In this article, Porus Confectioner pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses how a contract can be vetted.

Introduction

Any contract sets out responsibilities and liabilities for parties thereto and remedies for breach along with cover for any unforeseen losses. Here we would look at the basic contract for the supply of goods to understand the vetting process.

A draft would need to be reviewed and where necessary, renegotiated with the counterparties.

Main Aspects

• Legal vetting of contracts requires the person to do a very intense check of intent, clauses, recitals, and risk to protect a client’s needs, as well as facilitate a definite transaction flow.
• The English contract law from which main contract law is drawn placed a lot of emphasis on the intent of contracting parties to bind themselves in an agreement to exchange a business or service. The basis of contract, therefore, is that two parties legally bind themselves in commercial and business agreement.
• In Jones V Padavatton, the courts brought out the distinction between family arrangements and business agreements very clearly. The family agreement is not always binding and contractual agreements should clearly engrave within them, the commercial intent. Hence, while vetting contracts the intent to “bind each other legally in business” should be clear.
• It follows from the above, that it is important to check, that the Parties to the Agreement should be known and definite, their authority to represent their respective company or firm and ability to contract and place of business should be checked on. In cases where there are 3 or more parties to a contract, the intensity of scrutiny may need more rigour to establish the purpose of each person.
• When parties bind themselves in business, it must be clear as to the purpose of the contract. The recitals must be checked to be well defined.
• If the purpose is for sale of goods, it makes sense that “ x is a manufacturer and seller of AB goods and Z is in the business of manufacturing XY goods in which AB goods is an input “.
• In a simple Sale of Goods, where products are standardised, it may not require that specific definition may not be given, though, by way of abundant precaution it makes sense to state and define “ Goods “, “ Parties “, “ Purchase Order”, “ Date of Delivery”, “ GST”, “place of delivery”, “ date and mode payment, “ cancellation “ etc so that the terms “ mean the same thing in the same sense” to contracting parties and suit their requirements as accurately as possible.
• However, where there are complex customized product requirements – ie. Boilers, Engineering Goods, specialized electronics, etc it would be advisable to ensure that all specification and definitions are sharply delineated.
• Thereafter, the agreement should state the terms and conditions on which the business will be done.

Terms and Conditions

The buyer raises a Purchase Order in line with this Agreement terms and conditions.

The “Offer” is constituted by the Purchase Order. The Offer is considered “ Accepted” by Seller on his return to the purchaser of the copy of the “Purchase Order” under Sellers signature by fax, letter or email. The Definitions should clearly state what defines a valid acceptance.

Duties of Supplier of Goods

This part sets out the responsibilities of the goods supplier in this agreement:

This part should cover :

1. Those goods should be as per specifications stated in the Purchase Order and that the supplier is well and truly able to deliver the goods within the timeline stated on the Purchase Order.
2. That the goods will be as per quality standards as per specifications set by Buyer (as per previous Blueprints, specifications, sizes, shapes, standards, technical materials exchanged, Purchase Order, etc.). The quality standards could be in an annexure or in the Purchase Order and this should be stated in the agreement.
3. That the product is free from manufacturing flaws or faults or defects.
4. The product complies with all regulatory and statutory laws and guidelines in the country of sale, export or import.
5. The supplier has not violated any intellectual properties rights, Copyrights, which could jeopardize usage of the goods.
6. Proper packaging and shipping requirements are ensured by the supplier.
7. That delivery will be as per terms agreed.
8. Attend meetings to assist the servicing of the customer when called upon or supply relevant information when called upon.

Duties of Buyers of Goods

The Buyer promises that

• The goods will be utilized for the purpose set out in the agreement.
• That payment will be made within the stipulated times as per the agreement and as per the purchase order and by the agreed mode of payment.
• Payment of interest for any overdue amounts at the agreed rate of Interest.
• That buyer will not penalize seller for any error caused by himself in delivery or application of the product.
• Cancellation of order will be done as per invoice/agreement terms and conditions.

Note: Here it makes sense to follow appropriate Incoterms where possible or set out the terms of delivery and at which point the responsibility for liability of goods changes hands from buyer to seller. Checks on clarity on whether various charges i.e export, import, customs, GST, and Insurance are to the Buyer or the Seller are due here.Again, the rights and responsibilities of the Buyer and Seller would need to be more sharply described in the contract or checked thoroughly where the goods are complex, expensive and custom built to a particular requirement. Where the charges for the goods are paid over time and there are some reimbursements and costs to be paid i.e. Milestone payments, advance payments, reimbursements, it is also advisable to check and describe the payments terms, payments due dates, payment requirements, taxes, interest , late fees, etc. under a separate heading in the agreement.

