Starting steps - Startups

Presented at: Startup Master Class at Pune on 3-Sep-2016Presented by: CA Jayesh Baheti@jayeshbahetiwww.bandsindia.com

What will we discuss?1. Comparison of structures of business entities2. Considerations for choosing structure of an entity3. Bumps in incorporation process4. Founders agreement

ComparisonFormation

informationSole

proprietorshipPartnership

FirmCompany

[Private/Public]One Person Company

LLP

Minimum requirements

One Proprietor Minimum 2 partners

Minimum 2/7 Members

Only one member

Minimum 2 Designated Partners & 2 partners

Formation Requirement

Only shop act certificate is required. The Shop Act fees vary as per number of employees.

Partnership deed is required

DIN for DirectorsCan be

incorporated through MCA integrated incorporation form

MOA & AOA

DIN for Directors

Can be incorporated through MCA integrated incorporation form

MOA & AOA

DIN for the Designated Partners

PAN for PartnersName approval

from ROCLLP Agreement

Time required

2-8 Days 4-12 days 5-10 Days 5-10 days 5-10 Days

ComparisonFeatures Sole

proprietorshipPartnership Firm

Company One Person Company

LLP

Foreign Investment NRI / PIO can invest

NRI / PIO can invest

FDI Under FEM rules - regulations

Not Allowed FDI Under FEM rules – regulations is allowed

Loan to/ from promoters

No restriction No restriction Legal restrictions Legal restrictions

No restriction

Additional Annual Compliances/ Audit

NO NO YES Yes Comparatively Less

Winding up formalities

-- Dissolution Deed

Legal procedure Legal procedure

Legal Process

Liability of promoters

Unlimited Unlimited Limited Limited Limited

ComparisonFeatures Sole

proprietorshipPartnership Firm

Company One Person Company

LLP

Separation of management from ownership

NO NO YES YES NO

Legal Identity separate from owners

NO NO YES YES YES

Tax on profits distribution [Dividend]

NA NA As per DDT As per DDT NA

Applicability of MAT/AMT

No No Yes Yes Yes

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Consideration for the structure

1. Ownership Control2. Management Control3. Capital/ Investment4. Profits repatriation and Tax Issue5. Estimated life of a business6. Commercial considerations

Bumps in incorporation process1. Name of the Company2. Shareholders and shareholding3. Director – Resident Director4. Registered address5. Attestation of director’s documents6. Foreign Direct Investment 7. Where to incorporate?

What about Founders agreement? Is it essential?

Founders Agreement1. Equity2. Exit3. Employment