Starting Up: Legal Aspects for Consideration


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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 Mumbai

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  • Enterprising idea Pre-formation Strategy Getting Started The Road Ahead
  • Specific Terms vary based on the nature of contract
  • (information provided on an as-is where is basis etc..)
  • Sharing damages in an agreed proportion between the Parties
  • If Cause of action arises in more than two places and the courts in both places have jurisdiction, then party can file it any of the two courts as per convenience
  • Starting Up: Legal Aspects for Consideration

    2. 2. <ul><li>Choice of Entity </li></ul><ul><li>Funding Options </li></ul><ul><li>Protecting your Intellectual Property </li></ul><ul><li>Compliances </li></ul><ul><li>Contracts </li></ul>Legal Strategies
    3. 3. Choice of Entity Private Company Public Company LLP Partnership Proprietorship 1 Person Venture More persons jointly Partnership with Limited Liability Popular Vehicle Established Stage
    4. 4. Sole Proprietorship <ul><li>Sole Proprietorship Concern </li></ul><ul><ul><li>1 Person Venture </li></ul></ul><ul><ul><li>Unlimited liability (Personal Assets may also be attached) </li></ul></ul><ul><ul><li>Limited Funding Options </li></ul></ul><ul><ul><li>Taxed at Individual Level </li></ul></ul>
    5. 5. Partnership <ul><li>Relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all </li></ul><ul><li>No Separate Legal Entity </li></ul><ul><li>Unlimited Liability (Joint and Several) </li></ul><ul><li>Rights and Obligations as per Partnership Deed </li></ul><ul><li>Limited Funding Options </li></ul>
    6. 6. Limited Liability Partnership <ul><li>Separate legal entity </li></ul><ul><li>Fusion of Partnership and Company </li></ul><ul><li>Partner’s liability limited to partners’ contribution </li></ul><ul><li>Financing options limited due to lack of clarity on FDI, non-availability of other forms of financing like private placement, IPOs </li></ul>
    7. 7. Private Limited Company <ul><li>Minimum Capital Requirements – Rs. 1 lakh </li></ul><ul><li>Minimum Member Requirements – 2 Members </li></ul><ul><li>Minimum 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 </li></ul><ul><li>Wider Funding Options – Vehicle preferred by PEs/VCs </li></ul>
    8. 8. Comparison Criteria 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 Company 7 - 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
    9. 9. Incorporation of Private Company – Typical Process
    10. 10. <ul><li>Funding Options </li></ul>
    11. 11. Funding Options <ul><li>Proprietorship </li></ul>Partnership Public Company Private Company LLP <ul><li>Main reliance on bootstrapping </li></ul><ul><li>Loans from Banks and Financial Institutions </li></ul><ul><li>Equity, Debt, hybrids to indian and Foreign Investors </li></ul><ul><li>Possibility of Public Issue upon reaching certain scale of business </li></ul><ul><li>Equity, Debt and hybrid instruments </li></ul><ul><li>Easy access to foreign investments </li></ul><ul><li>Partners’ Contribution (Capital, Land, Building etc.) </li></ul><ul><li>Loans </li></ul><ul><li>Similar to partnership </li></ul><ul><li>FDI Regulations are not yet in place </li></ul>
    12. 12. <ul><li>IPR Protection </li></ul>
    13. 13. IPR Protection Trademarks <ul><li>Advisory </li></ul><ul><li>Registration </li></ul><ul><li>Searches </li></ul><ul><li>Registration strategies </li></ul><ul><li>Replies and registrations </li></ul>Copyrights Patents Industrial Designs <ul><li>Post Registration </li></ul><ul><li>Renewals </li></ul><ul><li>Oppositions </li></ul><ul><li>Prevent unauthorized users </li></ul><ul><li>Protection against Passing-off </li></ul><ul><li>Licensing, assignment and royalty matters </li></ul><ul><li>IPR Protection </li></ul><ul><li>Oppositions </li></ul><ul><li>Prevent unauthorized users and action against the unauthorized users </li></ul><ul><li>Protection against Passing-off actions </li></ul>IPR Protection
    14. 14. <ul><li>Compliances </li></ul>
    15. 15. Compliances <ul><li>Company Law </li></ul><ul><ul><li>Board and General Meetings </li></ul></ul><ul><ul><li>Statutory Registers, Filings and Other Compliances </li></ul></ul><ul><li>Labour Law </li></ul><ul><ul><li>Dependent on Nature of Business and Number of Employees </li></ul></ul><ul><ul><li>Shops and Establishments, Provident Fund, Gratuity </li></ul></ul>
    16. 16. <ul><li>Contracts </li></ul>
    17. 17. What is Contract? <ul><li>Offer </li></ul><ul><li>Acceptance of Offer </li></ul><ul><li>Consideration </li></ul><ul><li>Agreement enforceable in the eyes of law </li></ul><ul><li>Written Understanding between Parties </li></ul>
