The board approved a tax structure.
They had no idea they’d also approved everything else that came with it.
A promoter walks into a board meeting with a clean two-page paper. New company. Same line of business. Smart tax routing. CA has signed off.
Result? Unanimous approval!
What nobody asked.. because nobody thought to ask.. was one simple question.
What else does this decision bring with it?
Three years later the answer was visible.
Rs. 6.2 Cr quietly moved from the parent as advances. No board approval. No interest charged. A related party transaction nobody planned for.
The sales head and operations manager split their time between both entities. The parent’s revenue remained flat for three years. Nobody connected it to that board meeting.
One lender had a covenant prohibiting new entities without prior approval. Everyone missed but the lender found out. A tense renegotiation followed.
Minority shareholders? They found out in a footnote.
The tax saving: Rs. 34 lakhs per year. The true cost: still being counted.
The promoter didn’t intend any of this. The board wasn’t negligent. They approved what was presented.
The problem was what wasn’t presented.
Starting a new entity is not a tax decision dressed in a board resolution.
It is a strategic decision with capital, management, legal, and relationship consequences attached.
Treat it like one.
Have you seen a new entity decision that looked simple on paper and turned out to be anything but?
Discuss this on LinkedIn