starting up: legal aspects for consideration
DESCRIPTION
This slide deck was presented by Sharanya Ranga, Universal Legal at the TiE Institute Knowledge Series session for Startin Up in Aug 2010, hosted by TiE MumbaiTRANSCRIPT
UNIVERSAL LEGALATTORNEYS AT LAW
21st August 2010
TiE Mumbai
SSTARTING TARTING UUP – P – LLEGAL EGAL AASPECTS FOR SPECTS FOR CCONSIDERATIONONSIDERATION
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Choice of Entity
Funding Options
Protecting your Intellectual Property
Compliances
Contracts
Legal Strategies
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Choice of Entity
Private Company
Public Company
LLP
Partnership
Proprietorship 1 Person Venture
More persons jointly
Partnership with Limited Liability
Popular Vehicle
EstablishedStage
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Sole ProprietorshipSole Proprietorship Concern
1 Person Venture
Unlimited liability (Personal Assets may also be attached)
Limited Funding Options
Taxed at Individual Level
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Partnership Relation between persons who have agreed to
share the profits of a business carried on by all or any of them acting for all
No Separate Legal Entity
Unlimited Liability (Joint and Several)
Rights and Obligations as per Partnership DeedLimited Funding Options
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Limited Liability PartnershipSeparate legal entity
Fusion of Partnership and Company
Partner’s liability limited to partners’ contribution
Financing options limited due to lack of clarity on FDI, non-availability of other forms of financing like private placement, IPOs
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Private Limited CompanyMinimum Capital Requirements – Rs. 1 lakhMinimum Member Requirements – 2 MembersMinimum Compliance Requirements – Board and
General Meetings, Reporting required in cases like changes in directors, capital, registered office etc. and Annual filings like Annual Return and Balance Sheet
Wider Funding Options – Vehicle preferred by PEs/VCs
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ComparisonCriteria Partnership LLP Limited Company
Number of Partners/ Shareholders
Minimum 2 Persons 10- Banking 20- Non Banking
Minimum 2 Persons - no maximum unlimited
2 - 50 – Private Company7 - unlimited - Public Company
Legal Entity No Separate Legal Entity Body Corporate Body Corporate
Liability Unlimited – may extend to personal assets of Partner/s
Limited to the extent of Partner’s contribution
Limited to the extent of unpaid share capital
Compliances No major requirement Annual Returns, Financials and other returns based on events
Company Secretarial (Statutory Records, Board Meetings, General Meetings), Annual Accounts and Annual Returns to be filed
Tax Income of Firm taxed in the hands of the Firm
Similar to Partnership Corporate Taxation (around 30%)
Management Managed by the Partners Managed by the Partners Separation of Ownership and Management – shareholders, Board of Directors
Dissolution/Winding up Retirement/Dissolution of Partnership
Procedure as per LLP Act Very procedural and long drawn
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Incorporation of Private Company – Typical Process
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Funding Options
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Funding OptionsProprietorship
Partnership
Public Company
Private Company
LLP
• Main reliance on bootstrapping
• Loans from Banks and Financial Institutions
• Equity, Debt, hybrids to indian and Foreign Investors
• Possibility of Public Issue upon reaching certain scale of business
• Equity, Debt and hybrid instruments
• Easy access to foreign investments
• Partners’ Contribution (Capital, Land, Building etc.)
• Loans
• Similar to partnership
• FDI Regulations are not yet in place
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IPR Protection
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IPR Protection
Trademarks
• AdvisoryRegistration• Searches• Registration strategies• Replies and registrations
Copyrights PatentsIndustrial Designs
Post Registration• Renewals• Oppositions• Prevent unauthorized users• Protection against Passing-off• Licensing, assignment and royalty
matters
IPR Protection• Oppositions• Prevent unauthorized users and
action against the unauthorized users
• Protection against Passing-off actions
IPR Protection
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Compliances
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CompliancesCompany Law
Board and General MeetingsStatutory Registers, Filings and Other Compliances
Labour LawDependent on Nature of Business and Number of
EmployeesShops and Establishments, Provident Fund,
Gratuity
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Contracts
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What is Contract?
Offer
Acceptance of Offer
Consideration
Agreement enforceable in the eyes of law
Written Understanding between Parties
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Why it assumes importance?Outlines broad framework of understanding between
Parties
Clear-cut demarcation of roles, responsibilities and obligations
Evaluation, Identification and Mitigation of Risk
Reduce Ambiguities Recommended to have legal practitioners draft/review
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Types of ContractsContracts
IPRHuman ResourcesTransactionalCommercial
Vendors CustomersDistributionFranchise Service AgencyMarketing
Promoters/ Founders EmploymentConsultancy Non-Compete/ Non-Solicit
Shareholders Investments Joint Ventures Asset Purchase Business Transfer
Non-Disclosure AssignmentLicensing
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Contracts - Key TermsTypical terms include –
Clear Description of Parties
Scope of the Agreement
Commencement of Obligations – from date of execution or specific date
MilestonesTerm
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Contracts - Key TermsConfidential Information
Representations & Warranties
Indemnity
Limitation of Liability
Assignment/Protection of Intellectual Property
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Contracts - Key Terms
Non-Compete, Non-Solicit
Dispute Resolution
Governing Law
Amendment and Waiver
Termination – with cause, without cause
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Termination of ContractWithout cause -
Expiry of termCompletion of obligationsParties wish to move on
With cause – Breach of Contract
Obligations /consequences of Termination
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Remedies for BreachCompensation for loss or damage caused
by breach
Civil remedies Suit for specific performance or damages
Injunctions – Temporary or permanent
Suit for recovery/compensation
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Indemnity & Limitation of LiabilityLoss, damages and expenses arising from
negligence of one Party
Liability limited to direct losses, claims and expenses (as against indirect losses like loss of business, profits etc.)
Limiting Liability to a mutually agreed amount/percentage (2x the value of the Contract)
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Dispute resolution
Negotiation and amicable settlement
Escalation to Dispute Resolution committee/ senior management
Arbitration (sole/panel of 3 arbitrators)
Litigation
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Dispute resolutionArbitration
Mutually appointed arbitratorsInformal, flexible as compared to formal process of
courtsTime and Cost-effective
Litigation Formal process by CourtsFraught with delays
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Jurisdiction of courts As per mutual agreement
Place of Business /Parties
Where cause of action arises?
Neutral Venue
Jurisdiction recommended to be specified in thecontract
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Governing Law Typically place of Business/Parties
As per Mutual Agreement
Neutral Venue
Governing Law recommended to be specified inthe contract
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Binding Nature MoU (Memorandum of Understanding), Term
Sheets - not binding unless expressly mentioned
Subject to Definitive Agreement to be executed between parties – which shall be of binding nature
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QUESTIONS?
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Contact UsUNIVERSAL LEGAL
Sharanya G RangaPartner in charge
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