The trend of starting up a new business in India is quite catching up, not in scale or pace that’s been seen in Silicon Valley. We see patterns wherein many want to start/build something new – working executives who have acquired enough skill sets and experience, along with a group of friends or freshers who are talented and have a good business idea.
Although talented in their respective fields, knowledge or awareness to this crucial component that links everything in a business or organization (legal aspects) is missing quite often . The start-up guy must acquire some basic legal knowledge that puts various things into perspective and certain things can be avoided in the future.
We’ll explore the key different scenario that may arise in the future and this article would help keep you well prepared for those eventualities. A common example to mention is a person ABC wanted to start a business and just for meeting the statutory requirement of minimum 2 partners; he invites his ex-colleague XYZ, to be a partner/director of the company. Later on, some conflict of interest crops up that leads to some disagreement.
In this he/she could find scratching their head and what they have done, If ABC should have introduced his spouse/parents as another partner instead of his colleague that would have met the statutory requirement and the further issues may be avoided. There can be many instances that shall result in conflicts, due to misunderstanding among partners or purely lack of knowledge e.g. Determination of Capital, Director’s remuneration, Partner’s rights, roles & responsibilities, Expulsion of any partner etc.
We have new legal structure options now – LLP apart from Private Limited for Startups. It gives the Entrepreneur to select according to his/her business needs, which goes well with the saying “one size doesn’t fit all”.
In this Startup /SME Guide, I would like to share some of the aspects one should take care of or the points to be discussed among partners while forming a LLP or a Private Limited Company.
In case of a LLP, it is important to note that all these points should be part of the “Limited Liability Partnership Agreement” to be made between the partners. Following points should be discussed before drafting of LLP agreement,
- LLP funding/capital – Partners either may bring in Cash / money’s worth of any Property, Rights or render Services agreed to as per as separate agreement made between the LLP and such Partner. If the partner intends to render his services in the form of capital, it shall be valued by a practicing Chartered Accountant or by a practicing Cost Accountant or by approved valuer from the panel maintained by the Central Government. Also in this case, the clauses of service agreement should be drafted carefully between the partner and LLP.
- Partner’s contribution – Proportion of contribution to be decided either equally or based upon the responsibilities. Partners shall have the rights, titles and interest in all the properties and assets of LLP in proportion to their Contribution.
- Admission of new partner – Consent of all partners is necessary.
- Rights and duties of partners – Mutual rights and duties of partners.
- Indemnity (compensation) clause – Partner’s liability to indemnify for any loss to LLP due to his fraud in the conduct of business.
- Expulsion (removal/displacement) of partner – To decide the circumstances when majority of partners can expel a partner.
- Remuneration – The payment of salary / remuneration to be paid to the Designated Partners should be decided mutually based upon the responsibilities or services rendered.
- Sharing of annual profits – Portion of profit payable to partner to be decided.
- Termination and dissolution of partnership firm – The decision to terminate or dissolve the firm would be decided by the partner if it has incurred losses (if any).
- Matters to be decided by a resolution passed by a majority in number of the partners – In this case affirmative votes of all designated partners would be considered.
- Appointment of nominee in case of demise of existing partner – This clause can be inserted separately in LLP agreement, in advance. The Partners may nominate the persons / relative to inherit their respective interests by way of implicit assignment immediately upon their death or being declared insolvent.
Additionally to the above points, while forming a Private Limited Company, one should take care of following points to be discussed among partners;
- First directors – Whether they would be executive (working) or non executive (non working).
- Resident Status of shareholders – Whether they are Indian resident / Non Resident Indian / PIO holder/ foreign national / body corporate – the incorporation procedure part varies for each type.
- Shareholding structure – Type of issue (Equity or preference), face value, number of equity, contribution to be made by each shareholder.
- Registered address for proposed new company – To decide mutually the place at which the company will be incorporated (i.e. in case the partners reside in different States). Based upon the place, stamp duty may vary. One should submit proof of residential address at the time of incorporation.
- Clauses of Memorandum of Association (MOA), Articles of Association (AOA) which are the important documents of the company, needs to be drafted suitable to the business of the company.
- The capital clause should be mentioned carefully in MOA/AOA so that any clause can be inserted / deleted, if required later on.
So, are you start-up ready?
The same article was published in MarketExpress – a Financial & Business News, Analysis, Insights, Opinions & Research Portal. Click here to read the article.
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Legal Disclaimer:
Hello mam,
Can a person become partner in two LLP’s or PLC.
Yes
Hello Mam,
I am living in pune kothrud. I would like to register for a shop act, but I would like to do shop act licence for my online institute from my home town tumsar, so questions are coming to my mind are
1. can I operate my institute office from pune, if my shop act registration from tumsar.
