Are you starting up?
In my experience, most start-up founders prefer to spend minimal time on legal aspects due to its rather overwhelming technicalities, and operational demands. This is therefore, an attempt to help de-mystify the legalese for the start-up community – the how to, when to and what to in India!
Frequently asked questions
We can help you with a chart comparing the various company structures on different aspects. You may make an informed opinion after you read this chart.
Category | Partnership | Company (Pvt / Public) | LLP |
Incorporation | file a partnership deed / affidavit with Registrar of Firms with required fee | file incorporation forms along with the charter documents and required fee | file incorporation forms, LLP agreement and required fee |
Voting Rights | Dependent on the partnership Agreement | Dependent on the number of shares held by the members | Dependent on the terms of the LLP |
Can I sue? | only if registered | yes & (can be sued) | yes & (can be sued) |
Rights and Duties of partners / directors | Governed by the partnership deed | Governed by the AOA and resolutions passed by shareholders or directors | Governed by the LLP Agreement |
Liability of partners / members | Unlimited; Partners are severally and jointly liable for actions of other partners and the firm and liability extend to their personal assets | Limited to the amount paid up on each share | Limited to the extent of contribution to LLP except in case of intentional fraud or wrongful act of omission or commission by the partner |
Admission as partner or member | As per the partnership Agreement | By acquiring shares of the company | As per the LLP Agreement |
Foreign nationals as stakeholders | Cannot be partners | Can be shareholders | Can be partners |
Whistle Blowing | ------- | A company auditor may report the matter to the Central Government | provided to employees and partners |
A Company is a Private Company when:
the Articles restricts the right to transfer of shares; and
the Articles state that the maximum number of members that the Company can have is 200
Note: The public is not invited to subscribe for any securities of the Company. When many persons hold shares jointly, they are considered as a single member.
A company which is not a private company is a public company. It should have a minimum paid-up capital as may be prescribed. Note that even the subsidiary of a Public Company will be deemed a Public Company even if its Articles of Association state otherwise.
When only One Person is a member of a Company, it is an OPC. The Memorandum of Association of the Company must indicate a nominee who will become the member upon the death of the One Person or in cases where that One Person becomes incapable of entering into a Contract. The Nominee must give a prior written consent in a prescribed form when the Company is being incorporated. The Nominee can be changed.
Under 'Unlimited' liability, a partner’s liability extends to his personal assets. In a 'Limited' liability, the liability is only to the extent of respective partners’ investment in the partnership.
If you are forming the Company with charitable objects, this will be governed by S.8 of the new Act. This will be a limited Company. In such a type of Company, ensure that:
the object of the company is in promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment and other objects of this kind
the profits and other income of the company will be used to promote its objects
no dividend will be paid to its members
First the Central Government has to give its approval in the form of a license. The Company can then be registered through an application to the RoC. Note, any alterations to the MoA and AoA require the Central Government approval.