business startup presentation

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“DMR” Law

Chambers

Stands for Our Founder’s name:

Mr. D. Madhava Rao

Firm Established Since:

Year 1984

With 29 Years rich Experience

Handling Your Entrepreneurship Stints in a Legal

Perspective

Structuring Your Business


Sole Proprietary?

Partnership Firm?

Limited Liability Partnership?

Private/Public Company?


Owner’s Liability

Compliance Burden

Investment & Funding

Exit Strategy

Taxation


A business enterprise exclusively owned, managed and controlled by a single person with all authority, responsibility and risk.


Pros:

Ease of formation;

Complete managerial control;

Flexibility to conduct business;

Freedom from Government control;

Easy Taxation Compliances

Cons:

Personal (unlimited) liability;

Unstable business life in the event of death of the owner;

Less available capital compared to others;

Difficulty in raising long-term funding;

Limited growth prospects interms of human participation.


A partnership involves two or more people who agree to share in the profits or losses of a business. Before a partnership is formed, a “partnership deed” should be prepared. The same shall contain -

The amount of initial capital contributed by each partner

Profit or loss sharing ratio for each partner, Salary or commission payable to the partners, if any

Duration of business, if any

Name and address of the partners and the firm

Duties and powers of each partner, Nature and place of business; and

Any other terms and conditions to run the business.


PROS:

Easy to form;

Availability of large resources;

Flexibility in operations; &

Sharing on business risks

CONS:

Liability-each partner is personally liable for the financial obligations of the business;

Uncertain life of the firm;

Lack of Harmony in the firm;

Limited capital raising prospects; &

Rigid for transfer of ownership.


Concept of LLP was introduced in India in 2009 with the enactment of the Limited Liability Partnership Act, 2008 (6 of 2009).

It is viewed as an alternative corporate business vehicle that provides the benefit of limited liability and also allows its members the flexibility of organizing their internal structure as a partnership based on a mutually agreed agreement. It requires minimum 2 partners for its formation.


PROS:

No major investment;

Limited liability;

Commercial efficient vehicle;

No personal liability;

Internal flexibility;

Less statutory compliances;

Lesser paper works and formalities;

Perpetual succession;

Lesser financial risk; &

Scope for expansion and growth

CONS:

Mandatory disclosure of financial information;

Cannot raise public money;

Loss of secrecy of information;

Untried structure;

More legal documentation;

Stringent rules of FDI;

Practical issues in formation; &

Lack of awareness among general public


A company can be incorporated in India either as a Private Company or a Public Company. They are governed by the Indian Companies Act, 1956. Their main characteristics are -

Legal Formation;

Artificial Person;

Separate Legal Entity;

Common Seal;

Perpetual Existences;

Limited Liability;


DETAILS PRIVATE PUBLIC

Minimum paid up capital

Rs. 1 Lakh Rs. 5 Lakhs

Minimum number of members

2 7

Maximum number of members

50 No restriction

Number of directors 2 Atleast 3

Issue of prospectus Cannot issue Can issue

Commencement of business

Immediately after incorporation

Cannot until certificate of commencement is

issued

Transferability of shares

Complete restriction No restriction

Statutory meeting No obligation Must call

Quorum 2 members present personally

5 members present personally


PROS:

A shareholder or partner’s liability is limited to a fixed investment amount;

Ownership is readily transferable;

Separate legal existence;

Ease in securing capital from many investors; and

Ability of the corporation to draw on experience and skills of more than one individual.

CONS:

Activities are limited by the charter and various laws;

Extensive government regulations are required;

Less incentive for manager if he does not share profits; and

Expense of forming a corporation is high;


PROCEDURE FOR INCORPORATION OF A

COMPANY

Company to be registered with “Registrar Of Companies” (ROC);

After which, it shall receive a “Certificate Of Incorporation” which makes it a legal entity.


