Business in India?

Legal documents play a major role in your business’s smooth running and offer assistance in circumventing misunderstandings and conflicts revolving around your day-to-day working situations. It can also safeguard your business owners’ interests throughout the company’s life span. It would also make sure accountability and transparency when the conflict would arise in the business place.  Many start-ups become too eager to add more employees into the company before devising out the order within the company. The simple way by which you can do so is by building a legal bond that keeps the transparency, trust and accountability in your start-up.  

Legal documents that are required for a start-up.

The smooth running of the start-ups requires many legal documents such as managing stocks, buy and sell, joint venture agreement and so forth. Most entrepreneurs often opt for essential business agreements kit for starters as these documents would help organize a working place and safeguard the business interests.

Here are the few legal documents that would help you examine what your business needs;

– Bylaws for the corporation.

Bylaws make sure that how a company requires to carry forward itself legally. To put it simply, it is a good way to elucidate the structure of your start-up and individual roles along with the governance. For example, a bylaw can help you resolve a dispute on an individual’s tenure or elucidate if there is a simple majority to authorize the decision.

– Conceiving the business plan.

Perhaps a business plan might not be a legal document, but instead, it’s a common formality that maintains your business’s financial health. Conceiving your business’s future is a concrete plan, as establishing a future plan of your start-up would give you a competitive and challenging ecosystem for your employees, where they can thrive with development and growth. The game plan of your start-up must have some clarity on the company’s growth in present times and future and should have a crisis management plan if there are any internal or external issues. It can provide you the pathway in which you can improve your business’s internal strategies and make the way to achieve them.

– MoU (memorandum of understanding).

The Memorandum of Understanding for a company can be considered an agreement between two or more parties formally or gently. It can come under anywhere between a handshake or a formal contract. It contains all the formal discussions you have had with your potential associates, suppliers and other people related to your business. It is a great way by which one can arrange the terms of project or relationship betwixt employees and employers in writing. Nonetheless, in specific cases, an MoU would not be legally binding, relying on factors such as the presence or absence of the legal members not stated in the document.

– SPA (share purchase agreement).

Basically, it can be used when you install a partner or investor in your company. It contains details related to terms of purchase and sale of shares along with consideration for which shares are being exchanged. It states the conditions that have to be met to fulfill consummate the sales and guarantees that both entrepreneurs and company make to investor or buyer.

– Licensing agreement.

Two parties can sign it in cases such as maintaining ownership of a product or control over another company or asset or person aspiring to use the asset. Such arrangement would allocate a license to the one party to utilize the asset in a specific manner for the time being. For instance, a franchise agreement can be a suitable example of it, where the franchiser allows the franchise to utilize the brand name of the franchise.

– Operating agreement (founders’ agreement).

If you want to avoid conflicts arising out betwixt founding parties of the company, it is recommended that owners sign an operating agreement. This agreement should elucidate the founders’ relationship and state that several works would belong to a specific entity in the future and define a communication and conflict resolution point that can help them in preventing disputes.

– Apostille.

If your start-up is in international trade with the Hague convention’s signatory counties, you would need a certificate known as an ‘apostille’ that upholds the public document so that it can be recognized in another country. Nonetheless, the use of work ‘apostille’ is legit in those countries which are signatories of the Hague Convention. You are not required to invest your time in creating a document from scratch. Instead, you can download a pre-existing document template from the internet to initiate as a starting point.

– Non-compete agreement.

A non-compete agreement is a preventive agreement where one party agrees not to engage/enter into/commercial activity, profession, or trade-in direct competition with the other party. Its legality differs according to the jurisdiction.

As section 27 of the companies act, 1872 mentions, ‘every agreement by which anyone is constrained from exercising a lawful ownership or business or trade of any kind to the extent might be considered a void.’ That’s why Indian laws make it clear that a non-compete agreement should not be applicable to the parties, and the same should be considered null and void.

Other legal documents are compulsory to obtain, such as a confidential agreement (known as a non-disclosure agreement), employment agreement and offer letter, and intellectual property assignment agreement.