Warranties and Representation

• Here the supplier represents and warrants that the goods are unencumbered and has the full right title and Interest to Sell. A seller also retains all power and authority to manufacture, sell, transfer, and deliver the goods to the customer.
• Where there are specific warranties related to the underlying goods, this should be incorporated or checked to ensure that they are clearly set out in the correct word and meaning sense.
• While this may be of lesser importance of standardized goods, it takes on a more critical role when the sales relate to immovable property, software applications, and specialized products.

Intellectual Property and Indemnities

• In cases of software or in case of specified licensed products, intellectual properties are an important element.
• The supplier would need to indemnify the Buyers against any costs relating to claims of infringement of patents, intellectual properties or other such copyright requirements.
• The indemnity should include a statement whereby the Buyer shall give support to the supplier where it is necessary to defend the claim, whilst the costs are to the supplier.
• Here, the check is to ensure that the Buyer retains a valid claim in the event of any such infringement so that his costs are covered. It is also important for the Seller to know such claim since it is in the supplier’s interest to also defend any infringement of his TradeMark, property or copyright.

Confidentiality and Data Protection

The Buyer and seller are subject to maintaining the confidentiality of the product, again more so in cases of software, where the buyer has information of sellers source codes and the seller also is aware of processes, systems and development works done on their main technology systems.

The agreement should entail the extent of confidentiality required of both parties to the contract and spell out that disclosure would be needed in case of Court summons, Tax requirements, relevant regulatory bodies, or other such situations.

These are necessary checks in vetting and negotiation of agreements.

Liability and Remedies

• The clauses here would protect the buyer and state compensation payable in the event of sellers inability to perform or fulfill his promise. Here it is advisable to state a cap on the liability based on the value or the product.
• Liability of supplier in the event of non-delivery, quality claims, or losses and damages arising out of such breach are maximum 150 % of the value of the invoice or non-delivery.
• Similarly, a clause may be set out regarding stoppage of further supplies to Buyer in the event of non-payment of invoices beyond a certain date, except in cases of quality claims.
• Based on the product the parties should agree and document in the agreement the method of resolution and amount remedies in the above cases.

Force Majeure

• Parties thereto should agree that if there is a breach owing to force majeure ie. Flooding, terrorism, fire, civil commotion, earthquakes, etc.
• An outer limit of 1 to 3 months may be considered for termination of the agreement where the seller or buyer is affected to the extent that they are unable to produce or operate further where there is severe disruption and a substantial restoration is required.

Termination and Notice

Clauses here should cover the circumstances under which the agreement may be terminated by either party. Ordinarily, where there is repeated material breach of the agreement, business exigencies, etc.

Arbitration and Dispute Resolution

• Approaching the courts in dispute resolution is time-consuming and expensive. Arbitration is always an option in the resolution of disputes arising out of commercial causes. The Buyer and Seller may subscribe to an arbitrator. The Buyer and Seller agree to submit the case to an arbitration counsel under The Indian Arbitration Act.
• The number of arbitrators, selection process and requirements should also be incorporated.
• The terms and requirement should be spelled out. An arbitration clause should be incorporated where contracting persons are agreeable.

Governing laws and Jurisdiction

The appropriate jurisdiction should be stated here. Where counterparties are in India, they may submit to laws as applicable to the courts in India. In International contracts, it more common now to submit to the non-exclusive or exclusive jurisdiction of English courts as a viable option owing to accessibility and similarity of legal application. Non Exclusive jurisdiction gives the opportunity to counterparties to explore other options in the event submission to English laws is too expensive or prohibitive for various reasons.

Notably, in the past few years, Singapore law has also been commonly used in international financial contracts.

Signatures

Spaces should be done indicating where the parties representatives are to sign. The persons Designation and Company Firm names should be included. Where appropriate, witnesses names, signatures and Designations are also included.

Conclusion

The Indian Contract Law requires certain other checks which need to be fulfilled. As per Section 1o of the Indian Contract Act “ All agreement are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and a lawful object, and are not hereby expressly declared to be void.

Hence the agreement would need to be checked to ensure that they adhere to the above requirements. Further, in accordance with Section 29 (g) of the Indian Contract Act, the following agreement is declared to be void–

• Consideration and objects are unlawful
• Without consideration
• Restraint of marriage
• Restraint of trade
• Restraint of legal proceedings
• Vague agreements
• Wagering agreements and
• Agreements to do impossible acts

These are also to be kept in mind whilst checking contracts. A check on Stamp Duty requirements, legalization, etc would also need to be done.

Contract vetting will require at least two to three readings. One reading to understand the transaction, the parties and to check that all appropriate clauses exist. Another reading would need to check clause by clause and include some which are missing or exclude those which appear vague and irrelevant. The final reading would be to understand the risks the client is exposed to and then build in clauses to cover the perceived risks.

