The Legal Function –

Starting a New Business:

NPRK
 NPRK

What is a legal business?

 A business legal structure, also known as a

business entity, is a government
classification that regulates certain aspects
of your business.
 On a federal level, your business legal
structure determines your tax burden.
 On a state level, it can have liability
ramifications.
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What are the legal aspects of

business ethics?

 Business ethics refers to implementing

appropriate business policies and practices with
regard to arguably controversial subjects.
 Some issues that come up in a discussion of ethics
include corporate governance, insider trading,
bribery, discrimination, social responsibility, and
fiduciary responsibilities.
 The law usually sets the tone for business ethics,
providing a basic guideline that businesses can
choose to follow to gain public approval.
 NPRK

Why is a business legal

important?

1.Taxes
2.Liability
3.Paperwork
4.Hierarchy
5.Registration
6.Fund raising
7.Potential consequences for choosing
the wrong structure
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Types of Business

1.Sole proprietorship
2.General partnership
3.Limited partnership
4.Limited liability partnership (LLP)
5.C corporation
6.S corporation
7.Benefit corporation
8.Limited liability company (LLC)
9.Nonprofit
10.Joint venture
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Sole proprietorship

• Basically ‘self-employed’
• He /she works individually
• He / she can involve other people, either as
workers or employees
• Personal assets may be at risk if the business
fails
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General partnership (GP)

 A business owned by two or more people.

 general partnerships are subject to pass-
through taxation, meaning they are only
taxed once at the partners’ personal income
levels.
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Limited partnership (LP)

 Like general partnerships, limited

partnerships are owned by two or more
people
 limited partnership must have at least one
general partner
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Limited liability partnership

(LLP)

 The final type of partnership, LLPs are owned

by two or more partners and enjoy pass-
through taxation.
 The main disadvantage of the LLP business
type is that it is not available to all
businesses
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C corporation

 C corps, are one of the most common types

of corporation, and the ideal ownership
structure for a large company.
 C corps can be funded by issuing shares of
stock.
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S corporation

 S corps, sidestep the double taxation

problem that C corps face. Like partnerships
 S corps may only issue common stock to a
maximum of 100 shareholders
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Benefit corporation

 It's recognized by most US states.

 While they’re taxed the same way as C
corps.
 benefit corporation can both do good and
generate profits
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Limited liability company

(LLC)

 LLCs are distinct legal entities from business

ownership.
 Protecting owners from personal liability for
the debts and damages of the firm.
 LLCs can opt to be taxed as corporations
(twice)
 NPRK

Nonprofit

 A nonprofit is a business that has been

granted tax-exempt status.
 if your organization qualifies as a 501(c)(3)
tax-exempt organization under the Internal
Revenue Code, it won’t have to pay federal
income tax.
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Joint venture

 A joint venture is essentially a partnership

between one or more separate business
entities.
 This can be a specific project, or the
purchase and joint operation of a piece of
real estate.
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Relevant Statutes

• Partnership Act 1890

• Limited Partnership Act 1907
• Limited Liability Partnerships Act 2000
• Companies Act 2006
• Insolvency Act 1986
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Getting Together with others:

Partnership

There are 3 kinds of partnership:

• Partnership
• Limited Partnership
• Limited Liability Partnership
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Partnership – PA 1890

• A relationship between the partners, who carry on a business together

–s.1 PA 1890
• The business must be carried out for the benefit of all of the partners
• They must intend to make a profit
• Partnership has legal personality in Scotland , but incomplete (quasi-
legal personality) – s.4
• Partners may be liable for partnership debts – joint and several
liability (unlimited) with right of relief
• All partners may take part in management, and may make the normal
contracts of that partnership even without authority –s.5
 NPRK

Partnerships with Limited Liability

There are two forms under different statutes:

• Limited Partnership – Limited Partnerships Act
1907
• Limited Liability Partnership – Limited Liability
Partnerships Act 2000
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1. Limited Partnership

• has legal personality in Scotland

• some partners can have limited liability, provided at
least one partner has unlimited liability
• limited partners cannot take part in
management – or face joint and several liability –
s.6 LPA 1907
• formed by agreement – but must be registered at
Companies House
 NPRK

2. Limited Liability Partnership

 All partners have limited liability, and can take part in

management.
 The LLP has legal personality in UK.
• This form of partnership is incorporated similarly to a company.
• Used particularly by professionals eg accountants and solicitors
• Subject to some company law, eg must file accounts
• Can use the floating charge
• Partners pay income tax, as for other partnership forms
 NPRK

Companies – Limited or
Unlimited?

