Legal & accounting by anshul from GlobalEx

FORMS OF ORGANIZATION

STARTUP SATURDAY, MUMBAI10th December 2012Presentation 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

FORMS OF ORGANIZATIONSOLE 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

FORMS OF ORGANIZATIONPARTNERSHIP 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

FORMS OF ORGANIZATIONLIMITED 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 committedADVANTAGES 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

FORMS OF ORGANIZATIONCOMPANY

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 risksADVANTAGES 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 TaxShops and EstablishmentsEmployees 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

infrastructureFront end – Call centre, Employees, Payment Gateway, Courier Agency, Portal


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

Business

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