A contract is an agreement enforceable by law, the last three words being critical. The checker must ensure that the contract has been vetted to ensure enforceability.

In this Article, Pallav Gupta pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses the important clauses in a Confidentiality Agreement.

Introduction

Behind every new startup company, there is an idea. But before that idea is presented to the world, it is very necessary to protect that idea from potential competitors in the market. Even the big companies have to protect their trade secrets and certain other information which could exploit their intellectual property. For specifically protecting that aspect, a Confidentiality Agreement comes into the picture. 

Confidentiality Agreement

A Confidentiality Agreement which is also known as a Non-Disclosure Agreement, in simple words, is an agreement between two parties where one of the parties is bound to not to disclose any kind of information being provided or shared by the other party to the first party. Non-Disclosure Agreements (NDAs) are agreements signed between two entities in writing that confidential information is being passed from one entity/person/company to another, the nature of the information, the purpose and most importantly an undertaking from the person receiving the information not to reveal it to anyone for a specified period of time. In India, there is no such statutory enactment for its applicability and its enforceability but it is governed under the Indian Contract Act, 1872.

For example:

• A start-up company is seeking for funds through investors and capital ventures and the founders may fear that their idea will be stolen in lieu of receiving an investment. By entering into a Confidentiality agreement, one can prevent such idea theft.
• In the absence of such an agreement, it would become difficult to establish in the future that whether the idea was stolen or not. Similarly, a company recruiting new employees may also require those individuals, who will have to get their hands on the sensitive information, to sign an NDA so that they do not disclose those details at any point.
• Full-time employees may also be required to sign an NDA when working on new projects that haven’t yet been made public, as the effects of information leakage could damage the value of the project and the company as a whole[1].
• When the NDAs with regard to employer-employee are concerned, there is no need for a separate confidentiality agreement as it can be included as a Clause in the employment agreement as well.

This agreement in its inception can be of two folds where it can be unilateral and bilateral. A bilateral confidentiality agreement will be when both the parties entering into the agreement have certain information to share or disclose to each other and in the unilateral confidentiality agreement, it will be the only party who discloses or shares the information.

Kinds of information which can be protected under the Confidentiality Agreement

Not every kind of information can be protected under a confidentiality agreement. If a certain piece of information has already been made public or that information amounts to the public knowledge then that information cannot be asked for to be protected. Just like a new intellectual property that information is necessary to be original, novel or inventive. For example, there is a dispute between the parties regarding the disclosure of the information, and the accused party is able to show to the court that they had the same information prior to the signing of the same agreement, the court can make them not accountable for disclosure of the information in the same case.

Types of Confidentiality Agreements

Unilateral Confidentiality Agreement

Under this kind of agreement, there is only one party out of the two parties to the agreement whose information is required to be protected. The kinds of agreements which fall under this category are employer and employee or client and vendor. Almost every employment agreement these days has a clause of the confidentiality clause, rather than having a separate agreement.

Bilateral Confidentiality Agreement

Under this kind of agreement, both the parties to the agreement disclose the information to each other and both the parties are required not to disclose the information. For instance in the case of a joint venture, If a chip manufacturer knows about the top-secret tech going into a new phone, they may be required to keep the design a secret. In the same agreement, the phone manufacturer may be required to the keep the new tech in the chip secret as well[2]. Bilateral or two-way confidentiality agreements are less likely to contain such provisions which can come out to be one-sided.

Uses of a Confidentiality Agreement

• A confidentiality agreement in today’s era is a useful agreement not only to multinational corporations but also to small companies or startup companies or partnerships or any other entity since at any point of time during their course of business, the involvement of an outsider can put their confidential information in danger.
• In the case of a start-up, these agreements have to be handy. For the growth of that start-up, it is very necessary for them to deal with outsiders for the purpose of collaboration or compliance or anything which is required by them to establish the setup. For example, for the purpose of getting a product to be patented, an expert/ legal opinion would be required by them or even for the purpose of registration of the company or drafting of the agreements they need to discuss every kind of confidential information with a lawyer.
• So in that case as well these companies in order to protect their idea and the confidential information behind it, a confidentiality agreement become necessary. In times of competition in today’s market missing out on these small precautions can jeopardize the confidential information.
• A confidential agreement would be a lot of help in the film and television industry where a lot of intellectual ideas are shared with the outsiders. For example, if a scriptwriter wants his story to be made into a film and he approaches a film production company, he has to share his story to that company and his ideas are being shared with an outsider. So, in cases like this confidentiality agreement would be very helpful for the primary owner of that idea. Another prominent industry where a confidentiality agreement can be useful is the fashion industry wherein the designs are not meant to be shown in public before their shows or exhibitions.
• A nondisclosure agreement is also used in other circumstances where an employer is interested in keeping company confidential and proprietary information private. But, as a binding, legal document, the employer would have some recourse if company confidential or proprietary information was shared. For example at the time senior level recruiting, the recruiters have to share a certain amount of confidential information with the candidate in order to understand their real-time crisis solving antics so that they are able to figure out whether the candidate is fit for the job or not.
• Employers entering into confidentiality agreements with the employees of the company can really benefit from the same. As they are the only people, who are working with that information day in and day out. These days, the employers have started including the confidentiality clause in the employment agreement instead of entering into a separate agreement.
• A nondisclosure agreement should offer a clause that allows an employer to sign off on or give permission to the signer to use company proprietary information. This allows employees some latitude to participate in activities such as starting a business or becoming a supplier to their former employer[3].

