Most of the salaried workers in Chennai consider venturing into entrepreneurship in addition to their normal jobs. As the number of startups, digital businesses, and side ventures increases, a widespread question opens up to whether a person on a salary can and legally should be allowed to form a company while still employed. The yes or no is not the answer, because it depends on the legal provisions, terms of employment, and the business nature.
This blog discusses whether a salaried person is permitted to establish a company in Chennai, the lawful standing under Indian law, and the operational details that ought to be taken into account prior to assuming this move.
Indian Law Legal Position
Indian company law does not prohibit a person on a salary from registering or owning a company. The Companies Act, 2013, enables any person capable of contracting to serve as a director or shareholder of any company, as long as there are some eligibility requirements. No statutory limitation exists which prohibits an employee from including a company in his/her own person.
Likewise, an individual on a salary basis is at liberty to be a shareholder or director in a private limited company, one-person company, or limited liability partnership, as long as the statutory stipulations are complied with.
Value of Employment Contract
Although the company law permits an individual to be a salaried person to enable him or her to establish a company, an employment agreement is also important. In a large number of employment contracts, there exists a clause touching upon exclusivity, non-competition, or conflict of interest. These provisions can limit the employees when they are carrying out business during the employment period.
Providing that the employment contract specifically forbids the operation of a business or a directorship without the preliminary approval, organising a company without authorisation can be a breach of the contract. Thus, the salaried people in Chennai must consider their conditions of employment carefully and then proceed to register their company.
Directorship and Shareholding
An employee may be a director or shareholder of a company as long as he or she is paid a salary. Yet, there are practical considerations, provided that he/she is actively engaged in the daily running of the company during working hours.
In most instances, people who are employed on a salaried basis opt to become shareholders or even non-executive directors and another person is appointed to run the day-to-day activities. This can be used to prevent any conflict with employment requirements and also remain within the confines of the law.
Jurisdictions of Companies that a Salaried Person may Register
A salaried individual can form a One Person Company provided the eligibility criteria are satisfied: he or she must be an Indian citizen residing in India. OPCs are also popular among salaried professionals who want to become business owners.
The choice of company type to open is also quite popular for private limited companies, particularly when the business includes more than one founder or has further expansion plans. LLPs can be applicable to professional or consultancy-based business ventures.
The structure used is determined by the type of business, ability to comply, and long-term goals.
Tax and Compliance Contemplations
The income derived from the company is subject to taxation, independent of the income from salaries. In case the person subject to salary is receiving remuneration, dividends or other incomes of the firm, they have to be presented in income tax returns accordingly.
Also, there are statutory responsibilities and compliance obligations of directors. The inability to fulfil such obligations can be subject to punishment, irrespective of whether or not one is at work.
Chennai Practical Concerns
Chennai has an active post-startup culture, and a large number of professionals can easily run their side business even when at work. Nevertheless, time management, openness with employers, and compliance with regulations are among the main issues in the smooth operation.
Additional restrictions can be imposed through the regulated areas or government jobs. Normally, government workers are not allowed to do business privately without seeking permission.
Conclusion
Indian law provides the opportunity to register a company in Chennai on a salaried basis. Nevertheless, it significantly depends on the employment contract terms and the individual’s ability to cope with compliance and duties without violating the professional duties.
It should be noted that before registering the company, it is always worth going through employment agreements and consulting a professional. Through good planning and adherence, salaried people can start and develop a business in addition to the job they are attending.
