Incorporate as an LLP

Context

We largely preferred the idea of incorporating a business in India, but India has no legal framework for technology co-operatives or co-operatives conducting overseas business.

All possible legal entities were considered:

Each had its problems. A true co-op incorporated in Canada relied an external participation (a second Canadian) and put the core entity in the wrong country altogether.

An Indian Co-operative Society has a minimum member count restriction, cannot hire foreign workers, and cannot sell its product or services outside of India. The current state of Indian corporate law pertaining to Co-operatives is too antiquated to permit co-operative technology companies.

A Trust may have worked but ran the risk of appearing “suspicious” to the income tax department.

A Pvt. Ltd. has a strict structure which work only if directors do not change too frequently — a restriction we were not willing to accept.

A customized LLP required that we use our LLP agreement to nearly invert the terms of a normal partnership: partners claim no rights to profits whatsoever. Although somewhat awkward, our LLP agreement is legally sound and does a very effective job of describing the worker-owned nature of nilenso as a corporation.

Decision

We opted for a customized LLP, heavily reviewed by Khaitan & Co. The agreement would be refined every April, upon renewal.

Status: Accepted.

Consequences

Other companies, such as Hamon Technologies, have used our LLP agreement to incorporate. This is possible because we released the agreement in template form as an open document: View on GitHub.

Our auditors have warned us about an LLP appearing “suspicious” by holding on to too many assets, as capital is paid out to Partners in a standard LLP. We essentially do the opposite of this.

The co-operative community has been receptive to our structure, in lieu of current Indian corporate law.