LEGAL ISSUES IN

ENTREPRENEURSHIP
Presented by
Group 6,Finance C
 AGENDA
 What to do?? –General guideline
 Types of businesses and legal procedures
 Intellectual property Rights
 Licensing and Franchising  Legal aspects
 Legal issues in Few Industries

1) Retail
2) Outsourcing
3) E-commerce
4) Financial services
You have a Business Idea What to Do Next??
 Choose between a sole proprietorship,
partnership or company
 Pick and protect a good name
 Get licenses and permits
 Buy or sell a business or franchise
 Negotiate a favourable lease
 Insure your business
 Understand small business tax rules
 Resolve legal disputes
 Enter into enforceable contracts
SOLE PROPRIETORSHIP
 Think up of a trade name and apply for trademark
 See if you can get a .com or a .in for it and set up your
website
 Go to your local bank branch, ask for the form for
proprietorship firms and have that bank account ready
 Register for tax other than income tax. Your income from
the proprietorship firm would get included into your
personal income and would be taxed accordingly.
 In addition, you will probably need to consider:
 Service Tax (if you're offering a service covered as per
the rules)
 Professional Tax (if you have employees)
 Sales Tax, Excise and VAT (if products)
PARTNERSHIP
 Prepare a “Partnership deed”
 Fill in the required form at the “Registrar Of Firms” office
 Submit the required form, the “Partnership Deed” and other
supporting documents to the “Registrar Of Firms” for approval.

Contents of a partnership deed

 The amount of capital contributed by each partner
 Profit or loss sharing ratio
 Salary or commission payable to any partner, if any
 Duration of business, if any
 Name and address of the partners and the firm
 Duties and powers of each partner
 Nature and place of business; and
 Any other terms and conditions to run the business
 After preparation of the deed, it must be signed by all the partners. It must also
have signatures of independent witnesses.
 On approval the “Partnership Firm” is established as a legal entity
COMPANY
 Minimum paid up share capital
 Minimum and maximum number of shareholders
 Process

Submission of application for name availability, Form

No.1A to registrar of companies( at least four names
should be given)
Approval is given within 8-10 days
Submission of MOA ,AOA and declarations
 Verification of documents and Issue of Certificate of
Incorporation

Important : Director Identification Number( DIN)

Digital signature certificate ( DSC)
India and Intellectual Property Rights
 Intellectual property(IP) is the creation of human intellect. It
refers to the ideas, knowledge, invention, innovation,
creativity, research etc, all being the product of human mind
and is similar to any property, whether movable or immovable,
wherein the proprietor or the owner may exclusively use his
property at will and has the right to prevent others from
using it, without his permission.
 Office of 'Controller General of Patents, Designs and Trade
Marks (CGPDTM)' has been set up under the Department of
Industrial Policy and Promotion.
COPYRIGHTS
 Steps to Obtain Copyright
1) Author , publisher or owner may make an application in the prescribed
form accompanied by the prescribed fee to the Registrar of Copyrights
2) After inspections and considerations , copyright is provided as per the
rules.

 Infringement of Copyright
When any person, without a licence granted by the owner of the
Copyright or the Registrar of Copyrights under this Act or in
contravention of the conditions of a licence so granted or of any
conditions imposed by a competent authority under this Act does
anything, the exclusive right to do which is by this Act conferred upon
the owner of the copyright;
TRADEMARKS
 According to the Trade Marks Act,1999, the term 'trade mark'
means "a mark capable of being represented graphically and
which is capable of distinguishing the goods or services of one
person from those of others and may include shape of goods,
their packaging and combination of colours".
 Under the Act, the Controller-General of Patents, Designs and
Trade Marks under Department of Industrial Policy and
Promotion, Ministry of Commerce and Industry is the
'Registrar of Trade Marks'. 
Infringement of trademarks

Any person who:-

 falsifies any trade mark
 falsely applies to goods or services any trade mark
 makes, disposes of, or has in his possession, any die, block,
machine, plate or other instrument for the purpose of
falsifying or of being used for falsifying, a trade mark
 applies any false trade description to goods or services
 tampers with, alters or effaces an indication of origin which
has been applied to any goods to which it is required to be
applied under the Act, shall be punishable with imprisonment
and with fine.
Licensing
 Licence may be granted by a party ("licensor") to another
party ("licensee") as an element of an agreement between
those parties. A shorthand definition of a licence is "an
authorization (by the licensor) to use the licensed material
(by the licensee)."
 It may require paying a fee and/or proving a capability.
 A licence under intellectual property commonly has
several component parts beyond the grant itself, including
a term, territory, renewal provisions, and other
limitations deemed vital to the licensor.
Franchise
 Franchising is the practice of using another firm's successful business
model.
 Businesses for which franchising works best have the following
characteristics:
1.Businesses with a good track record of profitability.
2.Businesses which are easily duplicated.
 The franchisee must carefully negotiate the license.
 They, along with the franchisor must develop a marketing plan or
business plan.
 The fees must be fully disclosed and there should not be any hidden
fees.
 The start-up and costs and working capital must be known before
taking the license.
 Franchise agreements carry no guarantees
or warranties and the franchisee has little or no recourse to
legal intervention in the event of a dispute.
 Franchise contracts tend to be unilateral contracts in
favour of the franchisor.
 They are generally protected from lawsuits from their
franchisee because of the non-negotiable contracts.
 INDIAN SCENARIO

