Competent Legal Advisors for a Start up are a must.

 Competent Legal Advisors for a Start up are a must.

Dinesh K Kapila

Chief General Manager (Retd), NABARD

(Published in The Business Sandesh, 3rd April 2026). 

The area of law and legal advise is a somewhat gray area for most founders, often overlooked. Or delegated to their advisors or investors. This is specially in the case of fledging Agri Start ups. Often evolving without a cogent investor and the required mentoring. As we encourage start ups, particularly in the Agriculture Sector in the smaller towns and cities, the founders need to be aware about compliances, contracts non disclosure agreements, term sheets etc. My views are  based on some start ups I have interacted with, specially in the Agritech sector. I have benefitted by inputs from my son, Prashant Kumar Kapila, a practicing lawyer, who has tendered legal advise to select start ups. The typical founder is so involved in raising resources, testing pilots,  raising and deploying manpower, meeting with investors and fire fighting, that the legal side or aspects get lower attention. The fledging ventures often are unaware and learn as they evolve. A lawyer is crucial for Indian startups specially in the Agritech sector to navigate complex regulatory landscapes, protect intellectual property (IP), and structure funding.

The road to entrepreneurship, which is what start ups essentially are, is long and presents many challenges, including the legal aspects. For startups, the legal aspect is not just mere compliance but an essential tool for long-term business growth and sustainability, it is a strategic initiative.  Legal considerations should not be ignored in the growth process of a start up. These lay the foundation for a startup’s activities and therefore affect multiple parameters, from the company structure being developed or considered to compliance with the rules and the protection of intellectual property. Unforeseen legal issues can arise at times that can plunge a startup into a costly dispute or trigger adverse developments.

The government’s initiatives have helped fuel innovation and entrepreneurship, allowing startups to access funding, mentorship, and other resources. With growth, therefore, comes the necessity for strict adherence to legal norms and the awareness about commercial laws, which implies that an entrepreneur must be equipped with the right legal knowledge and expertise.

Choosing between a Private Limited Company  or One Person Company impacts tax liability and the ability to raise venture capital. A lawyer ensures a start up registers as a Private Limited Company, if funding by VCs is envisaged, as many investors avoid funding LLPs or proprietorships.   Changing the business structure later is a complex process involving the MCA. One of the most common reasons Indian startups fail in their first year is internal disputes. A lawyer drafts a Co-Founder Agreement that explicitly defines equity split, vesting schedules and exit clauses. This provides stability and comfort for investments by venture capital in the future. As regards Intellectual Property (IP) Protection, In India, the first-to-file rule often applies to trademarks and patents. A lawyer enables securing the brand name (Trademark) and ensures that any code or design created by employees or freelancers is legally assigned to the company through clauses. A lawyer can advise and guide the  company registration, compliance, employee agreements, and investor agreements, ensuring legal compliance from the outset, proper legal advice builds investor confidence and protects personal assets. A lawyer will handle crucial compliances and regulatory filings, mitigating risks, assist in securing trademarks, patents, and copyrighting software code to protect innovations and branding.  Lawyers help interpret and negotiate complex, legal jargon-filled term sheets during Seed, Angel, or VC funding, ensuring founders understand the impact on their equity and control. Lawyers protect the startup from litigation by drafting proper contracts with vendors, partners, and employees. 

My interacting with start ups along the maturity curve indicated gaps which were a concern. A founder said his partners were trying to sell out their shares and he was facing a real dilemma over the mode of retaining control. Somewhat similar, in a more evolved start up, its founder stated he had crafted his start up with an equal share for two of his relatives, now they  were having deep rooted disagreements. The point, did the founders take recourse to legal advise  before deciding the share holding.  ill drafted contracts including on shareholding have made founders or promoters rue their decision, whether they were driven by ignorance or trust or emotions.