Important Clauses in a Confidentiality Agreement

Definition of “Confidential Information”

The first clause becomes the essence of the agreement as to what exactly comes under the confidential information. As explained above as well, that information which would be in the knowledge of the party receiving the information or that information which amounts to public knowledge cannot be covered under this category. Every kind of information has to come under this heading so that the dispute in future can be avoided under any circumstance. This clause can also contain the manner in which the information will be shared with the receiving party.

Description of the Parties

It is not necessary to include this as the clause but it is the requirement of every agreement that there should be the proper description of every party to the agreement along with their respective full initial and registered address.

Duration/ Term of the agreement

• It is an obvious fact the longer the period of protection of information is mentioned in the agreement, the safer the information gets for a longer time.
• Depending on the nature of the disclosing party’s business, the ‘trade secret’ may be just as critical in 25 years as it is today. As such, they will seek to protect and secure the confidentiality of that information for as long as possible[4].
• The term of the agreement should be mentioned specifically in the agreement so that there is no ambiguity left open.
• For example, the agreement term can be till one year, two years, even five years but in the cases where the time frame is mentioned in the form such as not less than 18 months and not above the period of 2 years. This kind of term can create a dispute and can lead to ambiguity.

Use of Information

Some owners of the information feel that the receiving party should be able to access to every piece of information they are able to perceive while working with the first party. Whereas, the other owners might think of limiting the criteria for usage of the confidential information. It depends upon the requirement of the company to company. For example, at the time of Merger and Acquisition, if there is a confidentiality agreement between the parties before entering into the said transaction, the company can only be entitled to use the information required for the purpose of evaluation.

Obligation to disclose

This clause is mentioned in almost every confidentiality agreement because there are certain circumstances wherein the party can be bound to disclose the information. This can happen in the case when there is any administrative or legal authority can ask the party to disclose the information. For example, if there is an investigation going on by Customs Department, then the party is bound to disclose that information to those officials.

Return of the Information

Generally, after the time frame mentioned in the agreement has lapsed, the receiving party has to hand over the confidential information along with all the material with it. It is not necessary that the party has to return the information, it can be asked to destroy the same as well, as according to the agreement between the parties, and whether the same information has to be destroyed/returned can be mentioned under this clause. The effective return of all confidential materials has become increasingly difficult with technology. In today’s age of technological advancement, it is very difficult to fully destroy such information such as cloud storage, USB drives, hard drives etc. As a result, more and more NDAs are allowing the recipients to retain some of the information for ‘document retention’ – but not accessible in the course of daily business.

Remedies

Every confidentiality agreement must have this clause that in the case of breach of this agreement the primary party will have the right to proceed legally in a certain prescribed manner. The costs of a breach can be hard to calculate or prove, so a mutual agreement up front as to what constitutes a fair remedy will help you avoid a lengthy legal battle later on. This clause should include the possible consequences of a breach and explicitly preserve your right as the Disclosing Party to seek equitable remedies[5]. It is necessary that the disputes arising out of the said agreement should be resolved cost effectively and the most cost-effective option in Arbitration. His powers and appointment should be clearly defined in the said clause so that so that there is no dispute regarding the remedy and dispute resolution.

Jurisdiction

It is also very necessary to mention that which area/city will be having the jurisdiction according to this agreement to entertain the dispute arising between the parties[6].

No Binding

• The signing of the said agreement does not always imply that there will be the permanent relationship between the parties. Therefore, the said clause implies that any party can terminate the collaboration at any point in time. This clause reserves the right of both the parties to withdraw from the said relationship as according to the procedure mentioned in the said clause and by abiding the relevant laws. 
• Another important thing while entering into a confidentiality agreement is its registration. The parties can get the same registered through notarization as well as it will be the cost-effective and time-saving process.
• An unregistered confidentiality agreement can be as good as nothing since no party would be able to move to the court if the same is not registered.

