Bootstrap in Bangalore

Many people ask how do I open a company as opposed to how do I start up. For a bootstrapper used to a bottom up way of thinking, this is not a question at this point in time. Other pressing things like your product or service should be occupying all your time. Sometimes the mechanics of starting a new legal entity, opening an office themselves give some kind of satisfaction of having made a step forward. It is usually a waste of time and money and might give a false sense of accomplishment.

Having said that, here is what you need to know about the legal tangle. Mind you for many things getting in touch with a chartered accountant will be necessary and this will only prepare you to have a more intelligent conversation with him. In case you are starting out on your own just think of a name and start off! As with so many things, there is no barrier to starting for a single person. Of all the forms of organizations allowed sole proprietorship is the most common and easiest. When the business is small you could even continue with your savings account. Its better to open a new account though so that personal and business expenses can be segregated. You won’t have to visit a chartered accountant (CA) for assistance unless you have to cut TDS (tax deduction at source) for which a TAN number is needed. I case you want to portray as if you are a business and not an individual, create a website XYZ.com and a current account with the proprietorship name as XYZ, then you can accept cheques in XYZ. For the uninitiated a current account is an account with a bank meant for businesses. Normally, if you have been an employee you would only be having a savings account. Businesses keep working capital in their account unlike individuals who keep savings. At least that is the theory, there is no reason an individual should not be running his personal expenses like a business. Anyhow suffices to say be prepared to open a current account if you want to accept cheques which are not personal.

Most likely you would be starting with friends. In that case go for a partnership which is the cheapest way to make sure all of you have a share in the business. In case of a partnership you definitely will open a current account in the name of the partnership. The CA will help you register the partnership. You can be as many partners and when the CA suggests that insert a clause that requires important things like withdrawing money to be done only by consent of all partners, firmly refuse. Allow any of the partners to make the decision and sign cheques. CAs are typically conservative finance people and even if the advise is to safeguard cheating between partners, bootstrappers can simply not afford this extra friction in the system. If you can’t trust your partners, don’t do a startup with them.

The most important reason to start a private limited company for a bootstrapper would be to safeguard the name. Once a company is registered, no other company can use the same name. You can check the availability of names on the MCA website (IE only). Opening a private limited company is costlier and I would recommend it only after a certain size. Usually, what you will be interested in is a brand name for yourself for which block the domain name and not the company name. The company name can be XYZ technology solutions where as the brand you push could be called ABC. Opening a company also removes your personal liability. So in case your company goes bankrupt, your personal assets will be protected. Because of huge fraud, no bank today lends you money without the personal guarantee of the directors so this limited liability is notional. This does save you from vendors or clients though since they will not insist on any personal guarantee. In case of proprietorship or partnership you are personally responsible.

Another advantage of starting a company is the date. The more calendar months that your company has been in existence, usually the better it is. Some clients want to know when your company started, just having been around gives them comfort. Banks with whom you will open an account will also start offering you debt or overdraft services after a minimum of 6-12 months since you start business with them.

As you can imagine, getting a good CA is extremely important. Best case would be if you have a CA friend. It is also very useful to know some of the things yourself so that you can make the best use of CAs services. Typically, CAs in Bangalore would be expensive. The posher the location, the more expensive the person. If all you need initially is to register a company or a partnership it might be much cheaper to find a CA in Tumkur or Yelhanka and save a few thousand rupees. Once you start making money, you can pick someone you need to consult on a more regular basis.