Precautions to be taken by the closely held companies/young entrepreneurs?
With the liberalization of economy, FDI inflow and outflow, technological
innovation, growth in service sector and with improvement in communication technology,
it is very nice to see many professionals starting their own companies.
But, there exist certain intrinsic issues. Broadly, the companies are of two kinds like private limited and public limited. If a company is not allowed to go public to raise funds and if the transfer of shares is restricted, then, it is private limited company as every one knows. If a company is allowed to raise money from public through prospectus or advertisement etc., its a public limited company. The present day young entrepreneur will start a private limited company initially and it will be closely held. Family members, friends and relatives etc. will be shareholders normally in closely held private companies. If the company is not successful, then, it can be wind-up voluntarily. But, if the company is successful, then, there can be some problems with profit sharing and promoter thinking of dominating the company and preventing the distribution of profits to all shareholders. It can happen and it is very common too. Now a day, one can start a company without much investment today and it can become so big within one or two years and its very much possible.
When a company becomes successful, then, many may try to take advantage of that though they have not done anything for the development of company. Steve Jobs says that he has taken one management guy to Apple Computers and because of him he has to leave Apple Computers despite being its founder. Its a nice example and it can happen everywhere.
The young entrepreneurs or the CEO's or promoters must be very careful in avoiding
these possible difficulties. The easy way to attack any promoter or a majority shareholder
is to allege something illegal. The minority shareholder may say that the majority
is oppressing them. If the minority simply says that they are being oppressed, then,
it will not certainly carry any wait. But, what happens practically is that the
companies and especially closely held companies may neglect maintaining all the
documents, filing the returns, recording the minutes etc., and it will give rise
to minority shareholders to attack majority and create problems in the course. In
I want to deal with the few precautions to be taken by the young entrepreneurs and those are as follows:
1. He must ensure that all the documents are maintained by the company.
2. He must ensure that every receipt, expenditure, purchase and sales etc. are recorded properly.
3. He must ensure that the company files all the returns with the authority like the Registrar of Companies without any default.
4. He must ensure the conduct of all the meetings as required under the Act.
5. He should appoint or engage a qualified and able Company Secretary or the Company Law Consultant to deal with the legal and secretarial issues.
Its true that the precautions to be taken can never be inclusive and I feel that the few precautions referred to above can be very very useful for young entrepreneurs.