REGISTRATION OF A COMPANY

Requires following documents -

Memorandum of Association (MoA);

Article of Association (AoA);

An agreement (if any) for appointment of its managing director, whole time director or manager;

Statutory declaration in Form 1 stating requirements of Companies Act relating to registration have been complied off.

written consent of directors in Form 29;

Complete address of registered office in Form 18;

Details of director, managing director and manager in Form 32.


All the above stated documents have to be sent to the Registrar along with the registration fee, filing fee, stamp duty, as specified.

The Registrar, on receipt of the documents, undertakes a scrutiny and if he finds nothing objectionable, issues, under his seal and signature, the “Certificate of Incorporation”. The same needs to be collected from the Registrar’s office.

On obtaining the incorporation certificate, a “Private Company” is eligible to transact business. The private company is now incorporated.

However, “Public Company” cannot transact business unless it obtains a “Trading Certificate”.

INTRODUCTION TO RAISING OF INVESTMENT

Need to investment into startups needs no separate explanation!

Capital primarily comes in two forms

Equity

Debt


Different Categories of Investors

Venture Capitalists Private Equity Capital Market


INTENTION OF INVESTOR

FINANCIAL STRATEGIC


STAGES OF A FUNDING

STAGE I – Approaching Potentional Investors

STAGE II – Expression of Interest

STAGE III - Commencement of Due Diligence

STAGE IV – Execution of Investment Documents

STAGE V – Satisfaction of Condition Precedents

STAGE VI – Inflow of Money & Compliance Requirements

DRAFTING OF ESSENTIAL LEGAL DOCUMENTS

FOUNDERS AGREEMENT – Agreement between co-founders

Key points to be discussed amongst others:

a. Financial Structuring which includes all aspects with respect to investment contributions, revenue sharing & other essential money aspects;

b. Positions & Role of founders including decision making powers;

c. Founder’s salary;

c. Arrangements to handle future expansions; and

d. Exit Strategies.


“WHAT IF” AGREEMENT or SHARE HOLDER AGREEMENT – Agreement between Company’s Shareholders.

Key aspects covered amongst others include:

a. Primarily it sets out the rights & duties of each Share holder;

b. Aspects relating to how additional capital is to be raised;

c. Individual contribution of each Shareholder;

d. Restriction on transfer of shares (right of first refusal, right of first offer), forced transfers of shares (tag-along rights, drag-along rights); and

e. Important business decisions that require unanimous approval of all the shareholders.


EMPLOYMENT CONTRACT –

Important document and shall be executed as soon as the CEO position of the startup company in finalized.

Key elements of startup CEO Employment Agreement –

a. Term of Employment;

b. Compensation;

c. Benefits;

d. Duties & general services;

e. Indemnification, Non- Disclosure, Non-compete, Non- solicitation of Employees, Customers and Vendors, Intellectual Property Rights Assignment, Equity Clawback Clause, Litigation Co- operation Clause and Termination clauses.


NON-DISCLOSURE AGREEMENT (NDA) also referred to as a confidentiality agreement, confidential disclosure agreement or secrecy agreement.

An NDA does two things:

a. First it describes the nature of the information that is or may be deemed ‘confidential’; and

b. Secondly, it precludes either party from disclosing such confidential information to any third party.

Basic clauses contained in any NDA are:

a. Who are the parties to the agreement

b. What is confidential? i.e. the information to be held confidential.

c. For how long? The disclosure period – information should not be disclosed during the disclosure period, and the duration of the confidentiality agreement.


COMMERCIAL CONTRACTS & AGREEMENTS

As the name suggests, it is a combination of commercial and legal factors;

In order to regulate and document your business relationships, the commercial contracts with suppliers, customers, distributors and agents must be drafted in a way which properly protects your business interests;

Weak or non-existent commercial contracts make a business unstable.

It is important to make sure that all of your business contracts are drawn up professionally and are legal watertight, as it is essential that both parties understand the terms included and are aware of their rights and responsibilities afforded by the contract.

