legalities of ventures

Legalities of VentureLegalities of Venture

Presented by: Xerxes V. DasturPresented by: Xerxes V. DasturPartnerPartner

V.S.DASTUR & CO.V.S.DASTUR & CO.Chartered AccountantsChartered Accountants

V. S. Dastur & Co. V. S. Dastur & Co. Chartered AccountantsChartered Accountants

Are you an entrepreneur?Are you an entrepreneur?1. Must have burning desire and discipline to 1. Must have burning desire and discipline to plan, work, and sacrifice in order to plan, work, and sacrifice in order to successfully transform your idea into reality.successfully transform your idea into reality. 2. Are you ready, willing and able to work 2. Are you ready, willing and able to work harder than you have ever before?harder than you have ever before? 3. Do you have self-confidence and discipline?3. Do you have self-confidence and discipline?If youIf you’ve answered “no” to any of these ’ve answered “no” to any of these questions, you may not be ready for questions, you may not be ready for entrepreneurship.entrepreneurship.


When you start a business, youWhen you start a business, you ’’ll ll have to decide upon the type of have to decide upon the type of business entity you want to use. business entity you want to use. There are a number of options There are a number of options available and each one has its own available and each one has its own advantages and disadvantages. advantages and disadvantages. There's simply no one-size-fits-all There's simply no one-size-fits-all answer as to what type of entity is answer as to what type of entity is the the ““bestbest””..


Developing Your IdeaDeveloping Your Idea

So whatSo what’s your idea?’s your idea?

WhatWhat’s your product?’s your product?

What goods or services are you going to provide to What goods or services are you going to provide to whom and whose needs are you going to meet? whom and whose needs are you going to meet?

For starters, you should ask yourself For starters, you should ask yourself “What are my “What are my skills, what am I good at, and what do I love to do?”skills, what am I good at, and what do I love to do?”


Choosing the Right BusinessChoosing the Right Business

1. Starting a New Business: Is your idea new or 1. Starting a New Business: Is your idea new or novel?novel?

2. Purchase an Existing Business: Many 2. Purchase an Existing Business: Many entrepreneurs start as franchisees in proven entrepreneurs start as franchisees in proven businesses, thus avoiding some of the risks and businesses, thus avoiding some of the risks and challenges inherent with starting a new business challenges inherent with starting a new business from scratch.from scratch.


Sole Proprietary Concern

Partnership Firm

Company

Joint Venture

Limited Liability Partnership

BUSINESS ENTITIES


Business Entity: Sole Proprietary Business Entity: Sole Proprietary ConcernConcern An individual personAn individual person No formal organizational requirementNo formal organizational requirement There is no limit to liability - your personal assets There is no limit to liability - your personal assets

are at stake!are at stake! You can only transfer the interests in your You can only transfer the interests in your

business by selling the assets themselves which business by selling the assets themselves which could mean more tax liabilitycould mean more tax liability..

Access to capital can be limited.Access to capital can be limited. No distinction between the owner and the entity in No distinction between the owner and the entity in

the eyes of Tax Authoritythe eyes of Tax Authority


Business Entity: Partnership FirmBusiness Entity: Partnership Firm

Two or more individuals (or entities) have shared Two or more individuals (or entities) have shared ownership of the business.ownership of the business.

Maximum of 20 partnersMaximum of 20 partners No formal organizational requirements.No formal organizational requirements. Any partner of the partnership can bind or obligate Any partner of the partnership can bind or obligate

the partnershipthe partnership There is no limit to liability for the partners. Liability There is no limit to liability for the partners. Liability

is joint and several. is joint and several. Taxes are paid at Entity Level.Taxes are paid at Entity Level.


Business Entity: CompanyBusiness Entity: CompanyWhat is a Company ?What is a Company ? Voluntary association of personsVoluntary association of persons Distinct name & IdentityDistinct name & Identity Limited LiabilityLimited Liability Perpetual successionPerpetual succession

Types of CompaniesTypes of Companies 1. Private Limited Company1. Private Limited Company 2. Public Limited Company2. Public Limited Company 3. Section 25 – Not for Profit Company3. Section 25 – Not for Profit Company


Business Entity: CompanyBusiness Entity: CompanyPrivate Limited CompaniesPrivate Limited Companies Minimum 2 and Maximum 50 ShareholdersMinimum 2 and Maximum 50 Shareholders No invitation can be made to public for No invitation can be made to public for

subscription of shares / debentures/ depositssubscription of shares / debentures/ deposits Rigorous management/governance structuresRigorous management/governance structures Liability of a director/manager of such a company Liability of a director/manager of such a company

can be at times be Unlimited.can be at times be Unlimited.

