You need to start it with a company affiliated to any institution or university.
Advice on starting new company and share distribution
So my brother who is an NRI wants to start a School (for profit) in Panjab along with his colleagues (also NRI). - The major contributor is already running a school, but now wants to upgrade and expand the capacity and move to a new location. - They plan to purchase land, my brother will contribute 10%, and the land will be registered under the name of 5 people in a sale deed specifying everyone's share in land. - Construction and Infra development will be contributed accordingly, my bro wants to maintain 10% contribution in future fund requirements. How should one go about it to safe guard our interest? I suggested him, to first register a company and issue shares as per planned investment to each share holder as per their contribution, the funds should go to the company account and land be bought under the name of the company as against individual's name? Thus buying land under company name vs group of investors name different? If so which is better? On the other hand, my thought was if land is about on company name in future if new share holders invest capital in company the land will be further divided. But, does having it under individuals name prevent hat dilution? Many Thanks,
Asked 5 years ago in Business Law
9 Answers
Hi,
If the land is on the name of company, the shareholders may claim their share in due course of time. You are suggested buy on individual name and then form the company or build the school.
Dear Client,
Buying in company name more complicated. Even if any time any one wants to break up, cannot claim in land. Better make a partnership and than purchase or purchase the land in joint ownership and share will mention in sale deed acc. to contribution in purchase.
1) To run a school or colleges or educational institution on should formed Trust as per the Trust Act and than run the School accordingly.
2) All members will be the members of other trust and get sharing distribution accordingly.
3) Kindly let me know if you formed or registered your school accordingly and formed Trust as per Trust Act.
A person resident outside India (that is, an NRI, a PIO or a foreign national of non-Indian origin) cannot acquire agricultural land/plantation/farm house in India by way of purchase
2) a pvt ltd company can buy non agricultural land and carry on carry on activities subject to provisions of articles of association and memorandum of association as approved by registrar of companies
3) merely because NRI is one of the shareholders would not be disqualification
4) it is better you contact a local lawyer before taking decision for purchase ofland in Punjab
5) buying Land in name of company is better than name of individuals
Hi
1) Since it is a business of running a school, in general, it is better to register the land in name of Individuals(original promoter's) and construct a building thereupon.
2) The original promoter's can enter in to a registered lease agreement with the school and school can pay rentals to land lord(both land + building) .
3) In this case , the Original Promoter's get a fixed monthly income and the school also pays monthly rents to Original Promoter's and claim expenses(given that you are going to run a school for profit).
4) The expenses for school infrastructure (boards, desks, computers, books, play equipments etc) can be incurred for operational expenses of the school and the school can claim depreciation of the same by forming a private limited company for running of school.
5) It is better to form a private limited company for running(Operations and Maintenance of school) and as and when capital is infused , the same can be done by Founder promoters by making investments in form of share capital.
6) So as and when additional investment is required, you can ask investor's to invest in share capital of the company for operations and maintenance of school and this additional investment will not dilute the contribution of founder's contribution for land and building.
7) In general, land and building construction for a school is always purchased one time keeping in mind the school capacity for next 10 years. Thereafter depending on growth of the school, either adjacent lands are purchased or new branches opened in near by vicinity.
8) Also since today the trend is that previous promoters are selling their stakes in schools and exiting their investment at 10x (case of oakridge school at Hyderabad ), it is better that Founder promoters (i.e your brother , major contributor etc) buy the land and also retain the school building thereupon in their name.
Hope this information is useful
Mr. Rajgopalan Sripathi, Very helpful reply and to the point. My follow up concern is: I get your point, if we get land on company name future investment will dilute total equity. If not we retain share holding proportion initial investment in land and building. We also plan to invest in school operations. For which I suppose shares will be issued. My concern is related to exit strategy, 5 years down the line if we plan to exit the investment shares in the company can be bought by anyone that straight and simple. But what about land & building? What precautions, other than mentioning our share in land sale deed can we take? What if other share holders in land are not willing to sale the land at that point, finding someone willing to buy 10% of the land could be difficult that too just based on rental income, if that is possible. How can we deal with this scenario? If the and is bought on company's name, sure equity will dilute but share value will increase and exiting can be easy? Your thoughts please. appreciate your insightful comments.
Asked 5 years ago
Hi
In case of exit of existing investors, Land and Building can either continue to be owned by Founder promoters or they can be sold in a separate transaction as per prevalent market prices.
As rightly pointed out school operations will be managed by a private limited company in which your brother can choose to invest in equity capital.
When it comes to exit , Honestly to speak, it will be easy to sell the Individual founder promoters ownership stake (either part of full) in land and building at attractive valuation given that land prices are always increasing at a higher rate than bank rates.
Assuming the entire investment (including land and building) is in form of shares, though it appears that it is a straight forward for an individual to sell his shares and exit the investment , in all probability there might be hidden clauses such as right of first refusal by other founder promoter's , conditions such as buyer requesting for board seat and valuation issues which might make it difficult for an individual promoter to sell his stake to a new investor.
If founder promoter's holding more than 30% of equity capital agree to sell their stakes , then it is quite simple to hold entire investment as share capital. Other wise it is better to have land and building in individual names till such time there is a definitive buyer who is acceptable to all founder promoter's
Hope this information is useful.
A partnership firm is a form of business entity where there are two or more parties that come together to cooperate and manage a business. If you want to start your own partnership firm, then you would have to understand about two things:
1. The documents required for starting such a firm.
2. And the process of incorporating such a business entity.
The documents required by you to start a partnership firm are as follows:
1. Documents of the partners of the company: These documents are as follows:
a. PAN cards: it is mandatory for all of the partners to submit their PAN cards along with their identity proofs.
b. Address proof of the associated partners: In order to provide the address proof, the partners can submit Aadhar Card, Voter ID, Driving License or any other identity card.
2. The documents associated with the firm:
a. PAN Card: In order to obtain the PAN card for the firm, the partners will have to apply the Form 49A.
b. Address proof of the firm: The partners will have to provide proof of address of the registered firm office. In case the place is rented, the partners can provide a rent agreement along with the NOC of the property owner. If the partners own the registered office, the sale deed of the property would do nicely.
3. Additional documents for the registration process:
a. These documents would entail the partnership deed
b. ID proofs and address proofs of the firm as well as the partners
c. An affidavit that dictates that the documents submitted is correct.
4. GST Registration: Prior to going through the registration process, the partners have to register for GST. They can do so by the submitted the application for the same along with the following documents:
a. PAN number of the partners
b. Address proof and identity proof of the partners
c. E Aadhar
d. Authorized signatory.
5. Partnership deed of the firm.
·Partnership is one of the oldest business structures in India. Partnership is relation of two or more persons who have agreed to share the profits and losses according to their ratio of business run by all or any one of them acting for all. In simple terms, partnership is a contractual relation of two or more persons carrying business to share profit or loss in an agreed ratio.
In India, a partnership is governed by Indian Partnership Act, 1932, and a partnership firm does not have an independent status apart from the partners constituting it. Partnership does no have a legal entity status than of its partners. It has limited identity for the purpose of tax laws. Any two people can start partnership business under an agreement called partnership deed. It is not mandatory to register a partnership deed but it is advisable to register partnership deed but for evidential purpose.
Your suggestions to your brother about the other aspects seems to be proper, however the property purchased in the name of company shall be the asset of the company and not shared by its partners.
If as per your proposal, the partnership company has been dissolved then the company's assets shall be distributed as per the partnership deed, i.e., after meeting the liabilities, may be shared by the partners by selling the property for its value.
Your other questions will find an answer in the partnership deed as well as the articles of association.