This document provides information on structuring a business and the legal considerations involved. It discusses the various business entity structures like sole proprietorship, partnership, limited liability partnership, and private or public companies. For each structure, it outlines the pros and cons in terms of owner liability, compliance requirements, funding options, taxation, and exit strategies. The document also discusses procedures for incorporation of companies and drafting essential legal documents like founders agreements, shareholder agreements, employment contracts, and non-disclosure agreements.

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2. “DMR”
Law Chambers
Stands for Our Founder’s name:
Mr. D. Madhava Rao
Firm Established Since:
Year 1984
With 29 Years rich Experience

4. Handling Your Entrepreneurship
Stints in a Legal Perspective

5. Structuring Your Business

6. Structuring Your Business
 Sole Proprietary?
 Partnership Firm?
 Limited Liability
Partnership?
 Private/Public
Company?

7. Structuring Your Business
 Owner’s Liability
 Compliance Burden
 Investment & Funding
 Exit Strategy
 Taxation

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

9. Structuring Your Business
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.

10. Structuring Your Business
 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.

11. Structuring Your 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.

12. Structuring Your Business
 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.

13. Structuring Your Business
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

14. Structuring Your Business
 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;

15. Structuring Your Business
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

16. Structuring Your Business
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;

17. Structuring Your Business
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.

18. Structuring Your Business
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.

19. Structuring Your Business
 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”.

20. INTRODUCTION TO RAISING OF
INVESTMENT
Need to investment into startups needs no
separate explanation!
Capital primarily comes in two forms
Equity
Debt

21. INTRODUCTION TO RAISING OF
INVESTMENT
Different Categories
of Investors
Venture Capitalists Private Equity Capital Market

22. INTRODUCTION TO RAISING OF
INVESTMENT
INTENTION
OF INVESTOR
FINANCIAL STRATEGIC

23. INTRODUCTION TO RAISING OF
INVESTMENT
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

24. 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.

25. DRAFTING OF ESSENTIAL
LEGAL DOCUMENTS
 “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.

26. DRAFTING OF ESSENTIAL
LEGAL DOCUMENTS
 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.

27. DRAFTING OF ESSENTIAL
LEGAL DOCUMENTS
 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.

28. DRAFTING OF ESSENTIAL
LEGAL DOCUMENTS
 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.

29. 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

30. Government Tenders and the
Tendering Process
STAGES 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

31. 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.

32. INFORMATION
TECHNOLOGY LAW
 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;

33. INFORMATION
TECHNOLOGY LAW
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.

34. 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

35. Arbitration , Dispute
resolution & Handling
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.

36. Arbitration , Dispute
resolution & Handling
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.

37. Arbitration , Dispute
resolution & Handling
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.

38. Arbitration , Dispute
resolution & Handling
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

39. Your Patience is appreciated !