Government Tenders and the Tendering

Process Tendering is the process of buying goods or

services and it is preceded by procurement notifications in newspapers, in official government publications and over the Internet.

Mainly 3 types of tendering methods are:

a. Open Tendering;

b. Selective Tendering; and

c. Negotiated Tendering

Government Tenders and the Tendering

ProcessSTAGES OF A TENDER

STAGE I - Pre-qualification phase

STAGE II - Tender invitation phase

STAGE III - Tender clarifications and Addenda phase

STAGE IV - Tender offer/bid submission phase

STAGE V - Tender opening

STAGE VI - Award phase

STAGE VII - Formalization of contract phase

INFORMATION TECHNOLOGY LAW

Electronic commerce (e-commerce) in India is growing at a fast pace.

As more and more business entities and entrepreneurs are becoming aware of the benefits of online presence and brand promotion and protection in India, e-commerce has become a popular method of doing business,

Information Technology Act, 2000 aims to provide the legal infrastructure for e-commerce in India. It provides ways to deal with cyber crimes.


Positive implications of the provisions of IT Act –

a. Email have become be a valid and legal form of communication in India that can be duly produced and approved in a court of law;

b. Companies shall now be able to carry out electronic commerce using the legal infrastructure provided by the Act ;

c. Digital signatures have been given legal validity and sanction in the Act;

d. The Act throws open the doors for the entry of corporate companies in the business of being Certifying Authorities for issuing Digital Signatures Certificates;

e. The Act allows Government to issue notification on the web thus heralding e-governance;


f. The Act enables the companies to file any form, application or any other document with any office, authority, body or agency owned or controlled by the appropriate Government in electronic form by means of such electronic form as may be prescribed by the appropriate Government;

g. Corporates have a statutory remedy in case if anyone breaks into their computer systems or network and causes damages or copies data. The remedy provided by the Act is in the form of monetary damages, not exceeding Rs. 1 Crore.

Arbitration , Dispute resolution & Handling

Litigation Judicial Dispute Resolution – Litigation

It is initiated when one party files suit against another.

Alternative Dispute Resolution (ADR) - Settling disputes outside the courtroom.

Various ways of resolving disputes under ADR –

a. Arbitration; &

b. Conciliation/Mediation

Governed by the ARBITRATION AND CONCILIATION ACT, 1996


Litigation BENEFITS OF ADR –

a. Faster Resolution of Disputes;

b. Cost effective;

c. Neutral expertise

d. Preserve relationship between the parties;

e. Protecting confidential information;

f. Flexibility;

g. Durability of the result; and

h. Better, more creative solutions.


Litigation How to make use of ARBITRATION in

commercial dealing –

a. An arbitration clause may be inserted in the contract itself, clearly providing for settlement of any disputes arising under the contract in future by arbitration; or

b. If no arbitration clause could be included in the contract for any reason, an arbitration agreement may be entered into later at any stage before or after a dispute has arisen under the contract.


Litigation ARBITRATION v LITIGATION –

Court proceedings do not offer a satisfactory method for settlement of commercial disputes as it involves inevitable delays, costs and technicalities. On the other hand arbitration provides an economic, expeditious and informal remedy for settlement of commercial disputes.

Proceedings in Courts also involve notoriety and expose the internal and private affairs of the parties to public. Arbitration proceedings are conducted in privacy and the awards are kept confidential.

The arbitrator is usually an expert in the subject matters of the dispute. The dates for arbitration meetings are fixed with the convenience of all concerned. Therefore, arbitration is the most suitable way for settlement of commercial disputes and it must invariably be used by businessmen in their commercial dealings.


Litigation While arbitration will never replace litigation, it

does provide a cost effective, time-effective adjudication method. Properly run, commercial arbitration can provide parties with similar or better legal decision-making than the court system without the hangover that results from tight court budgets and the resulting reduced legal services

Your Patience is appreciated !

business startup presentation

Economy & Finance