Conclusion

Non-disclosure agreements are an important legal framework used to protect sensitive and confidential information from being made available by the recipient of that information[6]. The main problem with the confidentiality agreement is the difficulty that whether all the aspects have been covered or not. This problem can arise if the said agreement has not been drafted properly in a manner which can reduce the ambiguities. This is why if the companies require a good confidentiality agreement they must consult a lawyer for that instead of copying from the internet. Bad drafting can cause the companies to enter into long litigation battles which can incur them a lot of legal costs as well. Therefore, the companies should always go for properly drafted confidentiality agreement from the professionals as it does not cost a fortune.

References

[1] Adam Hayes, How NDAs Work and Why They’re Important https://www.investopedia.com/articles/investing/041315/how-ndas-work-and-why-theyre-important.asp.

[2] Susan M. Heathfield, What is a Non Disclosure agreement? https://www.thebalance.com/non-disclosure-agreement-1918197.

[3] 9 clauses to include in every Non-disclosure agreement https://www.axial.net/wp-content/uploads/2014/03/Axial_9-Clauses-to-Include-in-Every-NDA.

[4] Erica Gardener 10 key clauses in every non-disclosure agreement https://everynda.com/blog/10-clauses-have-non-disclosure/.

[5] Deepshikha Ranjan, What you need to know about non-disclosure agreements https://blog.ipleaders.in/non-disclosure-agreements/.

[6] How NDAs Work and Why They’re Important | Investopedia https://www.investopedia.com/articles/investing/041315/how-ndas-work-and-why-theyre-important.asp#ixzz55ksvza1v.

In this article, Sarang Khanna, Researcher and Analyst at iPleaders, talks about the basics of mooting to help you get forward and transition from an amateur to an expert mooter.

Thankfully, mooting is a skill, and like any other acquired skill, no one is born knowing anything about it. You can learn and constantly get better at mooting and increase your knowledge about them one after another. With increasing experience and exposure, law students come to love this legal extra curricular activity.

Mooting is getting compulsory in more and more law universities and colleges, keeping in mind the enormous advantages it has for law students. If you are looking to do well and stand out amongst the rest of the participants in your college moot, or even at the more prestigious national and intentional level moots, read ahead.

UNDERSTAND THE PROBLEM

As self-evident as it may sound, the first crucial step to approaching any moot court competition is to clearly understand all issues and different aspects of law involved in the problem.

Start with locating who your clients are and who are you representing in the given problem – if it’s a person or a company. Next comes the issue of what kind of court are you being asked to participate in, and what stage of proceedings is the matter at. Different court proceedings demand different structural organization of your moot court memos and speech, and it can be crucial for the life of your moot.

Next very important aspect to understand is whether you are the petitioner or the appellant in the given case (No kidding!). It sounds like a no-brainer but trust me as I’m picking this up from personal experience, I was once a part of a moot where our opponents prepared from the appellant’s side despite actually being the defendant. Funnily, we all stood on the same side when called up to give appearance by the judge, and then the goof up came to light. Needless to  say, we won without even contesting.

HAVE THE FACTS ON YOUR FINGER TIPS

Your problem depends on facts, and no matter what television courtroom dramas have taught you, the room to manipulate these facts in a moot court is virtually nil. There will be relevant facts and there will be irrelevant facts, but it serves you best to by heart all of them.

Would you want to be subjected to a question that you know absolutely nothing about? Of course not. You want to be answering questions with authority in a moot court and knowing your facts from A to Z will help you be in a better position when questioned. That is not to say that you go on reiterating the facts over and over again without delving into the actual legal issues involved.

Magnified perusal of facts will assist you in doing a thorough research and identifying legal issues that may otherwise remain unnoticed. Although facts should not find mention of more than 2 pages and 3-4 minutes in your memo and speech respectively. The best place for facts is in memory, and to help in impeccable legal research.

SOMETIMES, IT’S OKAY TO NOT KNOW

When it comes to finally delivering your arguments, first and foremost – practice! Practice saying tricky words aloud. Practice saying the citations, practice the delivery of your main points, practice your opening and closing statements and say them out aloud to someone who’s never heard them before or has no clue about your moot, and time yourself. This will help you in speaking clear, coherently, and in comprehensive language. Use precise English, but do away with fancy jargon. Delivering a whole statement in Latin doesn’t impress anyone anymore.

However, your practice buddy cannot help you with the questions, and you yourself can only anticipate so much in advance. When questioned during the actual moot, listen carefully to the question the judge is asking. Don’t answer a question you wish they had asked, and if you don’t know the answer, say it. It’s okay, you can say “I can’t give you the answer at the moment, your honor, but my team will do some research and give that answer to you shortly. If you would allow me to continue with my submissions now” or something like that. If you really don’t know the answer, “I’m sorry, Your Honor, I am not aware of this” can be a  good response. It is okay to not know some things, but don’t let it shrink your confidence.

