This document discusses key considerations for choosing a business structure for a startup, including a comparison of sole proprietorships, partnerships, private companies, one person companies, and LLPs. It also outlines some common issues that can arise during the incorporation process and emphasizes the importance of a founders agreement to address equity, exit, and employment terms.
How to Register a Company in Singapore in 10 Simple Steps
Startup - Company Formation and Founders Issue
1. Starting steps - Startups
Presented at: Startup Master Class at Pune on 3-Sep-2016
Presented by: CA Jayesh Baheti
@jayeshbaheti
www.bandsindia.com
2. What will we discuss?
1. Comparison of structures of business entities
2. Considerations for choosing structure of an entity
3. Bumps in incorporation process
4. Founders agreement
3. Comparison
Formation
information
Sole
proprietorship
Partnership
Firm
Company
[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 Directors
Can 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 Partners
Name approval
from ROC
LLP Agreement
Time
required
2-8 Days 4-12 days 5-10 Days 5-10 days 5-10 Days
4. Comparison
Features Sole
proprietorship
Partnership
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
5. Comparison
Features Sole
proprietorship
Partnership
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
6. www.bandsindia.com
Consideration for the structure
1. Ownership Control
2. Management Control
3. Capital/ Investment
4. Profits repatriation and Tax Issue
5. Estimated life of a business
6. Commercial considerations
7. Bumps in incorporation process
1. Name of the Company
2. Shareholders and shareholding
3. Director – Resident Director
4. Registered address
5. Attestation of director’s documents
6. Foreign Direct Investment
7. Where to incorporate?
What about Founders agreement? Is it essential?
1. An Indian Citizen can invest only in operating companies outside India and not in holding company. Convenience of customers and preference of investors may be deciding factors.
2. Director – at least one resident director – stay in India for more than 182 days in previous year
3. Registered address – It is mandatory and supporting documents are necessary i.e. NOC of owner along with electricity bill
Equity –
Proxy holding should be avoided if possible they should be kept for as short duration as possible.
Family holding typically should be kept in a way to reflect actual promoters should be holding majority stake.
Exit –
Lock in period
What happens if one founders wants to exit? Should he continue to hold shares?
Conditions to hold shares
Employment –
Full time or Part time, when full time?
What if employment is terminated? Voluntary or involuntary reasons?
Compensation at each phase. Seed/ Angel Round, Series A and further