2. if yes then can I make my shop act licence from Pune on address of my home town.
I have heard that Government has made some amendment in Shop act licence. It is not required for new business from January 2018 onward.
Want to start Manufacture Food product like Banana Wafers, Potato waters, Maida Puri, Poha Chivda etc.. Yest not registered as any firm, guide how do i start & legal procedures
You can start with sole proprietorship firm initially. For more details you can call me.
hi, I want to start a new pharmaceutical trading pvt ltd co. of rs 100000 share capital with 2-3 directors. can we trade other products also in the same company in future…and can we also add NGO also. If yes..then Pls guide
You can add other products but as per my view you cannot add NGO.
We have pending matter before h’ble CLB for separation of Management as our Co is pvt ltd company but meanwhile we want to upload audited accounts with MCA and we are not able to hold AGM as dispute between the management and shareholder, accounts which we are going to uploded for past 3 years, can we do so? please guide
Though Board of directors adopt financial statements, financial statements are to be approved by shareholders in Annual General Meeting. If calling of AGM is not possible, Tribunal on application of any member of company call or direct calling of AGM and give directions as Tribunal may think fit. This is as per Section 97 (Power of Tribunal to call AGM) of Companies Act 2013.
I have one 2010 registered company which have 10 lacs authorized capital and 1 lacs paid capital. but company revenue is 0. I submitted e-fileing till 2013. Now I want to sold the company.
How much money I can get?
You will need to ask to the buyer who will buy your company.
Hi I want to start a new private limited company for trading and import export purpose. Please let me the list of documents required.
Kindly refer my article on step by step process of incorporation of private limited company , you will get list of documents.
I am going to start new agarbatti branding business with very less capital. So which form of registration will be favourable through which i can also get the IFRC (product code) for my product.
Sole proprietorship firm.
I am going to start business for branding incense stick. So will you advise me which form i should choose for registration for my business.
You can register proprietorship firm depending upon the investment or One person company.
Mam,
I would like to start a small Gruh Udyog for my Mom of “Home Made Owa Ark”.
Do I need to complete any formalities for legal stand point?. Do Govt allow an Individual to prepare Owa Ark @ own residence?
Yes business on small scale can be registered at own residence address. Either she can register proprietorship firm or one person company under Companies Act 2013. For more details read my blog to know the step by step process of formation of OPC.
Madam
I am an Indian working in muscat would like to open a company in India , please advice can i open a company in India without in India because i want to sell some my products through online webside and they are asking for buisness / tax registration no.
please advice for the same
You can open company in India without in India, provided you shall be required to send documents notarised from Home Country as per Hague Convention Act.
Hello,
i want to start a tea powder production packing plant of my own brand name. will you please explain which kind of NOC & permission i have to take.
Shop act licence, VAT registration will be necessary.
Hello madam,
I would like to start my own gruh udyog but i don’t know which documents are required to start up business. Please explain me legal formalities for the same.
Regards,
Minal
Please call me.
Hello,
Me and my 4 friends are planning to start multi-vendour marketplace e-commerce website in pune.
We are from Pune Itself, Can we start it with LLP?
Any minimum age limit for it because we all are about 21 years of age & mechanical diploma pass out.
What Will be cost to Start LLP?
& capital is less than 100000
PLEASE REPLAY,
THANK YOU.
Please call me.
To respected madam regards. I am high school commerce pass suffering from epilepsy wants to start a business of industrial supply in pune city. Please advise me the economical way and low cost procedure of registering a industrial hardware supply business in pune because family of 6 members are depended
You may start proprietorship firm
Hi Mam.
The Blog created by you for understanding Company Formation/Incorporation and Registration is very helpful.
Thanks for the great effort and time devoted by you.
Regards,
Sorry for late reply and thanks for your comment
hello maam
a company registered in USA wants to establish a private company in India. We wanted to know the procedure and requirements of law. The company deals in medical products.
Please visit my blog to know the step by step procedure of formation of company in India. For more details please call me i will advise you to form company in India.
Dear Madam,
I want to know about the compliances to be done and approvals to be obtained for a E-commerce business carried out in India and abroad.
The business will be carried out by a LLP.
Please help.
You can form LLP with e-commerce business in India. you will need RBI prior approval if there is any Foreign direct investment from any foreign partner in LLP.
I am an NRI ( holding Indian passport) and planning to start a business in India with another NRI partner. I read the following clause for forming Private Limited in one of your articles and does the the same clause applicable for LLP formation? What are our options?
