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Once you get the idea for your startup and have gone through with the market available for you, now you are ready for the next step. But wait, how will you do that? Implementing your idea by incorporating sole proprietary, partnership or Company!

Well, this article is all about your Next move.

Common legal mistakes are done by Start-ups:

1. Ambiguity in terms of agreement- unclear rights and obligations;

2. Infringement of IP Rights;

3. Non-disclosure of privacy policy;

4. Appointment of inapt legal counsel;

5. Formation of wrong entity

What should keep in mind while forming Legal Entity:

  • Tax liability;
  • Personal liability;
  • Preference of investors;
  • Record-keeping obligation;
  • Cost of formation;
  • Future goals of business

Kind of Legal Entities and their feature:-

Have an Idea for startup- What’s Next

SOLE PROPRIETARYWhere all the business is managed by individual

  • Single Ownership;
  • Full decision making;
  • Least compliance;
  • Unlimited liability;
  • Lack of credibility for investors;
  • No partner;
  • No eligible for certificate of Recognition

GENERAL PARTNERSHIPTwo or persons entered into an agreement called partnership agreement

  • Low cost;
  • Profit sharing;
  • Preparation of partnership deed;
  • Unlimited personal liability of both the partners;
  • Maximum 20 partners
  • Least compliances- as registration of partnership is recommendatory

LIMITED LIABILITY PARTNERSHIPIt is a General Partnership which is registered with the Ministry of Corporate Affairs- with features of Partnership and Private Company

  • Minimum liability benefit;
  • Moderate compliance requirement;
  • Superior tax advantages

PRIVATE LIMITED COMPANY- It is the most famous legal entity among persons for starting their business. It is an association of persons registered with the Ministry of Corporate Affairs.

  • Limited Liability;
  • Scalable;
  • Multiple shareholders [max 200 shareholders]
  • Good for raising funds
  • Separate legal existence;
  • Less Compliances as compared to Public Company and high compliances as compare to sole proprietary and partnership
  • Tax advantages

Procedure and documents required for the above legal entities can be received from any Professional. A Checklist for documents required and procedure can be asked from professionals for more adequacy.

Apart from the type of legal entity, it is also required to get a name of your business, following should be kept in mind while fixing a name for your business:-

1. It should be unique;

2. It should not be offended;

3. It should not be similar or identical with any other name;

4. It should not give preference to the political reference;

5. It should not be common;

6. It should reflect your business.

Now, if you have finalized the mode of Entity and Name of your business, it’s time to choose the location of your business. How to choose location?

1. Where there are clients of your business;- Client location

2. Where you can get skilled employee;

3. Need of overseas setup;

4. Benefit in reference to your business and many other vary business to business

There are some important license required to be obtained for some specific business models. There are two types of permit-

1. Generic Permit- Every business has to obtain this permit irrespective of their business model- Tax Registration

2. Specific Permit- This permit is required for some specific business model- TRAI License/FSSAI License Compliances

After obtaining all necessary approvals and setting up an business entity, you are ready to go for your business. After setting up your business, you are required to enter into contracts and internal policies of business which will be discussed in next article. To read about the business idea- THINK!, please click on the below link:-

THINK!!! [Start-up India initial stage]

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Hope you enjoy reading the article. We would like to hear your business ideas on [email protected]

Disclaimer

The entire contents of this article are solely for information purpose and have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation by the Author. Kindly consider this article for informative purpose. There is no Professional Advise is given to anyone. In no event I shall be responsible for any loss or damage in any circumstances whatsoever resulting from or arising out of or in connection with the use of aforesaid information.

Author Bio

Qualification: CS
Company: N/A
Location: Faridabad, Haryana, India
Member Since: 09 Apr 2020 | Total Posts: 4

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