Indian Entrepreneurs, Be Ready for Jail

May 17, 2014 - All, Featured, Product Management
Indian Entrepreneurs, Be Ready for Jail

Here is one woman entrepreneur…

She worked as tech professional earlier and now aiming to be a business owner.  She has an idea about creating animated content and making it big.

May 2014. Bangalore.

It was a meeting with between three parties. A chartered accountant, company secretary and her.

While pursuing the core tasks of the business idea, she is trying to continue the legal process of registering the company. Hence is in discussions with chartered accountant and the company secretary.  She wanted to register a Pvt Ltd company.

“Why don’t you go for LLP instead of Pvt Limited? LLP is Limited Liability Partnership. It is almost like a company.”

She looks puzzled. “We spoke in March and it seemed ok to be a Pvt Ltd?”

“There is a new company act now. This has made it too difficult for entrepreneurs”

“Like how? ” She was not convinced.

He explained.  Two big issues that bothered her.

Biggest concern is, the minimum legal recurring cost: INR 50,000 per year if she adds up the implications.

Apparently all new rules are for better corporate governance and compliance. But for startups, isn’t this an overkill?

She needs to preserve energy and resources for the core tasks initially. Any startup focusing on intellectual property, needs to run in garage mode first. During this period, she has to pay salary of one or two employees. For highly skilled members, she can not pay in full. Some part may be stock option. Also she needs to have the option of getting international venture funds, might need to invest in distribution partners etc.

The legal costs and liabilities would be prohibitive for initial period.

“If I go for LLP route, can I borrow for the company from international venture funds?”

Again he explained.

She is disheartened. She would proceed with registering Pvt Ltd company, but with the additional burden of legal risks.

That is the output of culture called LicenseRaj in India. This is the hallmark of Congress Culture that prevailed for decades.It is all around policing, licenses and permits.

The tech start-ups will have to suffer. All the enthusiasts wanting to create WhatsApps, Facebooks and Googles, need to pause and rethink.

That was one in the series of tragedy of errors between 2004 to 2014. The lost decade of India in post-reforms world.

Glad that such a government is gone and hopefully it never returns. Even more importantly, hopefully, the entrepreneurs and small businesses remain high on the agenda of new government.

Good days have come.. hopefully.

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