    18. 18. Why it assumes importance? <ul><li>Outlines broad framework of understanding between Parties </li></ul><ul><li>Clear-cut demarcation of roles, responsibilities and obligations </li></ul><ul><li>Evaluation, Identification and Mitigation of Risk </li></ul><ul><li>Reduce Ambiguities </li></ul><ul><li>Recommended to have legal practitioners draft/review </li></ul>
    19. 19. Types of Contracts Contracts IPR Human Resources Transactiona l Commercial <ul><li>Vendors </li></ul><ul><li>Customers </li></ul><ul><li>Distribution </li></ul><ul><li>Franchise </li></ul><ul><li>Service </li></ul><ul><li>Agency </li></ul><ul><li>Marketing </li></ul><ul><li>Promoters/ Founders </li></ul><ul><li>Employment </li></ul><ul><li>Consultancy </li></ul><ul><li>Non-Compete/ Non-Solicit </li></ul><ul><li>Shareholders </li></ul><ul><li>Investments </li></ul><ul><li>Joint Ventures </li></ul><ul><li>Asset Purchase </li></ul><ul><li>Business Transfer </li></ul><ul><li>Non-Disclosure </li></ul><ul><li>Assignment </li></ul><ul><li>Licensing </li></ul>
    20. 20. Contracts - Key Terms <ul><li>Typical terms include – </li></ul><ul><ul><li>Clear Description of Parties </li></ul></ul><ul><ul><li>Scope of the Agreement </li></ul></ul><ul><ul><li>Commencement of Obligations – from date of execution or specific date </li></ul></ul><ul><ul><li>Milestones </li></ul></ul><ul><ul><li>Term </li></ul></ul>
    21. 21. Contracts - Key Terms <ul><li>Confidential Information </li></ul><ul><li>Representations & Warranties </li></ul><ul><li>Indemnity </li></ul><ul><li>Limitation of Liability </li></ul><ul><li>Assignment/Protection of Intellectual Property </li></ul>
    22. 22. Contracts - Key Terms <ul><li>Non-Compete, Non-Solicit </li></ul><ul><li>Dispute Resolution </li></ul><ul><li>Governing Law </li></ul><ul><li>Amendment and Waiver </li></ul><ul><li>Termination – with cause, without cause </li></ul>
    23. 23. Termination of Contract <ul><li>Without cause - </li></ul><ul><ul><li>Expiry of term </li></ul></ul><ul><ul><li>Completion of obligations </li></ul></ul><ul><ul><li>Parties wish to move on </li></ul></ul><ul><li>With cause – </li></ul><ul><ul><li>Breach of Contract </li></ul></ul><ul><li>Obligations /consequences of Termination </li></ul>
    24. 24. Remedies for Breach <ul><li>Compensation for loss or damage caused by breach </li></ul><ul><li>Civil remedies </li></ul><ul><ul><li>Suit for specific performance or damages </li></ul></ul><ul><ul><li>Injunctions – Temporary or permanent </li></ul></ul><ul><ul><li>Suit for recovery/compensation </li></ul></ul>
    25. 25. Indemnity & Limitation of Liability <ul><li>Loss, damages and expenses arising from negligence of one Party </li></ul><ul><li>Liability limited to direct losses, claims and expenses (as against indirect losses like loss of business, profits etc.) </li></ul><ul><li>Limiting Liability to a mutually agreed amount/percentage (2x the value of the Contract) </li></ul>
    26. 26. Dispute resolution <ul><li>Negotiation and amicable settlement </li></ul><ul><li>Escalation to Dispute Resolution committee/ senior management </li></ul><ul><li>Arbitration (sole/panel of 3 arbitrators) </li></ul><ul><li>Litigation </li></ul>
    27. 27. Dispute resolution <ul><li>Arbitration </li></ul><ul><ul><li>Mutually appointed arbitrators </li></ul></ul><ul><ul><li>Informal, flexible as compared to formal process of courts </li></ul></ul><ul><ul><li>Time and Cost-effective </li></ul></ul><ul><li>Litigation </li></ul><ul><ul><li>Formal process by Courts </li></ul></ul><ul><ul><li>Fraught with delays </li></ul></ul>
    28. 28. Jurisdiction of courts <ul><li>As per mutual agreement </li></ul><ul><li>Place of Business /Parties </li></ul><ul><li>Where cause of action arises? </li></ul><ul><li>Neutral Venue </li></ul><ul><li>Jurisdiction recommended to be specified in the </li></ul><ul><li>contract </li></ul>
    29. 29. Governing Law <ul><li>Typically place of Business/Parties </li></ul><ul><li>As per Mutual Agreement </li></ul><ul><li>Neutral Venue </li></ul><ul><li>Governing Law recommended to be specified in </li></ul><ul><li>the contract </li></ul>
    30. 30. Binding Nature <ul><li>MoU (Memorandum of Understanding), Term Sheets - not binding unless expressly mentioned </li></ul><ul><li>Subject to Definitive Agreement to be executed between parties – which shall be of binding nature </li></ul>
    31. 31. <ul><li>QUESTIONS? </li></ul>
    32. 32. Contact Us <ul><li>U NIVERSAL L EGAL </li></ul><ul><li>Sharanya G Ranga </li></ul><ul><li>Partner in charge </li></ul><ul><li>Mumbai </li></ul><ul><li>[email_address] </li></ul><ul><li>India Locations </li></ul><ul><li>* Bangalore *Chennai *New Delhi *Mumbai *Chandigarh </li></ul><ul><li>U.S Locations </li></ul><ul><li> *Los Angeles *New Jersey *Atlanta *Silicon Valley * Fairfax </li></ul>