USEFUL INFORMATIONS ON START UP BUSINESS
Legal issues in start up business
In case of a LLP, it is important to note that all these points should be part of the “Limited Liability Partnership Agreement” to be made between the partners. Following points should be discussed before drafting of LLP agreement,
LLP funding/capital – Partners either may bring in Cash / money’s worth of any Property, Rights or render Services agreed to as per as separate agreement made between the LLP and such Partner. If the partner intends to render his services in the form of capital, it shall be valued by a practicing Chartered Accountant or by a practicing Cost Accountant or by approved valuer from the panel maintained by the Central Government. Also in this case, the clauses of service agreement should be drafted carefully between the partner and LLP.
Partner’s contribution – Proportion of contribution to be decided either equally or based upon the responsibilities. Partners shall have the rights, titles and interest in all the properties and assets of LLP in proportion to their Contribution.
Admission of new partner – Consent of all partners is necessary.
Rights and duties of partners – Mutual rights and duties of partners.
Indemnity (compensation) clause – Partner’s liability to indemnify for any loss to LLP due to his fraud in the conduct of business.
Expulsion (removal/displacement) of partner – To decide the circumstances when majority of partners can expel a partner.
Remuneration – The payment of salary / remuneration to be paid to the Designated Partners should be decided mutually based upon the responsibilities or services rendered.
Sharing of annual profits – Portion of profit payable to partner to be decided.
Termination and dissolution of partnership firm – The decision to terminate or dissolve the firm would be decided by the partner if it has incurred losses (if any).
Matters to be decided by a resolution passed by a majority in number of the partners – In this case affirmative votes of all designated partners would be considered.
Appointment of nominee in case of demise of existing partner – This clause can be inserted separately in LLP agreement, in advance. The Partners may nominate the persons / relative to inherit their respective interests by way of implicit assignment immediately upon their death or being declared insolvent.
Additionally to the above points, while forming a Private Limited Company, one should take care of following points to be discussed among partners;
First directors – Whether they would be executive (working) or non executive (non working).
Resident Status of shareholders – Whether they are Indian resident / Non Resident Indian / PIO holder/ foreign national / body corporate – the incorporation procedure part varies for each type.
Shareholding structure – Type of issue (Equity or preference), face value, number of equity, contribution to be made by each shareholder.
Registered address for proposed new company – To decide mutually the place at which the company will be incorporated (i.e. in case the partners reside in different States). Based upon the place, stamp duty may vary. One should submit proof of residential address at the time of incorporation.
Clauses of Memorandum of Association (MOA), Articles of Association (AOA) which are the important documents of the company, needs to be drafted suitable to the business of the company.
The capital clause should be mentioned carefully in MOA/AOA so that any clause can be inserted / deleted, if required later on.
Agreements between Company Founders
The ownership matters should be decided at the very beginning if there is more than one founder in the company. This is ideal to be done in writing after the verbal agreement. Also, if there is an accidental departure or demise of one of the founders, then what should be the further course of action? These things should be settled at the very earliest as a part of company’s confidential documents/agreements so that the company is not left to be partially owned and managed by one of the founders with innumerable uncomforting questions from investors and supporters of the business.
IP Ownership
The ownership of your business and all the legal documents supporting that is mandatory for you to take any decisions in favour of the company and even if you plan to sell it later. From tax registrations to trade licenses to Shop and Establishment Registration to even Labour and Employment registrations, you will have to go through a lot of legal documents to obtain licenses in India which are many with respect to a business in India. Investors are also pretty careful and vigilant on license issues before they enter in any kind of pact with a company so to keep investments coming in and growing each day, it is necessary to take care of the licenses.
Equity Grants
The amount of shares both founders own in the company is an important matter for both and needs proper focus and attention at the very start of the business venture.
Tax Deals
If you are starting with a low-key business affair then you may not have to pay any taxes. But, as you plan on expanding your business or if you have started with a fairly big start-up venture as per the size, investment and team members of the company, tax officers will start bugging you and might even start looking at all transactions you have made till date, even when you were not that big in the market.
For every start up, this group shares an opportunity to develop network of Accelerators and Incubators. Further to understand all legal issues compliances and financial issues. To share updates on startup India.
