Saturday, 13 June 2015

FROM ‘RE’MAGINATION TO ‘RE’INCORPORATION



In my earlier write-ups, I had discussed regarding corporatization of one’s ‘RE’magination and the need to have professionals like a lawyer, company secretary and chartered accountant by your side for all assistance in this process. In discussing the above, I used the example of a person who after working considerable number of years in average technology company finds out the possibility of designing and manufacturing of special type of solar panel which will not only be smaller in size but will also generate 25% more electricity than the existing models. This write up is about the convergence of your idea in the form of a business entrepreneurship. 

In India, the most preferred model for technology backed business entrepreneurship is private limited company. In other word, you will hardly find any technology start-up which is not a private limited company. However, it is one thing that you know how your technology works, but incorporating your know-how in the form of a company is a different thing all together. A company is essentially a creation of law and like every jurisdiction, formation and running of a company in India is governed by law i.e. Companies Act, 2013.

Essentials of an Indian Private Limited Company 

·                   Minimum paid-up share capital of INR 1,00,000 (i.e. minimum capital contribution is inexpensive).

·          It needs to carry out business in accordance with its memorandum and articles of association (memorandum and articles are just 2 documents. Memorandum needs to state the main and ancillary objects for which you propose to incorporate this company. Articles will state the internal rules and regulations of management. E.g. memorandum can state designing and manufacturing solar panels as main object and obtaining private equity investment as ancillary object. Articles can state how you would conduct the board and shareholders’ meetings, who will run the day to day affairs etc. But drafting these documents is not easy and require considerable amount to discussions, skills and understanding).

·              It needs to restrict the right to transfer shares (private company is your Privately Managed business. Random transferring of shares mean anyone can become partial owner your company in proportion of those shares and interfere in your decision making. Would you like this to happen? That is why transfer restriction is kept in the articles).

·              It needs a minimum of 2 and a maximum of 200 members (you along with your wife/son/daughter/parents can start and manage a private company. Unrelated third party is not required. So greater level of trust and comfort).

·               The articles need to state that any invitation to the public to invest capital is prohibited (You need to arrange the funds of your own, be it from your own savings or help from friends. You can’t advertise in the newspaper one fine morning and request public to contribute capital. Remember, your company is Private).

·          The incorporation process is faster and less complicated (If you are ready with all the required documents, capital contribution etc, a private limited company can be set-up in about 6-8 weeks time. Assistance of a practising company secretary is a must to incorporate. Additionally, a lawyer can help you in drafting the memorandum and articles to reflect your business expectations).

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