Design for Online Sanctuary Submitted by: Mukul Shastry PGPX Class of 2015 To Prof. Anil Gupta For partial completion of course CINE
Synopsis Legal Issues which new start-ups face and how to tackle them What should be the structure Confidentiality and Employees Online resources
Best Structure for Start up Sole Proprietorship General Partnership LLP Private Company
Pros Cons Sole Proprietorship Business Losses can be offset with any other income thus giving tax advantages Low cost, minimal compliance cost, best if you are just testing your business idea You are fully liable for the business losses. Even your personal wealth will be privy in case of bankruptcy filing. You don’t have protection to ring-fence your personal wealth if business decision goes awry. Doesn’t allow you the tax and other advantages which some other structure provide Everything is part of your personal income tax Suitable for: Business owners with very limited employees, such as consultants, professionals, who can handle legal risks on their own or have nothing much to ring-fence.
Pros Cons Partnership - General Low cost, easy to form legal structure. Registration of partnership not mandatory but highly recommended. Certain tax advantage which partnerships can bring. Informational tax forms to be filled and benefits taken through personal taxation. Liability is unlimited and thus exposes your personal wealth. All the partners should be equally committed else one’s sluggishness will drag all resulting in complex human, emotional and even legal issues. Suitable for: Business owners who because of need of finance or expertise cannot do without the alliance, and all are trustworthy guided with same philosophy.
Partnership – Limited Liability Pros Cons Slightly costly to form than general partnership but far less compliance cost compared to Company. Limits the liability to the extent you are committed to partnership and personal wealth is not dragged to settle partnership dues. Taxation still personal and no advantages of partnership Laws are evolving and therefore legal certainty has not reached as is the case with Company. Suitable for: Business owners who wants to open a private company but want to give it a shot with LLP which has all the trapping of company with lesser compliance cost. Remember LLP is possible when the business is not highly scalable.
Pros Cons Private Company One of the most comprehensive structures allow business to scale up Different from owner have own taxation and accounting rules Very successful in keeping private wealth safe Allows the freedom to take debt or even venture capital/private equity Getting finance, scalability etc. easy Very costly and compliance cost heavy Needs to recruit professionals such as lawyers , company secretaries, Chartered accountants etc. for professional conduct Needs to have board of directors and abide by stringent legal requirements Suitable for: Businesses which want to scale high and need professional financing and management.
Employees and Confidentiality Initial Contacts are most important for a start up and since the employees are fluid, they come they go, it is possible that they may leak your contacts as well as trade secrets. www.leadershipmatters.guru/_.../Employee_Confidentiality_Agreement
Online Resources http://www.entrepreneur.com/article/224976 http://smallbusiness.chron.com/pros-cons-limited-liability-corporation-4425.html Few Indian Law firms who works for young start ups Corporate Legal Partners (http://www.corporatelegalpartners.com/index.php) Novo Juris (http://novojuris.com/)