Incorporate as an LLP
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:
- Incorporating a true Worker Co-op in Canada and running nilenso as an Indian subsidiary
- Using an actual Co-operative Society
- Forming a Trust to govern a Pvt. Ltd.
- Using a regular Pvt. Ltd.
- Using a customized LLP
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.
We opted for a customized LLP, heavily reviewed by Khaitan & Co. The agreement would be refined every April, upon renewal.
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.