SYMBIOSIS INTERNATIONAL (DEEMED UNIVERSITY)

(Established under Section 3 of the UGC Act 1956)

Re-accredited by NAAC with ‘A’ grade (3.58/4) Awarded Category – I by UGC

Program: BA.LLB (hons)

Batch: 2017-22
Semester: X
Course Name: Startup and Entrepreneurship Law
PRN: 17010125060
Name of the Student: Luca George N Antony

INSTRUCTIONS
1. Mention your details only in the space provided above. If any other details
name, contact detail etc. are written anywhere else in the answer script it will
be treated as adoption of unfair means.
2. Use diagrams and sketches wherever required.
3. Submission must be done by the student through google form link provided
by the examination department and all submissions must be in the word
format only(.doc/.docx). Submission of any other format will not accepted.
4. Submission will not be accepted beyond the deadline given by the
examination department in each subject. Student will be marked absent in
case of late submission.
5. Formatting guidelines: Font size & name: 12 & Times New Roman; Line
spacing 1.5; Justified; Page size: A4; No borders
6. Write your answer in your own language and do not copy paste from any
source. Read the question carefully and write your answer fulfilling the
requirements of the question.
7. If the students copy from each other’s assignment, it will be considered as
unfair means case and performance will be treated as null and void for the
entire examination.
 Q.1 For a decade, Mr. Deepak and Mr. Aakash have been running a successful CO
proprietorship. They are in the fruit and vegetable business. They came NO 2
across Ms. Aayesha who is in business development. She suggested both
of them to establish a start-up by registering a Limited Liability
Partnership and take your guidance.

With reference to the given facts, you need to guide Mr. Deepak and Mr.
Aakash on the significance of limited liability partnerships, benefits
available, and compliance required to establish a start-up through a
Limited Liability Partnership.

A.1

Many entrepreneurs start their businesses as a sole proprietorship due to low compliance
requirements. However, as a business grows, it needs change, and the owner may need
enhanced protection for his personal assets from business obligations and liabilities as well as
a better vehicle to attract investors. By being already two partners in the proprietorship, Mr.
Deepak and Mr. Aakash can convert the same into an LLP. By conversion, it is intended that
they undertake the registration of a new LLP.

LLP is an alternative corporate business form that gives the benefits of limited liability of a
company and the flexibility of a partnership. The LLP can continue its existence irrespective
of changes in partners. It can enter contracts and holding property in its own name. It is a
separate legal entity, is liable to the full extent of its assets but liability of the partners is
limited to their agreed contribution in the LLP. Further, no partner is liable on account of the
independent or un-authorized actions of other partners, thus individual partners are shielded
from joint liability created by another partner’s wrongful business decisions or misconduct.
Mutual rights and duties of the partners within a LLP are governed by an agreement between
the partners or between the partners and the LLP as the case may be. The LLP, however, is
not relieved of the liability for its other obligations as a separate entity. Since LLP contains
elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’, LLP is called
a hybrid between a company and a partnership.

The requirements to be fulfilled are the following:

- A minimum of two Partners is required to start the LLP formation procedure

 - Two designated partners, one of whom must be an Indian Citizen residing in India
- A registered office that is in India
- LLP agreement through which the mutual rights and duties of partners shall be
governed between LLP and the partners.

Following are the advantages of an LLP form of business when compared to a

proprietorship:

- Owners are protected from personal liability for company debts and obligations.
- An LLP has a reliable body of legal precedent to guide owners and managers.
- An LLP/company is the best vehicle for eventual public companies.
- An LLP can more easily raise capital through the sale of securities.
- An LLP can easily transfer ownership through the transfer of securities.
- An LLP can create tax benefits under certain circumstances but note that company
may be subject to “double taxation” on profits.
- An LLP can have an unlimited life.
- Further, compared to a Company, it is much more flexible and has fewer compliance
requirements.

However, Mr. Deepak and Mr. Aakash will have to be informed of the few drawbacks when
it comes to registering an LLP which are the following:

- Even if an LLP does not have any activity, it is required to file an income tax return
and MCA annual return each year. In case an LLP fails to file Form 8 or Form 11
(LLP Annual Filing), a penalty of Rs.100 per day, per form is applicable. There is no
cap on the penalty, and it could run into lakhs if an LLP has not filed its annual return
for a few years. In case of a proprietorship or partnership firm, there is no requirement
for filing an annual return. Hence, only penalty under the Income Tax Act would be
applicable.
- An LLP does not have the concept of equity or shareholding like a company. Hence,
angel investors, HNIs, venture capital and private equity funds cannot invest in an
LLP as shareholders. Thus, most LLPs would have to rely on funding from promoters
and debt funding.
- The income tax rate for a company with a turnover of upto Rs.250 crores is 25%.
(Further reduced in 2019 for new companies involved in manufacturing). However,
LLPs are taxed at a 30% rate irrespective of the turnover.
Considering Mr. Deepak and Mr. Aakash are in the fruit and vegetable business and have
been successfully carrying it out by themselves for several years, the LLP form suits such a
non-scalable type of business.

Q.2 CO
NO

Q.3 Write short notes on the following: CO

1. Issues in family business NO
2. Articles of Association – in brief

A3(1)

A family-owned business is any business in which most of the ownership or control lies
within a family.

Lack of succession planning

Indian family businesses are facing major challenge of succession planning. Succession
means change from one generation to another. It means change of leadership. It also involves
set of emotional issues, accepting new responsibilities, change of leadership issues. It is a
revolution in which the culture of the organization is restructured by the next generation, who
brings with them new ideas about how business should be run, how to develop new working
practices, new staff and new loyalties.

Sibling Rivalry

One of the greatest challenge family businesses faces is sibling rivalry. This happens mainly
because of sharing in the family business each members get. This happens particularly when
the business starts flourishing and expanding over the period. Rivalry with each other often
amounts to pull each other down at the cost of the organizational resources. It leads to feeling
of unjust and undue favouritism. If the rivalry is not resolved well in time, it may lead to split
in the family businesses e. g. The sibling rivalry of Ambani Brothers destroyed their whole
family business.

Women of the family joining the Family Businesses

Indian family businesses are still male dominated. Now a day the role of women in the
business and employing women is largely accepted and encouraged in India.

Attracting and Retaining Non-Family Employees

Non-family employees may also have difficulties in adjusting to the family business culture.
They are used to work in structured corporate environment. In family businesses there are
limited opportunities for growth and advancement because family employees occupy all
leadership position within the business.

Internal Family Conflicts

Often, family businesses face internal conflicts due to varied interest of each family member,
personal egos, personal rivalries that disturbs business harmony. The interest of a family
member may not be aligned with the interest of the business, or the interest of the entire
family may not be balanced with the interest of their business.

Absence of written document

There is not any clear written document in many family businesses which will define the role
and responsibilities of each family member, policies and business norms for family members.

Issues like salaries, share of profit, dividend, compensation, and retirement plan, exit policy
from the business are always raised and creates conflict in the business due to lack of any
written documents. Ultimately it disturbs the family as well as business harmony.