 India is one of the biggest franchising markets because of

its large middle-class of 300 million who are not reticent
on spending and the population is entrepreneurial in
character.
 Agreements are covered under two standard commercial
laws: The Contracts Act 1872 & the Specific Relief Act
1963
Legal Aspects in Retail Industry
Director Identification Number

 The DIN serves as proof of residence and identity. Submission

of DIN form to the Ministry of Corporate Affairs to get your
director identification number.
 Permanent Account Number
 from an authorized franchise or agent appointed by the
National Securities Depository Ltd. (NSDL) or the Unit Trust
of India (UTI) Investors Services Ltd., as outsourced by the
Income Tax Department (National)
Business Licenses and Permits
 Business Registration
 Reservation of the company name online with the Registrar of
Companies (ROC) (National)
 Each state and municipality has their own laws, local register
office will ensure that your retail business has its own business
number that can be used when setting up accounts with
warehouses that host your merchandise.
Business License

• Register with the Office of Inspector, Shops, and Establishment

Act (State/Municipal).

• Register for Value-Added Tax (VAT) at the Commercial Tax

Office (State)
Vendors Permits

• This is basically a piece of paper that states that legal

allowance to charge money for certain merchandise.
• Vendors permit should be placed in an area that is visible to
the public at all times.
• Permits need to include the exact type of merchandise plan to
sell in order to receive the correct permit.
Tax Account Number

 Obtain a Tax Account Number (TAN) for income taxes

deducted at source from the Assessing office in the Mumbai
Income Tax Department
THE LEGAL ACTS APPLICABLE TO THE INDUSTRY

 1) The Shops and Establishment Act

 2)Sales Tax Act
 3) The Consumer Protection Act, 1986
 4) The prevention of Food Adulteration Act, 1954
 5) The standard of Weights and Measures Act, 1976
 6) The Sale of Goods Act, 1930
 7) The Essential Commodities Act
 8) The Factories Act
 9) Professional Tax Act
 10) Service Tax Act
 11) The Employees' Provident Funds & Miscellaneous
Provisions Act
 12) Labour Act
 13) Public Provident Fund Act
 14) Employee State Insurance Act
Data Security

 Access level by user

 Recovery management
 Payment gate-ways
 Security audits of IT system
INSURANCE
 Workman’s compensation: to support your employees ,as the
employer has to apply for this from a private insurance
company.
 Liability Insurance: This is in the event when a consumer is
injured on .
 Property: Naturally this type of insurance will protect in the
event of a fire or theft etc.
THE EXISTING LEGAL ISSUES AFFECTING RETAILING IN INDIA

 Work-force laws.
The existing labour laws governing working hours are not
amenable to the needs of the industry.
 Complex taxation system
The prevalence of different sales tax rates across states, multi
point octroi has resulted in complexity of distribution.
 Multiple legislations
The multiple licenses/clearances required for setting up retail
operations has limited the operational flexibility of existing
retailers.
Legal Aspects in OUTSOURCING Business
 Legal Issues in Outsourcing Business
 Outsourcing particular business functions is not something
new. In the late 1970’s and early 1980’s many companies
“outsourced” many of their “back-office” functions to service
bureaus that performed these services for many customers
 Thereby gaining economies of scale from their investment
 Over the last ten years, outsourcing has captured the attention
of many in the software development industry.
Legal issues
 Who owns the information?
A dispute on the issue of owning information could prove fatal
for both the companies ,and should decide the ownership of the
data & information mutually.
Time frame for the contract
It’s in the benefit of both parties to decide the duration of the
outsourcing contract, and more importantly time of
commencement. This would reduce the confusion when the
service provider gives document relating to service
specification to the client. 
 Licenses 
It play a very important role in all the software-outsourcing
contracts. They become all the very more important when there
are more then two parties involved in the business.
 Request for information
 Request for proposal
Continued……
 Service Level Agreements

