Compliance is a fundamental component of corporate governance and is integral to business ethics. In India, for any lapses in compliances, the CEO (management) and the Board of Directors are culpable. No matter how small or large a company, it is imperative that they be compliant with the legal framework set forth by the Government. Legal compliance is a broad subject and covers multiple areas such as labour, employment, tax, accounting, industrial, corporate law, environment laws and others. Regulations and de-regulations in the industry drive the need for constant compliance and hence demand that adequate compliance constructs and methodologies be put in place within organisations to fulfil those obligations. Compliance and its importance is often overlooked by many startups who are new to the business ecosystem simply because they are not aware of the existing laws. This article focuses on Legal Compliance (particularly Labour & Environmental Laws) and how it applies to startups in India.

The Government of India has embarked on a path to simplify compliance and make it friendly and flexible for startups per the 2016 ‘Startup India Action Plan’ and ‘Make in India’ mandate. The goal is to enable startups to focus on their core business and keep compliance costs low. In the Labour and Environmental Laws space, the Government has published a framework that enables startups to self-certify compliance through a mobile app (for 9 applicable legislations). Additionally, startups are exempt from inspections for a period of three years and therefore insulated from intrusive action by regulatory authorities.(However, in the event of a credible complaint of violations, startups may be inspected.)In such a conducive environment, it is the duty and responsibility of startups to take proactive steps towards compliance. It demonstrates to customers, investors and employees alike the management’s (entrepreneur’s) commitment to being a legally compliant entity by abiding with the laws of the land. It helps enhance the image and reputation of the company and attract and retain the right talent apart from gaining investor confidence.

To begin with, every startup needs to assess where they stand in the legal compliance spectrum. They can accomplish this through a quick self-assessment using readily available tools in the marketplace or through a legal audit conducted by expert firms and close all the gaps uncovered by the assessment. Once the compliance foundation is established, companies need to equip themselves with the ability to continually monitor their compliances and stay abreast of changes occurring in the regulatory and legal environment. Compliance should become a key part of the operating model of the company. Additionally, as the startup grows in size and number, it is imperative that they put in place appropriate hiring and employment policies and procedures. All such processes must be in compliance with applicable Labour and Employment Laws so that no disputes can be raised by employees during or after employment.

Prevention of Sexual Harassment at the workplace is another important area of compliance that most startups are unaware of. If a startup has 10 or more employees, the company is obligated to fulfil a defined set of compliances required under the Sexual Harassment of Women at the Workplace (Prevention, Prohibition and Redressal) Act, 2013. This includes putting in place the redressal mechanism established by the Law. If there are less than 10 employees, the startup comes under the purview of the District Officer of the region appointed for the purpose. Consequences of non-compliances under this Act are stringent including cancellation of license to run the business. Therefore, it is essential for startups to lay emphasis on the implementation of this Act and create an environment that has zero tolerance to sexual harassment at the workplace.

The right attitude and mindset of entrepreneurs focussed on building legally compliant and ethical organisations is the need of the hour

Multiple tools are available in the marketplace today that focus on legal compliance and make the task of implementation easy. A lot of these are easy to use online and mobile applications that truly make compliance available at one’s fingertips. Additionally, the industry has a pool of mature and experienced professionals to guide startups adequately in this area. Incubators and fund houses typically provide resources for legal compliance that startups can leverage and rely upon right from the start. Given this lay of the land, the need is for startups to become aware of their legal and compliance obligations and adopt a methodology that best suits their company.

Therefore, a combination of legal SMEs and technology can help startups achieve the mandated and desired level of compliance. The right attitude and mindset of entrepreneurs focussed on building legally compliant and ethical organisations is the need of the hour. More and more startups, both existing and future, must pre-emptively and consciously inculcate legal compliance into their DNA. Otherwise a large number of startups bereft of compliance could be left behind in their quest for success and sustainability.