Remember, you are learning from this experience. Mooting is stressful, but don’t be put off by the situation, don’t be put off by the questioning, and don’t be put off by the context. Nervousness is understandable but try to manage that in whatever way suits you best. Overall, do not be put off by mooting. You will only learn something new and  your future moots will be nothing like your previous ones.

YOU ARE THE EXPERT – EMBRACE THE QUESTIONING

In your moot you are the expert and questions are only meant for understanding more from you. They are not at all bad for you. As a lawyer you’re trying to make an argument in front of the court and your argument needs to be coherent. When the bench follows up with you through questions, they are only actually trying to understand what you are trying to convey, or questioning you to understand if you understand what you are saying yourself.

Questions are a great opportunity to make your case indispensable, and they should be welcomed. For me, I just automatically assumed that the bench thinks I’m stupid when subjected to a question and got really defensive sometimes in my approach to answer. This is a terrible way to respond to questions as the bench is often only trying to guide under that strong questioning tone and giving you an opportunity to effectively use the question to make your point clearer.

Questions are only a clever way of judging your preparation, and taking them as a dialogue, rather than an interrogation, is the effective way to deal with them.

BE FIRM, BUT ADHERE TO COURT MANNERISMS

Yes, you are in a simulated courtroom, but it runs like a real courtroom nevertheless. Right from taking the podium, to starting your arguments and responding to questions from the bench, court norms and mannerisms must strictly be adhered to. Being gentle and respectful during an argument depict character and it goes a long way in establishing trust with the bench.

Even body language, gesticulation, hand movements and diction can add or take value from your moot presentation. Use them well. Be clear and comprehensible, even if it means taking a little longer. Of course there is a clock and you are being timed, but do not rush your arguments. It gives the impression that you have no idea what you’re talking about, or worse, you might look like a panting hostage in an ISIS video.

Additionally, the bench might put to you a statement that you don’t agree with or which you think they may be have not understood what you have said clearly. Use this opportunity to repeat yourself, and even disagree politely, if you must. Do not forget the fact that the bench is in a position much superior to yours, and you can still disagree with what the bench is saying by being respectful.

“I’m sorry, Your Honor, I think that I may have not put forth the argument correctly. What I do mean to say is…….”. There are many such ways of handling questions that are thrown at you by the bench that may prejudice your case. The number one thing to always keep in mind though is to be respectful. Period.

BE “THE” TEAM: ASSIST AND ORGANIZE

Another important and obvious thing to immensely capitalize on is your team work. The reason you’re working as a team is because mooting is a mammoth task, comprising of small baby mammoth tasks. Remember, you are a team and not just a collection of individuals, and using the strength of your team is imperative in deciding how your moot proceeds.

Have arrangements in place to assist each other. Know where, when and how to keep track of the proceedings. For someone who is doing the speaking, being on the toes can be nerve inducing and intimidating. The researcher on the team could follow and research the questions being thrown at the speaker by the bench, for example. Another person could follow the points and make sure that you stick to the pattern and structure of your presentation. Use gentle nudges as reminders when speaker goes off track or misses to cover a crucial point.

The questions from the bench are going to take you down a different garden path so it’s good to have someone on your team who is not under pressure and standing up and speaking who can keep regular track. An important point missed, is an important point lost.

As a lawyer, your job is to put forward a logical and well thought out and easily understandable argument. Mooting gears you up to deal with difficult, prickly questions, and if you are like me who gets worked up and nervous when put on the stop, you must up your mooting game to beat the competition. You can visit here to learn the essentials of mooting and be the most respected name in the circle.

Mooting has immense networking potential and also hones your advocacy skill more than any other activity. Moreover, high prize money is awarded at most moots which makes the competition extremely tough. Do your bit, prepare ahead in time, and rise ahead of the competition.

This article is written by Kashish Khattar, Amity Law School, Delhi [IPU], pursuing Ace your Internship course at Lawsikho.

Introduction

A bond is a debt instrument with which an entity raises money from investors. The issuer gets capital while the investors receive fixed income in the form of interest. When the bond matures, the money is repaid. A green bond is the same as a bond, the only difference is that the issuer of a green bond publicly states that the capital is being raised to fund ‘green’ projects, which can be utilised under certain specified categories such as:

• renewable and sustainable energy (wind, solar, bioenergy, other sources of energy which use clean technology etc.);
• clean transportation including mass/public transportation etc.;
• sustainable water management including clean and/or drinking water, water recycling etc.;
• climate change adaptation;
• energy efficiency including efficient and green buildings;
• sustainable waste management including recycling, waste to energy, efficient disposal of wastage;
• sustainable land use including sustainable forestry and agriculture and afforestation etc. and
• biodiversity conservation.