Minimum requirements for the Private Limited Company
• Minimum 2 Directors [As per Section 149 (3) of the Companies Act, 2013 (implemented with effect from 01.04.2014), every company shall have at least one director on its board of directors, who has stayed in India for a total period of not less than one hundred and eighty two (182) days in the previous calendar year.]
If you would like to form LLP and there are two NRI, then one partner should be Indian resident as per prerequisite of LLP formation.
Hi, I am planning for a company which deal with Bee keeping, and Honey processing, Packing, Export, and Local sale in india. I am planning to start the company in Tamilnadu.
I am confused which company type I have to form LLC or Prop. or PVT.
Tell me which is best and why? please explain the legal formalities involved.
Please visit my blog to know the advantages and disadvantages of formation of LLP and then you can call me if you have further questions.
DEAR MADAM ,
I WOULD LIKE TO START A NEW CONSTRUCTION COMPANY,MAY I KNOW THE PROCEDURE TO REGISTERED THE NAME OF THE COMPANY AND WHAT ARE THE LEGAL POINTS TO BE CONSIDER WHILE REGISTER THE COMPANY
THANK Q MADAM
Pl. lease visit my blog to understand the procedure of formation of private limited company and compliance as per the Companies Act,1956
Hi Mam,
I want to form a Private limited company can you guide me to decide authorised capital of company i want to set up cold storage in gujarat. I also want to take loan of Rs. 6 crore for this so authorised capital how to decide.
If you would like to form company and need loan of Rs. 6 crore then decide about authorised capital of Rs. 10 crore.
hi mam
i wants to start my one company in cab provier sector. i am trying to make cab sector more trancparent with the help of IT support . me and my one friend take this startup. we are starting in pune only will u tell us what amount of money and darcument we required .to register our company.
Sorry for the delayed reply. Please call me.
Dear madam kindly tell me how much cost required to registered a pvt. ltd. company in india.
Please call me.
Hi Mam,
I am I would like to set up low budget food processing plant (masale) in Maharshtra Like Gruh Udyog, with two partner. plz explain me legal formalities for same
Thank you
Regards
Pravin
Please call me.
Good evening Madam,
Iam a fulltime salaried employee of a public ltd company planning to form a Pvt ltd company along with my 4 friends.all of us are working however we are also asssociated with one of our friends brother’s firm and have invested money in business with him. now at the same time we want start our own PVT LTD company i have gone through your blog on the prodecure and legal formalites also want to know to from your end are there any other things that we need to take care. Our business is based on data processing services to our clients .
Please call me.
Dear Mam,
We need to Convert a proprietory business with a annual turnover over 1 Cr. into Pvt. Ltd. Company. Wish to know the procedure for the same and the feasibility as well.
Please call me.
Hello,
We wish to start a new Pvt. Ltd co. for eletrical, Civil & Telecommunication related work, Please help us with the procedure and the legal implication for the same. We wish to take it asap and form a company for the said purpose.
Regards,
Vipul R
Please visit my blog for knowing the step by step procedure of incorporation. For further details please call me.
hello mam,
I m Dhanashri Parthe I have appeared for my CS final and seeking for articleship can you please help me reagrding the same
I don’t have vacancy for articleship in my firm.
Hi Mam!
i want to establish a company in Uttar Pradesh, for only Marketing of Agricultural Inputs such as Micro Nutrient Mixture, Bio Fertilisers and there after wants to deal in Pesticides also. Now pls advise me that what will be the procedure to setup it, a major question is that should i take a licence from State Agriculture Deptt.
Licence from State Agriculture Department would be required as per my opinion since you will be dealing in marketing of agricultural inputs.
I am presently unemployed and thinking of starting a distribution business of equipments. Do i need to register this?
yes for registration of any business you either obtain shop act licence(applicable in Maharashtra) and open Current account in the name of business.
I am a fulltime salaried employee of a public ltd company & interested in forming a new Pvt Ltd company along with my 3 friends.Two of them are not working however i don’t intend to leave my current job but still want to be a part of the new company.
Would like to know what are the options available with me to avoid any legal issue with me bacause of my employement.
Regards,
MIB
You should first find out what your Organization’s Code of Conduct / Terms of Employment Agreement states for the consequences of any violations. If it doesn’t allow you to start/participate in other ventures then you may take your own decision or there could be alternatives like adding your spouse/relative as a partner in that new venture.
Hello, I read your very informative article abt LLP on MarketExpress. My question is: Is is possible to form a LLP without a resident partner? In other words a LLP between an american and a NRI indian?
Thank you!
If both NRI, one partner should be resident of India.