V. S. Dastur & Co V. S. Dastur & Co Chartered AccountantsChartered Accountants

Business Entity: CompanyBusiness Entity: Company

Public Limited CompaniesPublic Limited Companies Company which is Company which is notnot a Private Limited Company. a Private Limited Company. Certificate of Commencement of Business to be Certificate of Commencement of Business to be

obtained.obtained. Minimum 7 and no bar on Maximum ShareholdersMinimum 7 and no bar on Maximum Shareholders Invitation can be made to public for subscription of Invitation can be made to public for subscription of

shares / debentures/ depositsshares / debentures/ deposits


Limited Liability PartnershipsLimited Liability Partnerships

Hybrid business entity combining features of a Hybrid business entity combining features of a partnership firm and company. partnership firm and company. Limited liability of PartnersLimited liability of Partners No limit on maximum number of partnersNo limit on maximum number of partners Perpetual existence like a companyPerpetual existence like a company Non-applicability of The Indian Partnership Non-applicability of The Indian Partnership

Act,1932.Act,1932. No requirement of minimum capital No requirement of minimum capital

contributioncontribution


Joint VenturesJoint Ventures

Business agreementBusiness agreement Capital contribution by partiesCapital contribution by parties Parties agree to develop a new entity for a Parties agree to develop a new entity for a

finite timefinite time Share Revenues, expenses & assets.Share Revenues, expenses & assets.


Major ChallengesMajor Challenges

Economic Challenges Regulatory Challenges Technological Challenges Human Resource Challenges Personal Challenges

V. S. Dastur & Co . V. S. Dastur & Co . Chartered AccountantsChartered Accountants

Important Statutory Registrations Important Statutory Registrations

Basic Incorporation documentBasic Incorporation document Permanent Account Number Permanent Account Number Tax Deduction Account Number Tax Deduction Account Number Service Tax Registration Service Tax Registration Sales Tax RegistrationSales Tax Registration Social Security RegistrationSocial Security Registration Shops & Establishment Shops & Establishment


ComparisionComparisionSr. Sr. NoNo..

TopicTopic Sole Sole Proprietary Proprietary ConcernConcern

Partnership Partnership FirmFirm

CompanyCompany LLPLLP

11 RegistrationRegistration Not RequiredNot Required Optional Optional Yes, under Yes, under Companies Companies Act, 1956Act, 1956

Yes, under Yes, under Limited Limited Liability Liability Partnership Partnership Act, 2008Act, 2008

22 Separate Separate Legal EntityLegal Entity

NoNo NoNo YesYes YesYes

33 Law for Law for NameName

Choice of the Choice of the ownerowner

Choice of Choice of PartnersPartners

Approval to Approval to be be obtained obtained from ROCfrom ROC

Approval to Approval to be be obtained obtained from ROCfrom ROC






44 Foreign Foreign InvestmentsInvestments

-- Not allowed Not allowed from Foreign from Foreign NationalsNationals

AllowedAllowed AllowedAllowed

55 Minimum/MaMinimum/Maximum No of ximum No of Owners/PartOwners/Partnersners

11 2 to 202 to 20 2 to 50 for 2 to 50 for Private Private companies companies & 7 to & 7 to unlimited unlimited for public for public companiescompanies

2 to 2 to unlimited.unlimited.

66 Ownership Ownership of Assetsof Assets

Owner Owner Jointly by Jointly by PartnersPartners

With the With the companycompany

With the With the LLPLLP






77 ResponsibilitResponsibilities / ies / AuthoritiesAuthorities

NoneNone Governed by Governed by Partnership Partnership DeedDeed

Governed Governed by the MOA by the MOA & AOA of & AOA of the the companycompany

Governed Governed by LLP by LLP AgreementAgreement

88 LiabilityLiability Unlimited Unlimited LiabilityLiability

Joint & Joint & Several Several Liability of the Liability of the PartnersPartners

Limited to Limited to the extent the extent of unpaid of unpaid amount of amount of the shares the shares heldheld

Limited to Limited to the extent the extent of the of the contribution contribution stipulated in stipulated in the LLP the LLP Agreement.Agreement.

