Structuring a startup company: SS Navi Mumbai

Note: The following article is derived from our session with Parvez Kudrolli, Senior Associate at Khurana & Khurana, Advocates and IP Attorneys, Registered Patent Agent for Startup Saturday Navi Mumbai.

WhatsApp Image 2017-03-11 at 3.46.54 PM

The types of entities under which you can register your company are:

  • Proprietorship : It is a type of business entity that is owned & run by one person. Legally, she is the company. (Not exactly common with startups, so we drop this like a hot potato.)
  • Partnership : It is a type of business entity in which two or more individuals pool in resources and share the profits and liabilities. The upside to this is the fairly low amount of compliance criteria in terms of financial and legal requirements. A major point to note is the partners in a partnership may have unlimited liability, which is why Pvt Ltd Companies are an eventuality.
  • Private Limited Company : A Pvt Ltd company is a type of privately held business entity. It has a lot of compliance and financial requirements than a partnership. Most importantly, owner liability is limited.
  • Limited Liability Partnership (LLP) : Most startups these days prefer to go down this road. It is structurally more formal than a partnership but has lesser requirements than a Pvt Ltd Company.

Factors in deciding the right structure:

  • The team, promoters and partners
  • Resources / Cost : The minimum capital requirement for a Private Limited Company is approximately Rs.1 lakh, which is significantly higher than that for an LLP or for a partnership.
  • Limiting liability: Partnerships have unlimited liability. LLP or a Private Limited Company is preferred while keeping this in mind.
  • Compliance requirement: Low for partnership, as mentioned earlier.
  • Stage of the startup: Early stage startups, for example, may not have the resources/structures in place to comply with the requirements for a Private Limited Company.

Structuring through Agreements or Contracts:

Agreements with founders include the structure and defining the roles and responsibilities of each founder. Apart from founders, agreements are needed for investors, employees and collaborators.

It is critically important for proper agreements and contracts to be in place. This is to ensure clarity on roles, ownership of IPR, compensation, what happens when things go wrong, protection of the IPR, the continuity in case a founder leaves etc.

(Headstart Navi Mumbai has talked about the legal side of things twice before. Do refer them as well 🙂 )

Gaurav from Headstart felicitating Parvez 🙂

Have a go at this tiny quiz, and head over to our IPR post later!

Blog by Aishwarya Meenakshi

Also read – When to take the plunge: From Employee to Entrepreneur and the aforementioned Decoding IPR for entrepreneurs

These sessions were conducted under the theme ‘Basics of Starting Up’ on March 11, which is Part 3 in our ‘How To Startup’ Series.