How to Fund Start ups
1. Fund your startup yourself.
These days, the costs to start a business are at an all-time low, and over 90 percent of startups are self funded (also called bootstrapping). It may take a bit longer to save some money before you start and grow organically, but the advantage is that you don’t have to give up any equity or control. Your business is yours alone.
You can see that all of these options require work and commitment on your part, so there is no magic or free money. Every funding decision is a complex tradeoff between near-term and longer-term costs and paybacks, as well as overall ownership and control.
2. Pitch your needs to friends and family.
As a general rule, professional investors will expect that you have already have commitments from this source to show your credibility. If your friends and family don’t believe in you, don’t expect outsiders to jump in. This is the primary source of non-personal funds for very early-stage startups.
3. Request a small-business grant.
These are government funds allocated to support new technologies and important causes, such as education, medicine and social needs. A good place to start looking is Grants.gov, which is a searchable directory of more than 1,000 federal grant programs. The process is long, but it doesn’t cost you any equity.
4. Start a crowdfunding campaign online.
This newest source of funding, where anyone can participate per the JOBS Act, is exemplified by online sites such as Kickstarter. Here people make online pledges to your startup during a campaign, to pre-buy the product for later delivery, give donations or qualify for a reward, such as a T-shirt.
5. Apply to local angel-investor groups.
Most metropolitan areas have groups of local high-net-worth individuals interested in supporting startups, and willing to syndicate amounts up to a million dollars for qualified startups. Use online platforms such as Gust to find them, and local networking to find ones that relate to your industry and passion.
6. Solicit venture-capital investors.
These are professional investors, such as Accel Partners, who invest institutional money in qualified startups, usually with a proven business model, ready to scale. They typically look for big opportunities, needing a couple of million dollars or more, with a proven team. Look for a warm introduction to make this work.
7. Join a startup incubator or accelerator.
These organizations, such as Y Combinator, are very popular these days, and are often associated with major universities, community development organizations, or even large companies. Most provide free resources to startups, including office facilities and consulting, but many provide seed funding as well.
8. Negotiate an advance from a strategic partner or customer.
Find a major customer, or a complimentary business, who sees such value in your idea that they are willing to give you an advance on royalty payments to complete your development. Variations on this theme include early licensing or white-labeling agreements.
9. Trade equity or services for startup help.
This is most often called bartering your skills or something you have for something you need. An example would be negotiating free office space by agreeing to support the computer systems for all the other office tenants. Another common example is exchanging equity for legal and accounting support.
10. Seek a bank loan or credit-card line of credit.
In general, this won’t happen for a new startup unless you have a good credit history or existing assets that you are willing to put at risk for collateral. In the U.S., you may find that the Small Business Administration (SBA) can get you infusions of cash without normal backup requirements.
Incubators and Hubs
Amity Innovation incubator, an NGO which helps entrepreneurs realize their dreams through a range of infrastructure, business advisory, mentoring and financial services.
Impact Partners is an online platform that connects Impact Investors to pre-screened Social Enterprises seeking private investment capital.
Ciie Iima, comprises of IIMA faculty, alumni and other individuals and partners with like-minded organisations to foster entrepreneurship through incubation, ecosystem development and academic initiatives.
Ian Incubator: mentoring and nurturing of entrepreneurs with innovative technology or knowledge based ideas and reduces the risk involved with their innovative product and services.
Khosla Lab was set up by Vinod Khosla and Srikanth Nadhamuni in 2012 as an innovation lab to focus on solving large scale problems driven by technology and entrepreneurial zeal.
NSRCEL’s mission is to take ideas to implementation through a structured mentoring programme that helps entrepreneurs create successful business entities out of excellent ideas.
Sine, hosted by the Institute of Technology Bombay, is a business incubator which provides support for technology based entrepreneurship
Technopark TBI provide startups with fully furnished office spaces, mentoring support in developing business and technology plans, networking of business resources, seed capital assistance, marketing assistance, professional assistance, conference facilities and video conference facilities.
Startup Village, a technology business incubator in Kochi
The Venture Center is a technology business incubator specializing in technology startups offering products and services exploiting scientific expertise in the areas of materials, chemicals and biological sciences & engineering.
Villgro inspire, mentor, fund and incubate, early stage, innovation-based social enterprises that impact the lives of India's poor.
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