Every big business in the world was once a small enterprise. Amazon began from a garage, Facebook from a college dorm, Airbnb from a rented apartment, to name a few. Undoubtedly, these global giants began with a unique concept, had teething problems and tested the entrepreneurial skills of their owners.
However, there’s something these businesses share in common. They were able to overcome every legal issue that small businesses would face.
Unfortunately, the situation is far more complex in India. That’s primarily because of the large number of processes involved.
Therefore, it’s essential to know about common legal issues that small business owners face today.
Common Legal Issues of Small Businesses
These legal issues often serve as a deterrent to small businesses. Or they can land startup owners and small entrepreneurs in serious trouble with the law. Here’s a list of some common legal issues small business owners are facing today.
Read Also: Legal Agreements a Start-up can’t ignore
Number of Licenses & Permits
Despite Make in India initiative and single-window clearances available from various government agencies, when you open a small business the number of licenses and permits one needs to obtain can be staggering.
For example, an entrepreneur in Mumbai, who wants to set up a restaurant needs a staggering 44 licenses from various authorities. And if the restaurant will feature a bar or permit room, the small business owner needs to apply for an additional nine licenses.
By every definition, a restaurant or bar is a small business. It is part of the broader hospitality sector of India. You can well imagine the expense and effort that restaurateurs have to bear to obtain 44 to 53 licenses from different government agencies.
A small business owner cannot open a restaurant legally without getting these 44 to 53 licenses.
The same applies to most other industries as well. The number of licenses necessary to launch a small business simply take away a large chunk of the capital.
Goods & Services Tax Laws
Goods & Services Tax or GST came into force from July 1, 2017. And there’ve been some amendments made over these months on how much GST is applicable to various products and services and its payment.
Any small business has to comply with GST laws. It’s mandatory for every small business to obtain something that sounds as mysterious as ‘Harmonized System of Nomenclature’ or HSN code that consists of eight digits and a GST Identification Number or GSTIN.
Furthermore, there are two types of GST applicable on sales and purchases. One is Central GST while the other is State GST. As the names suggest, one is payable to the Central government while the other to the state administration.
The GST law is so complex that even veteran Chartered Accountants are sometimes at a loss to explain how to comply with its requirements. GST is binding upon every business. To an extent that even freelancers come under the GST ambit.
Thus GST is one more legal issue where small business owners in India are facing big problems.
Child Labor Laws
Despite the best efforts of the Indian government and judiciary, child labor laws in India continue to remain highly ambiguous. The law makes provisions for children of 14 years and above to work on non-hazardous jobs. However, there’s no clear definition of what constitutes ‘hazardous’ or for that matter non-hazardous jobs that children above 14 years can’t or can take.
A lot of small industries depend upon child labor to some extent for various reasons. One among them is humanitarian considerations. Allowing a child to work can sometimes pave the way for a family to lead a better life. A child also benefits since the employer has to ensure they have access to proper education through evening schools and government-sponsored educational initiatives.
Again, there’s a lot of ambiguity over how a small business owner should compensate a child worker for 14 years or more. Consequently, a lot of well-meaning small business owners that genuinely wish to help children earn a decent living and education find themselves on the wrong side of the law.
To add to their woes, several self-styled Non-Government Organizations (NGOs) arbitrarily check workplaces to detect child labor and file police complaints against small business owners.
Understandably, there are thousands of small business owners that wilfully flout child labor laws.
However, ambiguities in law and definitions leave small business owners whose intentions are to help children and their families, prone to arrests, court trials and irreparable damage to their personal and business reputation.
Sexual Harassment Laws
India has stringent laws to prevent sexual harassment of women at workplaces by colleagues and employers. Though there’re definitions of what constitutes sexual harassment at the workplace, the law is sometimes misused by women for a plethora of reasons.
For example, a friendly pat on the back by a colleague or employer on a female employee can be claimed as sexual harassment. Some women try and exploit various loopholes in-laws to falsely charge their male colleagues and small business owners of sexual harassment to settle personal scores or for pecuniary gains.
A large corporation has well defined corporate laws on what constitutes sexual harassment at the workplace and proper systems to curb and address such issues. And they’ve damage control systems in place to counter any negative publicity in the media.
Unfortunately, smaller business owners aren’t even aware of such laws or their extent. This renders them susceptible to false criminal charges filed by unscrupulous women.
Though a small business owner would eventually find acquittal from a court of justice, a case of sexual harassment by a female worker is sufficient to cause irreparable damage to a good reputation of a venture. Not to mention the mental trauma that a small business owner and their family would face in the event of such a charge.
While the Indian judiciary has won acclaim worldwide as impartial and unbiased, small business owners can face legal issues due to loopholes and ambiguity in various laws. A small business owner’s primary focus should be on the expansion of the enterprise. Unfortunately, a plethora of laws that can be exploited by dishonest employees continue tends to divert them from the primary purpose of the venture.
Try our all-in-one Legal Practice Management Software START FREE TRIAL!