Raghav Raj Raman, IT software engineer, with his friend started a business of providing designer, developer consultancies to various clients in India and abroad. They are skillful enough but still they are not able to earn much. Therefore, they decided to add a new partner to their business. They all agreed on certain terms and decided to form a partnership. Now, with marketing skills on their side, there sales jumped up heavily and they were getting orders from all over the world.
With their business on a roll, investor approached them and they end getting an investment of over US $10.05 million. But sometimes, investment is not good for the business. After getting the hefty dollars, partners seeks more business opportunities and losses their focus in the current business. Due to this, they started earning losses and their sales were down to all time low. They tried to rise up their business again but didn’t happen and they almost had lost all their hard earned money.
However it didn’t end up here. The investor who had invested in their business demands his money back. Partner refused and argued that they had lost all the assets in the business and now they have no assets to pay and legally investor cannot claim the money. Investor takes the matter to the high court and court decided that since partnership firm has unlimited liability, therefore, partners are personally liable to pay the amount due to the investor. Therefore, all the partners were held liable and they are asked to pay the sum from their personal assets.
According to the research, still 72% of the startup chooses to form partnership as their form of business and out of 72%, around 48% of the startups ended up losing their personal assets in the business. As per the research taken the India Inc, around US $3 billion of persnal assets are lost by the entrepreneur in the business.
Is there any way out to protect at least the personal assets?
Yes, there is a way. If start up can take little care about deciding there form of business, it can help them to mitigate the risk of losing the personal assets.
Start ups are always advised to form a limited company to start their business. However, if they still keen to choose the partnership, they they are advised to form a limited liability partnership. The main benefit of forming a limited company or LLP is the feature of limited liability which restricts the losses only to the extent of share capital.
Further, if you wish to register as a company, then you should also take care of which company to choose. There are three types of companies which can be formed in India, One Person Company, private company and public company.
Usually, most people incorporate OPC and private limited companies. But before choose them, you should do a little research on which type of company best suits you. For e.g. somewhere I reading a article which is worth sharing, i.e. 10 reasons why startups should choose OPC as their form of business, that you can read at http://www.quickcompany.in/advice/10-reasons-why-start-ups-should-choose-one-person-company-opc-as-their-form-of-business
Hence, choose your form wisely, a little care can protect your personal assets, so take calculated risk, always take decision appropriately, take calculated risk and go and win the world.