Legal issues in start up business
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.
Agreements between Company Founders
The ownership matters should be decided at the very
beginning if there is more than one founder in the company. This is ideal to be
done in writing after the verbal agreement. Also, if there is an accidental
departure or demise of one of the founders, then what should be the further
course of action? These things should be settled at the very earliest as a part
of company’s confidential documents/agreements so that the company is not left
to be partially owned and managed by one of the founders with innumerable
uncomforting questions from investors and supporters of the business.
IP Ownership
The ownership of your business and all the legal documents
supporting that is mandatory for you to take any decisions in favour of the
company and even if you plan to sell it later. From tax registrations to trade licenses
to Shop and Establishment Registration to even Labour and Employment
registrations, you will have to go through a lot of legal documents to obtain
licenses in India which are many with respect to a business in India. Investors
are also pretty careful and vigilant on license issues before they enter in any
kind of pact with a company so to keep investments coming in and growing each
day, it is necessary to take care of the licenses.
Equity Grants
The amount of shares both founders own in the company is an
important matter for both and needs proper focus and attention at the very
start of the business venture.
Tax Deals
If you are starting with a low-key business affair then you
may not have to pay any taxes. But, as you plan on expanding your business or
if you have started with a fairly big start-up venture as per the size,
investment and team members of the company, tax officers will start bugging you
and might even start looking at all transactions you have made till date, even
when you were not that big in the market.
For every start up, this group shares an opportunity to
develop network of Accelerators and Incubators. Further to understand all legal
issues compliances and financial issues. To share updates on startup India.
How to Fund Start ups
1. Fund your startup yourself.
These days, the costs to start a business are at an all-time
low, and over 90 percent of startups are self funded (also called
bootstrapping). It may take a bit longer to save some money before you start
and grow organically, but the advantage is that you don’t have to give up any
equity or control. Your business is yours alone.
You can see that all of these options require work and
commitment on your part, so there is no magic or free money. Every funding
decision is a complex tradeoff between near-term and longer-term costs and
paybacks, as well as overall ownership and control.
2. Pitch your needs to friends and family.
As a general rule, professional investors will expect that
you have already have commitments from this source to show your credibility. If
your friends and family don’t believe in you, don’t expect outsiders to jump
in. This is the primary source of non-personal funds for very early-stage
startups.
3. Request a small-business grant.
These are government funds allocated to support new
technologies and important causes, such as education, medicine and social
needs. A good place to start looking is Grants.gov, which is a searchable
directory of more than 1,000 federal grant programs. The process is long, but
it doesn’t cost you any equity.
4. Start a crowdfunding campaign online.
This newest source of funding, where anyone can participate
per the JOBS Act, is exemplified by online sites such as Kickstarter. Here
people make online pledges to your startup during a campaign, to pre-buy the
product for later delivery, give donations or qualify for a reward, such as a
T-shirt.
5. Apply to local angel-investor groups.
Most metropolitan areas have groups of local high-net-worth
individuals interested in supporting startups, and willing to syndicate amounts
up to a million dollars for qualified startups. Use online platforms such as
Gust to find them, and local networking to find ones that relate to your
industry and passion.
6. Solicit venture-capital investors.
These are professional investors, such as Accel Partners,
who invest institutional money in qualified startups, usually with a proven
business model, ready to scale. They typically look for big opportunities,
needing a couple of million dollars or more, with a proven team. Look for a
warm introduction to make this work.
7. Join a startup incubator or accelerator.
These organizations, such as Y Combinator, are very popular
these days, and are often associated with major universities, community
development organizations, or even large companies. Most provide free resources
to startups, including office facilities and consulting, but many provide seed
funding as well.
8. Negotiate an advance from a strategic partner or
customer.
Find a major customer, or a complimentary business, who sees
such value in your idea that they are willing to give you an advance on royalty
payments to complete your development. Variations on this theme include early
licensing or white-labeling agreements.
9. Trade equity or services for startup help.
This is most often called bartering your skills or something
you have for something you need. An example would be negotiating free office
space by agreeing to support the computer systems for all the other office
tenants. Another common example is exchanging equity for legal and accounting
support.
10. Seek a bank loan or credit-card line of credit.
In general, this won’t happen for a new startup unless you
have a good credit history or existing assets that you are willing to put at
risk for collateral. In the U.S., you may find that the Small Business
Administration (SBA) can get you infusions of cash without normal backup
requirements.
Incubators and Hubs
Amity Innovation incubator, an NGO which helps entrepreneurs
realize their dreams through a range of infrastructure, business advisory,
mentoring and financial services.
Impact Partners is an online platform that connects Impact
Investors to pre-screened Social Enterprises seeking private investment
capital.
Ciie Iima, comprises of IIMA faculty, alumni and other
individuals and partners with like-minded organisations to foster
entrepreneurship through incubation, ecosystem development and academic
initiatives.
Ian Incubator: mentoring and nurturing of entrepreneurs with
innovative technology or knowledge based ideas and reduces the risk involved
with their innovative product and services.
Khosla Lab was set up by Vinod Khosla and Srikanth Nadhamuni
in 2012 as an innovation lab to focus on solving large scale problems driven by
technology and entrepreneurial zeal.
NSRCEL’s mission is to take ideas to implementation through
a structured mentoring programme that helps entrepreneurs create successful
business entities out of excellent ideas.
Sine, hosted by the Institute of Technology Bombay, is a
business incubator which provides
support for technology based entrepreneurship
Technopark TBI provide startups with fully furnished office
spaces, mentoring support in developing business and technology plans,
networking of business resources, seed capital assistance, marketing
assistance, professional assistance, conference facilities and video conference
facilities.
Startup Village, a technology business incubator in Kochi
The Venture Center is a technology business incubator
specializing in technology startups offering products and services exploiting
scientific expertise in the areas of materials, chemicals and biological
sciences & engineering.
Villgro inspire, mentor, fund and incubate, early stage, innovation-based
social enterprises that impact the lives of India's poor.
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