Analysis of articles of incorporation

This is a comparison of the articles of incorporation for an LLC published by the United States and by India.

Similarities

The foremost similarity between the Indian and American articles of incorporation for a limited liability corporation (LLC) is the concept of business members and business managers or directors. Membership in the Indian articles is closely tied to ownership of shares (3.ii), and the American articles also tie membership with business share ownership (2.3). In both cases, membership in the business alone does not grant decision privileges. A separate identity, the manager or director (for simplicity, hereafter referred to as manager), holds decision-making power. Managers are given decision-making authority and also provision for their efforts on behalf of the business. For example, in the Indian articles managers are allowed remuneration for all meetings, including incidental expenses (19). Managers in the American articles are not explicitly given remuneration; however, specific guidelines for meetings ensures that each manager’s influence is equally relevant (Article 3). Lastly, both articles include clauses specifying indemnity, the protocol for ending (winding up) the business, and statements about business continuance.

Differences

The focus of the Indian and American articles of incorporation differs considerably.

The Indian articles focus the entirety of the document on business shares and their allocation. Even segments that outline managerial duties address concerns from the perspective of shares. The essential structure of the Indian articles center on the monetary value and distribution of the businesses cash value. This represents a major divergence from the American concept of an LLC, as shares are not a component in the American articles. The Indian articles also narrow the requirements of a business to less than two hundred members, between two and eleven managers, and a starting capital of one lakh rupees ($1,440 USD as of March 31st, 2019).

Conversely, the American articles address a variety of concerns. Where the Indian articles center on share value, the American articles center on member rights. Decision authority and operational requirements comprise the bulk of the American articles, such as meeting guidelines, accounting practices and changes in membership. There are no restrictions on business requirements, such as number of members or starting capital.

Questions

The first question that arises from my review of the Indian articles of incorporation is, “Why incorporate at all?” While incorporation is necessary for business operations in the United States, the paid-up share capital of the Indian articles makes it unlikely that the average proprietor could even afford to incorporate. I would ask about the definition of “minimum paid-up share capital” and the duration this capital must be present in the business' account as it’s not clear whether this is necessary at all times or only upon incorporation.

The second question comes from the absence of information about membership in the Indian articles vs. the American articles. 3.ii.B stipulates that employees may not be members of the business, whether current or former, but little else is said regarding members. I’m left to assume how new members are added, presumably by the sale of shares, and what authority is conferred upon these shareholders. It is possible this information exists in the 2013 Companies Act.

The third question comes from the number of business directors. The stipulation that there must be more than one director limits incorporation to at least two people. This suggests that sole proprietorship isn’t a business entity, at least under this type of incorporation. I would ask for examples of other businesses incorporated in this fashion and how their director structure is organized, especially new businesses with few employees.