09 Jul 2015 18:59 IST

The legal costs of starting-up

Starting a business is more than coming up with a product or service. There are legal costs too.

When you're starting a business, all you're thinking about is the product or service you're looking to build. It would be great if that's all there was to it, but the government won’t have it that way. And with good reason, it must be added. All businesses are subject to a set of laws and rules, for which they must be registered with certain government departments, declare annual financial performance, pay taxes on transactions and much else.

Then there are other legal aspects that you, more than the government, would want to have. These include agreements with your suppliers or customers and intellectual property rights. All of these need to be managed and they add to your costs. Here is a list of all the legal costs you can expect to encounter while starting-up:

Agreement costs

For every aspect of your business, you're going to need an agreement: whether it's your suppliers, customers, co-founders, investors, employees or affiliates. The cost of such documents depend on their complexity (usually employee, customer and affiliate agreements are simple, while investor and supplier agreements can be complex; this, however, will depend on the business you're in). The reason you need such agreements in place is that you want to define the exact terms of your relationship with all stakeholders before transacting business. Moreover, it addresses other important matters such as liability.

Expect to pay anywhere from ₹1000 for a terms of service agreement to ₹10,000 for an investor's agreement.

Intellectual property costs

As we've explained before, your business will own some intellectual property. You would want to trademark the name of your brand, copyright your content and patent the inventions. The need for each of these will change with the situation your business is in. Therefore, if your business has picked up significantly, you would want to trademark your brand; if your content is crucial to this business, you would need to copyright the content; if your product or service is unique, patent it. The cost of trademark and copyright are pretty low (at under ₹4,000 per application), but a patent will cost you closer to ₹30,000. But if it must be done, you should definitely do so.

Registration costs

All businesses need to be registered with the government. Most start-ups will register themselves as a private limited company (as it can raise VC funds), which costs around ₹15,000 to start, plus the total amount of paid-up capital you decide to invest in the business (this can even be ₹5000). In addition, depending on the business you're in, you need service or sales tax registration, and all businesses need professional tax registration and registrations in accordance with the Shops & Establishments Act (each of these will cost you anywhere from ₹2000 to ₹10,000). You need to file taxes on a monthly or quarterly basis, but the cost of this is minimal.

Compliance costs

In case you register a private limited company, there is a long list of things you need to furnish to the Ministry of Corporate Affairs. This includes changing the authorised capital of your company, when you issue shares, when you add a board of directors or shareholder, change the address of your company and literally every change you could make. Then you also need to file your annual accounts with the Income Tax Department and have your books audited. Together these costs will set you back around ₹25,000 every year.

So keep this in mind while you start your venture. We wish you all the luck!

*VakilSearch simplifies legal for start-ups by facilitating company registration , trademark filing , documentation and compliance.