Content strategy · Equity

Can I bring a cofounder on that is on a visa but put it in their development Companies name in India? How will this affect funding in the future?

Megan Anderson Experienced CEO & Leader

March 28th, 2020

I found an amazing cofounder here in Austin that is on a Visa with another company. He is not able to own the stock himself but would like to put it under his development company in India instead. How would this work? Would this limit my ability to raise in the future?


GK CTO / Consultant - AI, Blockchain, Analytics

Last updated on March 30th, 2020

To start with, your company's stock when held by another company makes your company a subsidiary to that other company.

  1. This may make the cross-border compliances a little bit complex, usually for the holding company (in India) rather than your company. Companies in India, by law, may have to disclose their foreign investments - please check with your potential cofounder if he is fine with that. Usually, it is much better for him to get the stock on his name rather than the company's name from the point of compliance burden.
  2. Depending on the percentage of stock you are about to award, potentially any existing controllers of that Indian company (directly or indirectly if it is already another subsidiary) will become direct/ indirect controllers of your company (by the rule of transitivity). Question for you is: Are you willing to have such unknown entities being "controllers" of your company? The reason being: This kind of situation gives raises to (and there were examples of this already happened) scenarios like this: Say your company awarded these stock to the Indian company (I), and later you raise funds from VC or others who, it turns out that also hold % control in the said Indian company (I) - which essentially means the VC has much more overall control on your company than you might initially think.
  3. As time progresses and when you have to make certain decisions about your company, negotiating with a person about the future of your company, usually, is much easier than negotiating with a corporate body that you may or may not be fully aware of. as there is no legal requirement for the Indian company to disclose (to you) any changes in their structure unless you put one in the beginning with some form of agreements. Then again, how do you plan to "enforce" it? Yours is a subsidiary and not a parent company (of the Indian company)

W.r.to the fundraising in the future for your company, this may or may not affect it, depending on who you are raising it from. There is nothing against giving funds to a company that is a subsidiary of another company. The point for them would be how much they know about this another company that is holding shares of your company, and how it will affect their returns in the future. If you can convince them of those, you may be able to get pass through them.

AShu Co-founder I CTO I Co-adviser I Full stack developer

Last updated on April 30th, 2020

I will say first ask any legal advisor who can tell you all legal formalities related queries' if every thing fine then no problem at all because you can tell your investor that if we do development work in India due to less development cost

and sell that where you want will make your company more profitable . I assumed your startup is software related .

Many more good reason you have and so just try to find out .So it's all depends on you and you partners relation and interest .Because i believe every coin have two faces. Look on both side.

But as you told me that your partner is awesome then just check legal formalities .That's it because no doubt good partner is more important assets .

But if your legal advisor say No then don't this at all try to find any other Solutions like try to find another good partner or talk to your partner to find any solution

Because i don't much about your startup type that's why i can't tell you more.

But you need any other advice from me just ping me .As Indian i can help much more about India.

My best wishes with you and your lucky partner

Thanks

Ashu