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5 Legal Issues Faced By College Startups – To Startup Or Not?

5 Legal Issues Faced By College Startups – To Startup Or Not?

Startups are the new Guitar. Every college student wants one – Arunabh Kumar

There was a time when starting up your own business was considered somewhat apt for the “not-so-good” students. Now, the startup eco system has witnessed a serious growth in the number of college startups, especially in fields of IT and e-commerce. There is a whole new influx of fresh ideas and innovative products and services. It smells like teen spirit wherever you turn to in the startup sector. In the past 1 year, every startup that has hogged the limelight has its founders in the age group of 20-40 years.

While these numbers are encouraging, at the same time, care has to be exercised that you do not blindly flow with the tide. Every affair has its pros and cons. Once you actually start your business, it is no longer a plaything. Its hard core corporate and survival of the fittest. Hence, it becomes extremely important to get your basics rights.

5 Legal Issues Faced by College Startups

Clarity among Co-Founders missing

Amidst fuming cups of coffee and late night noodles, friends just assume that things will fall in place. And it does, in the initial days. As and when the business grows, complications start arising. Who owns the idea? Who made the idea executable? Who made it marketable? What is the degree of ownership each person has in the company? Is the ownership stake justified compared to his contribution? All these questions start coming into picture. The Facebook controversy is the biggest example of this.

It is very much important to have clarity among co-founders right from Day 1. Forget about growth, there’s nothing more important than your founding team. So make sure you find the right people when you start up. More than anything make sure, the terms of your coming together is clear to all and well documented. A Founder’s Agreement is the best way to achieve this. It outlines the rights, duties, responsibilities among co-founders. Clarity related to exit, dilution, participation and vesting of sharers is a must have in your list.

Registration of Intellectual Property (IP)

This is a very common problem with startups. Putting up a website in place does not ensure its brand ownership to you. The logos of your business, the content of your website, the very product of yours are your assets. The ownership of the brand determines your rights over its usage. It is always better to protect your property. This can be done by obtaining a trademark/copyright/patent, as applicable. Even if you do not wish to formalize your business entity by setting up a private limited/LLP, you need to get the IP registered.

Judging the viability of the idea

Don’t start your business just for the sake of starting up. Ideas do not yield results. Prototypes do. Working on developing a prototype. Further, your idea may be very unique to you but how far is it marketable? There is no point developing a product which has no market. Hence, it is very important that you do a proper research of the market you wish to target.

Sorting out Seed Fund

How will your venture be funded? How will the initial expenses be funded? Who would pay for the servers? What would be the terms of repayment or contribution by each member?

In most cases, the ventures are usually funded by founders and their most important source of funding, the “FFF”- “Friends, Family and Fools”! Just kidding! The point is that in the initial stages, there is always a funding crunch that has to be sorted by the founders themselves. You can infuse your own personal savings or borrow from your parents. Whatever you do, it is very important to keep a track and budget your expenses. Best is to prepare a budget. In this way you can track how much of your personal resources are drained and to what effect.

Nowadays, there are numerous seed fund organizations which are coming up. These organizations advance funds to startups at a relatively relaxed terms and conditions in exchange for a stake. There are organizations like MUTBI, IIT e-cells, NASSCOM 10000 startups which provide the necessary infrastructure like office space and operating area as well as a mentorship to some extent as well.

Obtaining necessary Licenses

Once you decide to start your business officially, there are some must needed licenses as well. For example, if you wish to start your venture as a private limited company or a Limited Liability Partnership (LLP), you would have to register your company with the Ministry of Corporate Affairs (MCA) first. Even if you do not wish to formalize your business as a private limited company or an LLP, there are some basic licenses like Trade License, VAT/CST which becomes mandatory.

College is a time when most people are confused about what line of profession to choose. A lot of them may be still wondering whether to join a job or to join their father’s business. Again, a few of them might have certain brilliant ideas of business and want to start their own venture. A few of them on the other hand are waiting till they complete their CA/CS/MBA or any other professional course so that they can start their business. Now, what is the right time? Should you start now or should you start after completing your studies? Why is the startup sector going ga-ga over college startups? Why should you prefer starting in college itself?

You have no baggage and absolutely no idea of “better ways of doing things”

College startups consist of youth who are excited, passionate and anticipatory about their business ventures. They do not need glass door offices, sparkly canteens, hard bound leather files of documents. The irregular working hours also won’t have the same effect on someone who’s used to spending nights cramming for tests and writing long papers. There is no reporting hierarchy. They do not have resources apart from themselves. So everyone does everything to the best of their capacity. There is least red tapism and maximum co-ordination.

You have ample time and energy to devote to your startup

When you are in college or fresh out of college, you have more time at your disposal than any person who has other duties to cater to like an existing job or spouse or kids. Further, in most cases, students typically aren’t trying to pay off a mortgage or support a family, which means that the business revenue can be recycle into the business to fuel its growth.

Easy access to mentorship and resources

Easy access to resources? Well, this is true. Which is your best resource? Knowledge! Knowledge can be about anything. It can be about how to account for your basic expenses, what licenses to obtain, what are the legal implications on various aspects of the business. It can be also about how to deal a tricky customer or a situation. When you are in college, you are surrounded by experts- your professors, career counselors. Some institutes like IITs also have e-cells and incubation centres. As long as you are in the college, these come to you for FREE! So make sure you take advantage of the professors and mentors you have at your fingertips.

The “default” network

The best part of a college network is your business spreads simply by “word of mouth”. Your first big market is your college student body. Word spreads from one to another and so does your business. Also, college goers are more likely to use social media for anything they find interesting, so it builds a great social-media advertising foundation from the start.

Failures are fine

Most of you in college are students of CA/CS/MBA or other professional courses. If there is one thing that these courses teach you, it is the fact that failure is a part and parcel of our lives. It also gives the cushion to cope with these failures. In fact, failing at anything means you’re trying. This is an age where you are expected to make mistakes. But this is also an age where you are most comfortable with changes so much so that you are capable of uprooting entire processes, if they do not deem fit.

To conclude, there is no right or wrong time to start. If you are confident about your idea and have the resolution to startup, then simply startup. It is fine not knowing everything. Rest you will learn along the way.

Author

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Alok Patnia founded Taxmantra.com, an expert in tax advisory & compliance. He is a Chartered Accountant having prior exposure with Ernst & Young & KPMG.

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