Guesthouse:Shupiker Guest House Business Research
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Business Research
The following issues were initially raised in Friends of Shunpiker correspondence. Please feel free to add issues, or contribute to the resolution of issues.
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Questions about business structure
Todd wrote:
- Is it a non-profit community (consensus) driven foundation or is it a private, for-profit venture of Tim's? Are we being philanthropists by helping an Indian community, or do we just want Tim to have a secure future with his own business?
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What type of business structure would be best for this business?
Some options:
- Sole proprietorship
- Partnership
- Corporation
- ?
Lewis wrote:
- If it is a corporation it will have to be registered as such in the country's corporate government database and it will have to pay tax just like any citizen of the country that earns money. This is all subject to how corrupt things are in India and how aboveboard you want to be. I would be very worried about doing business with corrupt government officials, but you will need to discuss this with a good lawyer.
- No matter which structure you chose, the legal documents, agreements, constitutions, etc, would have to be drafted by a professional to ensure certainty and equality among the partners or shareholders.
Charles wrote:
- Why does Tim need to be the owner, boss and final decision-maker? Here are my reasons:
- His future is on the line, no one else's. This is his dream, and his shot at a sane and stable life. No one else has a stake anything like that.
- Businesses thrive on focus and good decisions. That's not what communities do. Communities give support, find resources, debate and inform. They are terrible at making decision. People with different stakes, different goals and different visions may not ever agree on a single course of action. Surely we've all seen wonderful ideas die at the altar of consensus.
- The beauty of the guesthouse idea is that it becomes a living entity in a particular place at a particular time. It is more than a concept or a cause, it is a thing which will, if started right, take on a life of its own and take off in its own direction. We are a diffuse group of people spread across the globe, many of whom have never met each other. Tim is a real person who will be rooted in this particular place living symbiotically with this entity we are seeking to create. He should own that and make the decisions that keep it healthy, and in turn it can keep him healthy. I have my own place, time and family to which my life is deeply linked; I don't need to own a piece of Tim's.
Todd wrote:
- The Guest House needs to be a business entirely separate from any philanthropical activities. Next to that, Tim needs/we need to establish a foundation for the community projects. This way Tim can still access resources open to non-profits and do fundraising for the school project, for instance, and keep this in a separate account.
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What country will this company be based in?
Lewis wrote:
- The business will be earning income in India so convenience would suggest that India would be a good place to base the business. However, many questions must be answered by a professional (e.g. accountant or solicitor in India).
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In the case of a partnership or corporation, how are profits shared?
Lewis wrote:
- Whether you have a partnership or a corporation, the partnership agreement or the corporate constitution will set out the agreements between the partners or shareholders.
- In the case of a corporation, there will likely be legislative requirements that will be written into the constitution in addition to the agreements between shareholders. If you have a corporation, you can appoint a board of directors (which will be the shareholders) which can make the decisions as required. The board can also appoint a managing director (likely you) to deal with the day to day business of the corporation (defined in the constitution) such as signing cheques, depositing proceeds, bookkeeping, etc. The corporation can also create shares to be purchased by the shareholders either at the outset or later on. Some corporations have voting and non-voting shares with different prices. Depends whether the shareholder wants to have an active part in the management of the corporation or simply wants to be paid dividends as the corporation earns money. The board/shareholders would meet at regular intervals to review the business of the corporation and vote on matters of importance.
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Questions about Indian law
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Where can we find a lawyer?
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Is it possible for foreigners to purchase/lease land in India for commercial use?
Lewis writes:
- I would ask this question in parts:
- Is it possible for foreigners, as individuals, to "purchase" land in India for commercial use?
- Is it possible for foreigners, as individuals, to "purchase" land in India for non-profit/charitable use?
- Is it possible for foreigners to create an Indian business structure (such as a corporation, partnership or non-profit/charitable organisation) to "purchase" land in India for commercial use? If so, what type of business structure is required and are there other requirements such as seeking permission for the authorities and having an Indian national involved with the business structure?
- If an Indian national "purchases" the land for the business as a director or partner of the business structure, what legal protections are available for foreign directors/shareholders or partners? Please comment on the possibility of using a binding contract between the Indian national and the business/partners to ensure the land and improvements remain the property of the business/partnership/organisation.
- Is it possible for foreigners, as individuals, to "lease" land in India for commercial use? If so are there any restrictions as to the length of the lease or other restrictions?
- Is it possible for foreigners, as individuals, to "lease" land in India for non-profit/charitable use? If so are there any restrictions as to the length of the lease or other restrictions?
- Is it possible for foreigners to create an Indian business structure (such as a corporation, partnership or non-profit/charitable organisation) to lease "land" in India for commercial use? If so, what type of business structure is required and are there other requirements such as seeking permission for the authorities and having an Indian national involved with the business structure?
- If an Indian national "leases" the land for the business as a director or partner, of the business structure, what legal protections are available for foreign directors/shareholders or partners? Please comment on the possibility of using a binding contract between the Indian national and the business/partners to ensure the "lease agreement" remains the property of the business/partnership/organisation.
- Please provide opinion on the most suitable way for a foreigner to acquire land in India to build and operate (in the long term i.e. over 5 years) a hostel/hotel as a commercial business or non-profit/charitable (with employees) organisation. Please support the opinion by listing the advantages and disadvantages of the available options listed above including registration requirements and costs.
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How do we register a business or corporation in India?
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What visas would we need if we are working at the guest house?
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What are the legal advantages/disadvantages of making the project non-profit?
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What are the legal requirements on employers in relation to the hiring of employees in India?
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What are the legal requirements and restrictions for foreigner individuals working in India?
Lewis adds:
- Please comment on visa requirements, banking requirements and any other legal requirements.
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Questions about taxation
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What are the tax requirements and tax rates for income earned by foreign individuals in India?
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What are the tax requirements and tax rates for income earned by foreign companies/partnerships doing business in India?
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What are the tax requirements and tax rates for income earned by Indian companies/partnerships doing business in India?
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What are the legal accounting requirements for non-profit/charitable organizations doing business in India?
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What are the banking requirements for foreigners/foreign companies doing business in India/Indian companies?
Lewis suggests that we ask:
- Please provide opinion on the most suitable business structure to minimise taxes (taking into account the nature of the business as a a hostel/hotel operating in the long term i.e. over 5 years). Please support the opinion by listing the advantages and disadvantages of the available options listed above.
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Other business questions
Lewis writes:
- Some other questions we could ask relate to local building restrictions and zoning, fresh water supply, sewage requirements, contracting with service providers, cost of drafting lease agreements, cost of completing purchase documents and registration, etc.
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What insurance do we need? Tsunami, fire, flood, personal etc?
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How does income from guests (how many/how much) balance against fixed and variable costs that relate to individual guests?
Charles wrote:
- From this planning you will be able to determine how many rooms you will need and how much you will need to charge for each room; also, how many people you can afford to employ, how much work you will have to do yourself, and how much money you can afford to give away.
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Is it even possible to create an accredited school and hire Tamil/foreign teachers and run it for free?
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