PSU bank employee want to do business

1002 views 6 replies

Mohit Choudhury

Indian

27 Points Joined January 2021

Hello. A PSU Bank employee wants to start a business. He is a new joinee (probation period not yet over). He is not sure if the employment contract permits him to start a new business alongside his job. And he is afraid to ask or inform the organisation as well. And if he starts the business by quitting his job and this does not work out, he won't be able to feed his family. So its trouble both ways. Kindly advice.

So he has come up with some ideas. Kindly suggest if any is feasible. If none is feasible, kindly suggest a plan of action.

Idea 1:
He registers an OPC (Say Company 1) in the name of a family member. And runs the business unofficially. If the business takes off, he resigns, and registers an LLP. This LLP (Say Company 2) will have 2 partners - this banker and his aforesaid family member. Now the whole business (shares and assets - tangible and intangible) previously set up in the name of Company 1 gets transfered to Company 2. Is that possible?

Idea 2:
He registers a section 8 company (the business is a semi-social work with some charity involved) where he would be actively involved. Once the company starts running in profit (since initially all companies run at a loss he can easily say he is doing social/charitable work), he converts it to an LLP or OPC. Is that possible?

Idea 3:
He registers an OPC (Say Company 3) in the name of a family member. And runs the business unofficially in their name. If the business takes off, he resigns, and converts this OPC to Private Limited Company after 2 years (Private Limited Company requires 2 directors, right? One could be the banker and another could be his family member in whose name he started Company 3). Is that possible?

Idea 4:
From what I had been reading LLP mentions nothing specific about director. It however mentions partners. So an LLP is set up by 2 partner - this banker and his family member. And the banker remains a silent partner (will neither hold any equity nor do any work officially), do the employer need to be informed? Is that possible?

Idea 5:
He registers an OPC (Say Company 4) in the name of a family member. And runs the business unofficially. If the business takes off, he resigns, and registers an LLP. This LLP (Say Company 5) will have 2 partners - this banker and Company 4. Now the whole business (shares and assets - tangible and intangible) previously set up in the name of Company 4 gets transferred to Company 5. Is that possible? [this is based on the fact that we regularly see business takeovers in news e.g. whattsapp and instagram taken over by facebook.]

Feel free to give any advice. Kindly excuse lack of knowledge of legal terms.

Replies (6)

pritesh

delhi

720 Points Joined February 2011

Register a company in which he should be non executive and other family member can be executive and run business it is full legal and official. if business take off he will resign if not than psu job is best. further he will get sitting fees or commission in lieu of salary and it can be shown under the head of income from other sources.

Mohit Choudhury

Indian

27 Points Joined January 2021

Thank you Priteshji...Big relief... And if you could please tell what would be the type of company that would be the best... LLP? or something else? Please suggest.

pritesh

delhi

720 Points Joined February 2011

I am in favour of private limited company

Mohit Choudhury

Indian

27 Points Joined January 2021

Thank you so much...

So the pvt ltd company will have 2 directors - one executive director and another non-executive director, right? Will the MOA need to have this mentioned? Also what about shares(equity)? Will it be okay of the PSU banker owns shares of this company?

Mohit Choudhury

Indian

27 Points Joined January 2021

I'm not fluent in legal language... My apologies...

The other director (executive director) would be a family member of the PSU banker (non-executive director). Is that okay?

I just stumbled across an article here...

https://www.mca.gov.in/MinistryV2/management+and+board+governance.H T M L

The expression ‘independent director’ should mean a non-executive director of the company who :- a) Apart from receiving director’s remuneration, does not have, and none of his relatives or firms/companies controlled by him have, any material pecuniary relationships or transactions with the company, its promoters, its directors, its senior management or its holding company, its subsidiaries and associate companies which may affect independence of the director. For this purpose “control” should be defined in law. b) is not, and none of his relatives is, related to promoters or persons occupying management positions at the board level or at one level below the board; c) is not affiliated to any non-profit organization that receives significant funding from the company, its promoters, its directors, its senior management or its holding or subsidiary company; d) has not been, and none of his relatives has been, employee of the company in the immediately preceding year; e) is not, and none of his relatives is, a partner or part of senior management (or has not been a partner or part of senior management) during the preceding one year, of any of the following:- i] the statutory audit firm or the internal audit firm that is associated with the company, its holding and subsidiary companies; ii) the legal firm(s) and consulting firm(s) that have a material association with the company, its holding and subsidiary companies; f) is not, and none of his relatives is, a material supplier, service provider or customer or a lessor or lessee of the company, which may affect independence of the director; g) is not, and none of his relatives is, a substantial shareholder of the company i.e. owning two percent or more of voting power.