(SLA’s) are made to confirm the minimum service that an

outsourcer would provide to the purchaser. Areas like, system
availability, quality standards, response time etc, would be part of
this document.
 The performance of the outsourcer is generally checked by the
satisfaction that a service provider has.
 Reviewing the performance of an outsourcer is not always very
easy. Though the document would act as a cushion for the service
provider, he should be ready with the practical solutions in case
there is a problem with the outsourcer in providing services.
Some other common issues
 Ownership of the assets.
 Intellectual property rights.
 Human resources of a company
 Contingency management
Important legal issue in offshore
 Related to security, and system access 
This is one of the most crucial issues to be dealt with, when a
contract is to be signed. Problem of security creates disputes.
 Defining the degree of access to be given to the service
provider, by the client requires a lot of planning, &
implementation.
 Access to the system should be given in such a way that,
needed confidentiality is maintained still the performance of
the service provider is not affected..
LEGAL ISSUES RELATED TO e-Commerce
Exclusive Rights of
Copyrighted Work
Reproduction Right Right to copy, duplicate or transform
work in a fixed form.
Modification Right Right to modify work or to create a
new work.
Public Performance Right Right to recite, play, or show the work
in a public place or through
transmission. Does not apply to
sound recordings.
Public Display Right Right to show a copy of the work
directly, by film or television in a
public place or through transmission
Moral Right Limits modification or use of the
author’s name without permission.
Types of Copyright Infringement

 Direct Infringement – includes wholesale reproduction and

distribution of copyrighted works.

 Contributory Infringement – knowingly encouraging

infringing activity.

 Vicarious Infringement – violation occurs when operator

has the ability to supervise users, but chooses not to for
financial benefit.
Myths on Internet Copyright Infringement
 Finding something on the net means it is okay to copy without
getting permission
 When someone puts something on the net it means they want
you to use the material, and therefore you can do anything with
it.
 It’s okay to use copyrighted material on a personal website as
long as there is no fee to visit the site.
Privacy Issues
 Privacy policy
 The stated policy regarding the collection and use of visitor’s
personal information
 E-commerce provides opportunities for businesses and employers to
track individual activities on the WWW using cookies or special
spyware.
 This allows private/personal information to be tracked, compiled,
and stored as an individual profile.
 Consumers should be made aware that personal information will be
collected.
 The consumer should have a say in how this information will be
used
• The information collected should be secured
Defamation
• The act of injuring another’s reputation, honor or good name
through false written or oral communication
• you should be careful what you write (or allow others to write)
on your website
 Proving defamation
 The statement must have been published, spoken or
broadcast
 There must be identification of the individual(s) through
name or reasonable association
 The statement must be defamatory
 There must be evidence of injury
Trademark and Domain Name Registration
 Cyber squatter
 refers to the practice of registering domain names solely for
the purpose of selling them later at a higher price.
 In a recent case, the trademark ‘tanishq’ was registered by a
Tata group company, Titan Industries. A cyber squatter
hijacked the domain name tanishq.com.
• Domain names cannot be registered with the intention of
resale to the rightful trademark owner
 Indian courts have clearly said that domain names are similar
to trademarks.
Meta tags
 A very popular method to find information on the internet is by
using search engines.
 A search engine uses key words to find information.
 Meta-tags are the key words that are encoded into the HTML,
but do not appear on the web page.
 E.g.: When any user searches for ‘MTV’ all the sites with
'MTV' in the Meta tag would turn up as hits. . Some one can
deliberately put it in a meta-tag to get a hit when some one
searches for 'MTV'. It is also possible that if the key word has
been used enough times in the meta-tags, the site could appear
before the actual site.
Digital Signature and Encryption
 Transaction security in e-commerce.
 Use of cryptography for confidentiality of message.
 Use of cryptography in digital signature.
 Public and private key encryption.
 The Department of Telecommunication ("DoT") controls all
aspects regarding Telecommunications, including encryption
Terms and Conditions of Use
and Disclaimers
 This explains what actions are allowed and disallowed while
using the website.
This include things like:
 Whether registration is required for posting content
 The types of user submitted content that is allowed and
disallowed
 Situations where user submitted content would be removed or
changed
 And anything else we'd like to mandate
Financial service industry
 DEPOSIT
STRUCTURE (Rs. IN
LAKHS)
Corporates Individual
Capital Market TM & SCM 100 75

Wholesale Debt Market TM & SCM 200 200

Futures & Options TM 100 75

TM & SCM 100 100

TM & CM 300 300

PCM 300 -

Existing
100 100
Currency Derivatives Segment Members TM
TM &
1000 1000
CM
NCDEX
100 100
Members TM
TM &
1000 1000
CM
Other
100 100
Members TM
TM & 1000
 Case 1:

 A person does trading through ABC financial services, he

has invested in shares of a company X, after two days the
company gets bankrupt and the investment is valued to
zero.
Then the investor thinks there is fraud in the brokerage
company and tries to sue the company in court of law, can
he?
 Case 2:

 The financial service invests the money of its client

without his knowledge and invests for the sake of its
increase in turnover and brokerage value. It made losses
and gave reasons to the client saying there was an
opportunity to invest at that time and when tried
intimating “ client was out of reach”.
Then can the client sue the brokerage company ?