• Unlimited companies must be formed as private

companies
• Unlimited companies are unpopular as all members
face unlimited liability if the business is liquidated
• Limited companies: limited by shares or limited by
guarantee?
 NPRK

Companies – Private or Public?

Private companies:
• can be limited or unlimited
• if limited, name ends in ‘limited’
• no minimum issued capital
• less paperwork than public company
• only needs one director
• cannot use the Stock Exchange
 NPRK

Companies – Private or Public?

Public companies:
• can only be limited companies
• name ends in ‘plc’
• minimum issued capital of £50,000
• needs AGM,
• needs audit
• needs 2 directors
• may use Stock Exchange – but need not
 NPRK

Companies – Members and

Directors

• Companies have a board of directors

• Companies have members, who in a company
limited by shares are shareholders
• Unlike partnerships, company members have no
automatic right to take part in management
 NPRK

Companies – Legal Personality

and Limited Liability

• A company is legal person, separate from its members

and directors
• A legal person has rights and obligations in the same
way that a natural person does
• The members will normally also have limited liability
• The corporate form is very useful for business, in
enabling members to limit their risks of loss of capital,
and is used by both large and small business, and by
charities
 NPRK

The Company as a Legal Entity

The company is a separate legal person from its members

and directors – Salomon v Salomon & Co Ltd (1897) (veil of
incorporation)
Some attributes:
* Make contracts * Has perpetual succession
* Sue and be sued * Own property
* Commit (some) crimes * Have (some) human rights
* Commit delicts (through agents)
 NPRK

Companies v Partnerships 1

• Companies are formed by incorporation – partnerships by

agreement.
• Companies involve more expense and paperwork.
• Both are legal persons, but the legal personality of partnership
is incomplete.
• A partnership cannot have one member only, while single
member companies (both public and private) are permissible.
• Company shares are normally freely transferable, while
partners need the consent of their fellow partners to transfer
their interest in the partnership
 NPRK

Companies v Partnerships 2

• Partners normally have a right to take part in management; members of a

company do not.
• Members of companies may have limited liability. Unless it is a limited
partnership, or limited liability partnership, partners are jointly and
severally liable to an unlimited extent for partnership obligations.
• There are disclosure requirements on companies, but not on partnerships
(other than limited liability partnerships).
• A company can grant a floating charge; a partnership cannot, except for
the limited liability partnership.
• A partnership can normally be dissolved by any partner, but this is not
normally the case in a company.
• There are more than double the number of companies over the number of
partnerships.
 NPRK

Companies v Partnerships 3

Who runs the business?

• Partners are also those in charge of the
business
• In companies, shareholders and directors are,
usually, separate
( The shareholders are basically the “owners” and
directors are professionals)

Partners pay income tax, whereas companies pay

corporation tax on profits
 Important Documents Required
To Start A Business In India

 Certificate of Incorporation
 Licenses and MOUs
 Trademark registration and IP agreements
 Permanent Account Number (PAN), Tax Deduction Account Number (TAN), Digital
Signature Certificate (DSC), Director Identification Number (DIN), Tax Identification
Number (TIN), Goods and Services Tax Identification Number (GSTIN) and No
Objection Certificate (NOC)
 Non-disclosure agreement
 Shareholder’s agreement
 Employment contracts and offer letters
 Startup’s Bylaws (set of working rules or principles to regulate its environment)
 Founders/Co-founders’ Agreement
 Terms of Use and Privacy Policy
 What All Are The Basic Legal
Requirements To Start A Business In
India?

 Doesn’t matter how strong your entire team is or how impactful your
business idea is. If you forget any of the legal requirements to start a
business, a lot of problems are waiting for you on your journey.
Complying with the laws is only going to protect you and your
business against any kind of harm. Starting a business is an
extremely exhaustive process where you will need to take care of a
lot of legal aspects. Possibly, you might miss one or the other thing
while launching and handling your startup. Therefore, it is better to
have a professional business lawyer who can make this less stressful
for you.