Sentiments I often hear,  but we were best friends from college or cousins or classmates and we never anticipated we would go grow this much. The complexities of growth, managing an organization which has acquired size, often creates a dissonance. The founder, if he has while setting up the company, made errors of judgment in  shareholding or in accepting investments with conditions which maybe not conducive, can at times face costly time consuming disputes Later it is only hindsight or regret, the damage is done. A lawyer is a part of the risk mitigation process, guiding also the compliance with the rules and regulations for human resources, protects trade secrets and manages equity incentives.

Start up founders should maintain a close liaison with a competent lawyer while setting up the company / start up. Some time back, two young start up owners, bootstrapped, took legal advise  from Prashant. Their range of queries Included the mode of shareholding,  vetting agreements with investors, taking on board two more founders, an exit policy for a founder or a core employee and developing non disclosure agreements, applicability of certain Acts etc. In addition, inquiring about the mode of resolution of commercial disputes with suppliers and customers. These are basics, as they are starting out, but normally founders are more focused at this stage upon resource raising and implementation. In this instance they were educating themselves professionally. In a mature start up though, an in house legal counsel would be more effective for interacting with lawyers in actual practice, as it involves court craft and a certain understanding. Founders should also be aware about the clauses and mode of agreements and the reasoning.

An interesting case was of a founder, who actually pioneered the start up, coaxing his co founder, who had a substantial share, to exit, after bringing him on board for his technical acumen. When a core senior executive had to be let go by a mature start up, the major concern of the founder was how to enable a water tight non disclosure agreement, a legal lapse. Founders and their close associates have to have a fundamental understanding of Contracts,  Arbitration, Negotiable Instruments Act etc. Ensuring payments by customers at times requires notices or recourse to the NI Act, this is a reality. The skill of the lawyer matters in drawing documents and the founder has to equally aware by way of providing his or her inputs thoughtfully. Both have to be involved fully. The lawyer and the founder should invest time on the documents.  

A young CEO of an Agritech was guided on the drafting of agreements with farmers on the one hand and with vendors and suppliers on the other side and a couple of corporates. My advise to the CEO and Prashant was that the agreement with farmers had to be structured simply but yet inclusive of all crucial legal aspects. Else they would not agree or would lose trust, or be apprehensive. And their rights and duties had to be clearly defined.  As regards the vendors or suppliers, these agreements had to be comprehensive and carefully drawn up.

A case from a start up, it had commitments for a reasonable sized investment, a unique idea, a great Board, plans of going for an IPO, at  a crucial stage the sole investor backed out. The founder depended for legal advise on a team which was aligned with the investor. This was not a wise decision.  An independent legal advisor would have guided him better. His partners also took advantage of weak agreements to quit, the founder had associated on trust, which impacted legal recourse.

A Start up Founder must know the Business Structure, Startup India Certification,  Registration and Compliance, Legal Entity Registration, Government Registration, Tax and Financial Compliance, Tax Benefits, Labor Laws and  Adherence, Intellectual Property Protection, Protecting Your Assets, Contract Management, Effective Contractual Obligations, Co-founder Agreements, Data Protection, Data Privacy Compliance, Startup India, Benefits, Key Documents, MOA & AOA etc. It is complex and needs a lawyer in a consultative cum legal role,  for opinions and even informal advise.  An inhouse legal advisor can be the touchpoint but all major issues should be one to one discussions between the founder and an independent lawyer.   

The founders ought to associate a lawyer  on the knowledge of the law, industry specific knowledge and awareness, accessibility and location, track record, competence and reputation, compensation and readiness for consultations. In addition, the lawyer should be  willing to spend time with the founder, structure  the compensation accordingly. Even for on line submissions or certifications, get every document vetted and understand it. Update the legal advisor regularly as you evolve as a start up. This is necessary.  

It is not just about knowing what the law states and specifies and complying with it, this is about understanding the law, deciding your structure and vision and then aligning your goals and vision so as to comply with the law. Later, as the start up grows, the emphasis will shift to compliance, vetting agreements, dispute resolution etc. This is the crux.