The definition has been kept expansive enough to include every type of green project that can be thought of at the present time and for the future time being.

Importance of Green Bonds in the Indian Economy

Introduction of Green Bonds sets to resolve the issue of funding in the evolving renewable energy sector. India has set an ambitious target of 175 GW of renewable energy by 2022 and reduce its carbon footprint. An estimated investment of USD 200 billion is required to achieve that capacity. The delay in these ‘green’ projects has largely been due to lack of capital funding. Green Bonds, is a fast emerging investment for clean energy. Some key benefits for issuing green bonds are:

1. Investor diversification: These bonds help the issuer to amplify funding sources and limit the dependency on specific markets by such issuers. Particularly, Green bonds have been quite popular with investors focused on sustainable and responsible investing (SRI), investors that come under the ESG criteria (Environmental, Social and Governance) etc.
2. Potential for Pricing Advantage: The green factor to these bonds brings with it, pricing advantage. The green bonds have high prospects to bring domestic and foreign capital for renewable energy on better financing terms, including lower interest rates, and longer repayment schedules.

Procedure for Issue of A Green Bond

To issue a green bond, the compliances laid down in Securities And Exchange Board Of India (Issue And Listing Of Debt Securities) Regulations, 2008 (“ILDS Regulations”) and the Green Bond Guidelines (“Circular”) issued by SEBI (“Board”) on 30th May 2017 are required to be complied with:

1. The issuer has to make an application to a recognised stock exchange has been made for listing of securities. The issuer has to appoint merchant bankers registered with the Board, one of whom should be lead merchant banker. It also has to obtain in-principle approval for listing of green bonds on the stock exchange, obtain a credit rating from a credit rating agency. The issuer also has to enter into an arrangement with a depository for dematerialization of the green bonds.
2. It will also appoint one or more debenture trustees in accordance with the appointment of debenture trustees and duties of debenture trustees of the Companies Act, 1956 (“Act”) and SEBI (Debenture Trustees) Regulations, 1993. Issuer cannot issue green bonds for loans or acquisition of shares of anyone for people who are part of the same group or who are under the same arrangement.
3. The offer document has to contain all material disclosures which are needed by the subscribers to take an informed decision. The issuer and lead merchant have to make sure that the offer document will contain – which talk about matters to be specified in prospectus and reports to be set out. And disclosures such as last three years annual report, undertaking from the issuer etc. The objective of the green bond, brief details of how the issuer has determined the eligibility of the projects, procedure to be used for deployment of the proceeds of the issue. Details of the projects where the green bonds will be utilised, appointment of third party reviewer for certifying things such as project evaluation, selection criteria, project categories eligible for financing by green bonds.
4. The draft and final offer document has to be displayed on the websites of stock exchanges. Advertising for public issues would include advertisements in the national dailies, no misleading material should be included, it should be truthful, fair and clear, it should only talk about the relevant subjects. Any other product or advertisement issued by the issuer during the subscription should not make any reference to the issue of green bonds.
5. The issuer proposing to issue green bonds online through the website of the designated stock exchange has to comply with the relevant requirements which may be specified by the Board. The price will be determined by the issuer and the lead merchant banker together or through the book building process. The issuer can decide the minimum subscription which it seeks to raise by the issue of green bonds, disclosing the same in the offer document.
6. A trust deed will be executed by the issuer in favour of the debenture trustee in three months of the closure of the issue. The trust has to contain clauses as maybe prescribed under Section 117A of Act, and those in Schedule IV of the SEBI (Debenture Trustees) Regulations, 1993. The debenture redemption reserve will be created by a company for redemption of green bonds in accordance with the Act, and any circulars issued by the central government. The trust should will not contain limiting obligations and liabilities of the issuer in connection with the rights and interests of the investor.
7. There should a proposal to create a charge or security in respect to secured green bonds which have to be disclosed in the offer document, the issuer is supposed to give an undertaking about the assets on which charge is created are free from any burden.  The proceeds from the issue will be kept in an escrow account till the documents for creation of security as stated in the offer document are executed.
8. Responsibilities of the issuer – The issuer will maintain a decision making process which determines the eligibility of the projects/assets. Including, without any exception, a statement on the environmental objectives of green bonds and a way to determine whether the projects or assets are eligible to be considered. He will ensure that all projects or assets are funded by the proceeds of the green bonds, and meet its objectives. The utilisation of proceeds is well established in the offer documents. The issuer or any agent of the issuer, if following any globally accepted standard for measuring environmental impact on the project or has a process of identifying projects or assets, or utilising of proceeds will disclose all the details in the offer document, disclosure document and in continuous disclosures.