99 Transfer Transfer -- Not PossibleNot Possible Legally Legally allowed allowed

Depends on Depends on LLP LLP AgreementAgreement






1010 Basic Legal Basic Legal DocumentDocument

NoneNone Partnership Partnership Deed Deed

MOA & MOA & AOAAOA

LLP LLP AgreementAgreement

1111 Legal Action Legal Action for Businessfor Business

Owner can sue Owner can sue and be suedand be sued

Only Only registered registered partnership partnership firm can sue firm can sue third partiesthird parties

Company Company can sue can sue and be and be suedsued

LLP can LLP can sue and be sue and be suedsued


Which entity do I choose?Which entity do I choose?


Factors to considerFactors to consider

Mindset/PersonalityMindset/Personality Timing Timing Ownership Ownership Financing Financing CostsCosts Tax MattersTax Matters

Mindset/PersonalityMindset/Personality

Entrepreneurship Spirit Leadership Skill Team Member Listening Skill Self-centric Team builder


Timing IssuesTiming Issues

How soon do you plan to start your How soon do you plan to start your business? It is generally very easy to business? It is generally very easy to organize your business as a sole organize your business as a sole proprietorship, and you will spend proprietorship, and you will spend less time preparing and filing the less time preparing and filing the paperwork than with the other types paperwork than with the other types of entities. of entities.


Ownership issuesOwnership issues

Will you own the business yourself Will you own the business yourself or with others? Certain business or with others? Certain business structures more easily accommodate structures more easily accommodate more than a single owner. more than a single owner.


Also keep in mind when you are Also keep in mind when you are preparing your organizational documents preparing your organizational documents that you should consider the possible that you should consider the possible implications if one of the owner wants to implications if one of the owner wants to leave the business. It may seem leave the business. It may seem uncomfortable (and seem unnecessary) uncomfortable (and seem unnecessary) to think about this at the beginning, but to think about this at the beginning, but it can save a lot of stress and expense if it can save a lot of stress and expense if these issues are worked out beforehand..these issues are worked out beforehand..


Financing issuesFinancing issues

How do you intend to finance the How do you intend to finance the growth of your business – do you growth of your business – do you anticipate seeking outside anticipate seeking outside investments? If so what kinds of investments? If so what kinds of investors will you target? Different investors will you target? Different types of business entities are better types of business entities are better suited to different types of investors.suited to different types of investors.


CostsCosts

In general, the simpler legal In general, the simpler legal structures are less expensive to structures are less expensive to form, and require less money to form, and require less money to maintain. For example, in case of maintain. For example, in case of companies there are a lot of ROC companies there are a lot of ROC filings to be complied with.filings to be complied with.


Recordkeeping Recordkeeping

You may also wish to consider the You may also wish to consider the various recordkeeping requirements various recordkeeping requirements that are applicable to each type of that are applicable to each type of business entity. Youbusiness entity. You’’ll need proper ll need proper accounting records regardless of the accounting records regardless of the type of business entity, but type of business entity, but additional legal recordkeeping additional legal recordkeeping requirements may vary. requirements may vary.


For example, companies have For example, companies have relatively stringent recordkeeping relatively stringent recordkeeping rules (compared to other entity rules (compared to other entity types), and also have shareholder types), and also have shareholder and annual meeting requirements. and annual meeting requirements.


Tax mattersTax matters

Different entities are affected by Different entities are affected by different tax provisions. In general, different tax provisions. In general, in a sole proprietorship the profits in a sole proprietorship the profits and losses of the business will pass and losses of the business will pass through the ownerthrough the owner’’s individual tax s individual tax return. This avoids additional layer return. This avoids additional layer of taxation that occurs at the of taxation that occurs at the corporation level.corporation level.


Food for ThoughtFood for Thought

Decision on the type of entity Decision on the type of entity to choose is a crucial decision having to choose is a crucial decision having far reaching impact and should be far reaching impact and should be taken after due consultation. taken after due consultation. Invest time today to save Invest time today to save heartburn tomorrow. heartburn tomorrow.


THANK YOU and QUESTIONSTHANK YOU and QUESTIONS

legalities of ventures

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