From the Launchpad - Prabin Subedi

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From the Launchpad - Prabin Subedi

Prabin Subedi is a startup lawyer and one of the cofounders of Paramount Legal Advisory Services (PLAS). In his role as a mentor at NEXT Launchpad, Subedi plans to help startups understand basic legal and licencing implications in Nepal, with an emphasis on tech-related issues. This lightly paraphrased version of Shrestha's interview with VMAG's Barad Ghimire encapsulates Subedi's insights on all the necessary legal steps a new startup should follow, from creating a new legal entity and securing intellectual property to being compliant with cyber laws.

Starting up: Thinking through your legal identity

There are multiple ways one can register a company, depending on the type of business. A business may be a sole proprietorship, a multiple-shareholder entity, a partnership or one of many other types. Each type of business ownership comes with its unique implications, and it is important to make the registration decision based on future projections of the startup. It is highly recommended that you register a company as a limited liability company even if you are starting alone. This will, first, help you separate the entrepreneur from the company, limiting his liabilities to the extent of his investment in case of the company's closure. Second, it will save you a lot of time and effort on paperwork if you decide to transform into a multiple-stakeholder company.

 

Registration formalities: MoA and AoA

Businesses must finalise their Memorandum of Understanding (MoA) and Article of Association (AoA) to apply for registration. A Memorandum of Association (MoA) is a document that outlines the basic framework of the business. It includes information about the capital structure, operation type and the objective of the business. MoAs play an important role during various legal procedures. The Article of Association (AoA) is a more detailed document that includes procedural details and the inner workings of the business and its management. Startups in Nepal tend to treat the AoA as a strict set of rules; however, that is not what it actually means. Especially for small startups, AoAs can be flexible, and in some cases, may not be required at all.

Next Up: PAN, VAT or Protecting Trademark

Once a startup is opened and successfully registered, you will have to take care of multiple legal obligations. First things first: the startup should apply for a Permanent Account Number (PAN), as it is required by the law and is important for taking the next steps. The business might have to apply for a VAT identification number: this depends mostly on the type of business and its annual turnover. Nepali law requires any business with an annual turnover of Rs 50 lakhs to apply for a VAT. The business might then start working on trademark. The trademark law in Nepal is slightly different from trademark laws abroad. Internationally, well-known marks are recognised and even protected, but in Nepal, they are not recognised judicially. The first business to file the application for a trademark will get full ownership of the trademark. Thus, it is important to immediately trademark anything that is replicable, such as the name, logo and slogan. Most startups are joint ventures among close friends and family members, so oftentimes the finances are overlooked. This is a misstep that might cost the business down the road. It is important to keep a carefully updated book of accounts throughout the business's life.

Binding human resource under contractual agreement

Another equally important but overlooked aspect is agreements. Agreements include everything from shareholder agreements between directors to non-disclosure agreements (NDAs) with logo designers. Oftentimes, we see creative differences between the members of a startup, which eventually leads to the entire business fizzling out. Agreements are important to avoid situations like these. It is recommended that you make all agreements in written form, regardless of how trustworthy a partner may seem. This will reduce implications in the future and make any necessary legal action easier to implement. Yet another overlooked aspect is the relationship between the business and its employees. Human resource management is essential to the business to create transparent employee contracts. Different businesses might prioritise different steps. For example, a technology startup's first priority would be to secure its trademark and licencing before moving on to HR. On the other hand, a small traditional business might not have anything to file a trademark for, so it will prioritise finances and HR.

 

Getting investment from foreign friends

Startups in Nepal are slowly starting to capitalise on foreign investments in different forms. And this is likely to increase in a globally connected world. Foreigners willing to invest in Nepal also have to follow different requirements outlined in Nepal. They can buy shares or equity and most importantly, they can do what's known as tech transfer, the process of transferring scientific findings from one organisation to another. There seems to be a common misconception regarding foreign investment in Nepal. People think that foreigners can only own a certain percentage of a business, and that the rest has to be owned by a Nepali, but this isn't necessarily true in every case. For example, a foreign business can own 100 per cent of a hydroelectricity project. It comes down to the type of business and the type of goods or services it is selling. Yes, in some cases, like telecom services, foreigners have a limit on the percentage they can own. And in other businesses, such as those related to rural tourism and handicraft, they are completely barred from investing in such ventures. It is important to note that by law, there is no discrimination between local and international investors.

Law and tech-based companies

Since it's a relatively new sector, there is a lot of work to be done on the legal aspects of the Information Technology (IT) sector. We do have cyber laws such as ones regarding the regulation of digital and licencing signatures, but they have yet to be properly implemented. In most cases, the laws are lacking: for example, there are no laws regarding payment gateways, ISP (Internet Service Provider) liability, domain liability. Most, if not all, of the newer startups are tech based, or have some sort of IT component to them. The fact that there are no concrete cyber laws that govern tech startups is a challenge for growing startup players and the startup ecosystem.

Working with law firms

Ultimately, startups may wish not to hire a lawyer at all; it's completely up to the business itself. While startups can certainly complete every procedure by themselves, working with law firms has its own advantages. Simply put, the expertise provided by law firms will help you avoid legal hiccups, which will otherwise cost you valuable time and money. Having ties and working closely with law firms help startups and its founders protect their interests, avoid future legal complications and sort out such complications if they occur. And as an added perk, procedures get completed within weeks. In essence, law firms help startups deal with legal complications and help them focus on what's important: growth and innovation.

*First Published by the author in M&S VMAG

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  • Guest
    Kay Escalante Tuesday, 19 November 2019

    Bharad fantastic good for u. Now read my comment I wrote on dustbuster and clinch a deal for those fools with Mark Zuckerberg

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