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How can a teenager register a startup in India

Hardik Joshi  |  July 18, 2020, 6:22 a.m.
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(This is not a legal advice and Teenager Startups take no liability for any content that is published in our blog section. Please consult lawyer and tax advisors and govt departments before you make any business decisions)

When most think of doing job, you are like few never give up ones who want to chase a dream. It’s great that you have an extraordinary idea and now you are working day and night to fulfill your dream. The moment you get into a business transaction, even if it is letter of intent or MOU, you will need to have an entity registered.

Hot Coffee - Sole Proprietor v/s Partnership v/s Private Limited Company in India

If you are under 18, you can have minor bank account in personal name and your income is clubbed with your parents. But can you legally start a business if you are below 18? 

Let us first understand in general the types of business you can start. (We have ignored non-profit sector here)

There are four types of legal structures that you can consider for company registration- 

  1. Sole Proprietorship
  2. General Partnership 
  3. Private Limited Company
  4. Limited Liability Partnership

Let me give you some idea on each of these:

Sole Proprietorship

If you are below 18, you cannot open a sole proprietor business. Your parent, friend or relative will have to open a business and its bank account, sign contracts and cheques.

Sole Proprietor is sole owner of the business and have unlimited personal liability. There is least compliance required. 

Get a name you want. (Ensure that you don’t violate any trademark or copyrights).

Get a rubberstamp done with Business Name and “Proprietor” at bottom.

Get a 100 Rs. Stamp paper and  write a letter on stamp paper addressed to bank manager that you want to open Sole Proprietor business. Use the rubber stamp, sign and date it. Take 1 piece of id and 1 piece of address proof to the bank and you have a bank account open.

Keep your personal and business expenses separate so you can get appropriate expenses and other deductions when filing tax returns.      

General Partnership

If you are below 18, you cannot open  a partnership business or sign as a partner. Your parent, friend or relative will have to open a business and its bank account, sign contracts and cheques.

Same process as above has to be followed. You need a stamp with second line as “Partner(s).  You will need a formal notarized partnership deed with all partners signatures. All partners will need to go to bank and submit their ids and address proof. They will also need to decide how many partners can sign cheque and who would be these partners. The partnership ratio and profit and loss distribution has to be specified in partnership deed as well as dissolution conditions.  You will need Rs. 500 stamp paper for partnership deed.

All partners have personal liability and no protection in partnership firm. You can have a maximum of 20 partners.

Private Limited Company or LLP

If you are below 18, you cannot open a private limited company or LLP. But your parent or guardian or anyone else can open a private limited company or LLP, be director and also a  signatory authority. They can then gift 100% of shares to you. So technically even if you are a minor, you can technically own the entire company and get all profits attributed to you.

You do not have any personal assets tied but forming a Pvt limited company has stringent compliance requirements like statutory audits, annual filings with Registrar of Companies, etc.  You will have to pay corporate tax and you will also pay dividend distribution tax when distributing dividends.

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Technically you get dividends credited to you and there is no tax liability to you or your parent when dividend is paid. However, the income from dividends i.e savings interest will be clubbed with your parents income.

This structure has limited liability and your personal assets are not attached.  It also has few tax advantages and if you are planning to raise funds, this is ideal vehicle where investors invest money in. It is relatively expensive to setup this structure. You will need to do a business name search and can’t just use any name to register such a business. The person registering business will have to be 18 and must get a DIN (Director Identification Number) using which he can form the entity.

In LLP the liabilities of directors is limited and it is quicker to form and less expensive compared to Private Limited Company

last updated at Oct. 14, 2020, 6:11 p.m. UTC

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