Legal & accounting by anshul from GlobalEx

FORMS OF ORGANIZATION STARTUP SATURDAY, MUMBAI 10 th December 2012 Presentation by: Team GlobaLex

FORMS OF ORGANIZATION
A business enterprise can be owned and organized in several forms
The form to be utilized depends on various factors:
Nature of business
Capital & Scale of operations
Degree of control required
Risk & responsibility of the entrepreneur(s)
Manner of profit sharing
Tax liabilities
Compliances involved

SOLE PROPRIETORSHIP
HINDU UNDIVIDED FAMILY
PARTNERSHIP FIRM
LIMITED LIABILITY PARTNERSHIP
COMPANY

SOLE PROPRIETORSHIP
Oldest and most common form of business enterprise
One man organization – Proprietor owns, manages and controls
Suitable for businesses which require limited capital resources and involve moderate risk
ADVANTAGES DISADVANTAGES Ease of Formation Limited capital Maximum Incentives Limited managerial ability Secrecy of business model Limited Life Quick decisions & flexibility of operations Unlimited Liability Maximum Control Limited growth prospects

PARTNERSHIP FIRM
Relationship between two or more persons who have agreed to share profits & losses in a business carried out by all or a few on behalf of all of them
Formed by an agreement (written or oral) which contains the rights, duties and liabilities of all partners
Appropriate form for medium sized businesses requiring moderate capital and involving moderate risks
ADVANTAGES DISADVANTAGES Ease of Formation Absence of ultimate authority Greater capital and credit resources Liability for actions of other partners Quick decisions Limited life Enhanced managerial abilities Unlimited Liability

LIMITED LIABILITY PARTNERSHIP
Refined version of Partnership
Formed by a registered Partnership Deed which contains the rights, duties and liabilities of all partners
Appropriate form for businesses requiring large capital and involving limited risks equivalent to capital committed
ADVANTAGES DISADVANTAGES Separate Legal Person Ultimate authority lies with managing partner Transferability of Partnership Interest Compulsory registration Separate Assets/ Property Legal formalities, paperwork Limited Liability Decision making process; lower flexibility Capacity to sue in its own name Maintaining statutory books & registers

COMPANY
Voluntary association of person who come together to carry on business and share profits arising out of it
Artificial person created by law; can be dissolved by law only
Perpetual Succession and Common Seal
Appropriate form for large businesses (or having a potential to become so) requiring huge capital and involving high risks
ADVANTAGES DISADVANTAGES Separate Legal Person Compulsory registration Transferability of shares Restriction on powers Management separate from ownership Legal formalities, paperwork Limited Liability Process driven; lower flexibility Capacity to sue in its own name Maintaining statutory books & registers Most favoured by PE investors – gives easy entry and exit Tax formalities; Compliance costs

COMPULSORY REGISTRATIONS
PAN (Permanent Account No.)
TAN (Tax Deduction Account No.)
VAT (Value Added Tax) (Central & State)
Professional Tax , Service Tax
Shops and Establishments
Employees related such as PF, ESI, etc

CASE STUDY – E-Commerce Startup Basic Assumptions: Form of Organization – Company Business – Selling of goods/ services through dedicated portal; Dedicated call center for customer support Requirements – Back End - brick mortar office, warehouse, supply vendors, IT infrastructure Front end – Call centre, Employees, Payment Gateway, Courier Agency, Portal

CASE STUDY – E-Commerce Startup
LEGALITIES INVOLVED
Company Incorporation
Registration for PAN, TAN, Service Tax, VAT, Shops & Establishment, PF, ESI etc.
Domain name/ Trademark Registration Applications
Shareholding Agreement between Promoters
Leave & License Agreement/ Lease Agreement
Employment Contracts
Vendor / Courier Agency / Call Center/ Payment Gateway Agreements
ESOP Trust Formation, Vesting and Exercise Policy
Warranty and Replacement Policy

Timelines & Costs Involved
Company Incorporation – 7 to 10 days – 25K-30K + Statutory Fee
Registration for PAN, TAN, Service Tax, VAT, Shops & Establishment – 15 days – 10 -12K + Statutory Fee
Shareholding Agreement between Promoters – Depends on complexity of the structure –Stamp Duty + Attorney fee
Leave & License Agreement/ Lease Agreement - 6-7 days – stamp duty + registration charges + Attorney fee + Agent fee

Costs Involved & Timelines (Contd….)
Employment Contracts – Attorney Fee
Vendor / Courier Agency / Call Center/ Payment Gateway Agreements – Stamp Duty + Attorney Fee
ESOP Trust Formation, Vesting and Exercise Policy – Stamp Duty + Attorney Fee
Domain name/ Trademark Registration Application – 6 to 7days – Statutory Fee + Attorney Fee

Pitfalls
Too much trust and too less documentation
Cash dealings to avoid tax
Cutting corners on compliance costs
No clear cut policy on intellectual property management
No policy or inappropriate policy for warranty/ replacement

Best Practices
Unambiguous documentation
Proper regulatory filings
Intellectual Property registrations and policy for usage
Clear cut policy on warranty/ replacement

Legal & accounting by anshul from GlobalEx

by HeadStart Foundation on Dec 19, 2011

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Legal & accounting by anshul from GlobalEx — Presentation Transcript