Procedure for Listing of Green Bonds

• Mandatory Listing

1. 1. Issuer who desires to make an offer of green bonds to the public has to make an application for listing to one or more designated stock exchanges under Section 73 of the Act;

1. 1. Issuer has to comply with all the conditions of listing such green bonds as have been specified in the listing agreement with the stock exchange; and

1. 1. The issuer who wishes to issue privately placed green bonds has to forward the listing application with disclosures specified in Schedule 1 of the recognised stock exchange within fifteen days from the date of allotment of those green bonds.

• Conditions for listing of green bonds on private placement basis

1. 1. The issuer has to issue green bonds in compliance with provisions of the Act, rules prescribed and other applicable laws, credit rating has been obtained from one agency registered under the Board, securities to be listed are in dematerialized form, disclosures in Regulation 21 have been made. The issuer has to comply with conditions specified in Listing Agreement with the stock exchange where these securities are supposed to be listed, the designated stock exchange has to collect a regulatory fee as specified in Schedule V. The issuer has obtained fresh credit rating from at least one credit agency, ratings have to be reevaluated on a periodic basis, appropriate disclosures have to be made in regard with re-issuance of term sheet. The issuer seeking listing will make disclosures as specified in Schedule I of the regulations and the annual report of the issuers; it should be made on website of stock-exchanges and shall be downloadable in PDF/ HTML formats. Relaxation of strict enforcement of rule 19 of Securities Contracts (Regulation) Rules, 1957. The Board relaxes enforcement of sub rules (1), clause (b) of sub rule (2) and (3) of rule 19.

Compliances

• Continuous Listing Conditions

1. 1. All issuers making public issue or seeking to list green bonds issued on private placement basis will comply with conditions of listings specified in respective listing agreement for green bonds, every rating obtained by the issuer will be reviewed by a credit rating agency and any changes will be disclosed by the issuer to the stock exchange, any change in rating will be communicated to investors as maybe determined by the stock exchange, debenture trustee will issue a press release in any of the events when – there is default by issuer to pay interest on green bonds, failure to create a charge on assets, revision of rating assigned to the green bonds. All this information has to be placed on the website if there is one of the debenture trustee, issuer or stock exchange etc.

• Trading of green bonds

The green bonds, public or on a private placement basis will be listed on a recognised stock exchange, will be traded and such trades will be cleared and settled in the recognised stock exchanges subject to conditions specified by the Board, if green bonds are traded over the counter – they have to be reported on a recognised stock exchange. The Board can specify conditions for reporting of trades on the recognised stock exchange.

• Continuous Disclosure Requirements

Aside from disclosures made by the issuer in SEBI Listing Regulations, 2015. The issuer is required to submit to SEBI from time to time, its annual report and financial results along with utilisation of the proceeds on the basis of any internal tracking done by the issuer where such internal tracking is verified by any external auditor whereby he can verify the proper utilisation of proceeds of the green bonds and allocation of the same towards projects or assets. Also, details of unutilized proceeds will be given.

1. 1. Additional disclosures that need to be submitted with it’s annual report include the quantum of amount raised and a list of projects with brief descriptions, for which such amounts are raised. Details need not be provided when such information comes under the ambit of confidentiality. General information would suffice in these cases; and Certain qualitative and quantitative performance indicators are required, also the underlying assumptions used in the preparation of the performance indicators and metrics are required.

Impact of Green Bonds on the Market

The Circular does a great job in formalizing the regulatory framework for issuing and listing of these bonds. They are a big boon to the renewable sector and make the investments more lucrative to investors and provide a benchmark to regulate and monitor these guidelines that funds are only used for green projects. This will broaden access to domestic and foreign capital and relieve the banks from the strain of lending and refinancing long term green projects. Green Bond Guidelines also ensure detailed disclosure norms for the borrowing authority, closed monitoring of the utility of the bond proceeds, an incentive and add immense quality to a novel financial product which has already established its success in international and domestic markets. The guidelines also strengthen India’s commitments at the COP21 Agreement.

In this article, Smita Singh discusses whether the period of court stay is excluded for reckoning five years for lapsing of land acquisition under the new law or not.

The new law on land acquisition

For over a hundred years and since the time of British rule, Land Acquisition Act 1884 (LA Act/ Old law) was the central legislation enabling the state to wield power of eminent domain to acquire private property.

Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (LARR Act/New Law) come into force on 1/1/2014, thereby repealing the LA Act. It re-enacted the law regulating the exercise of power of eminent domain. The objective of the New Law is to inter alia provide for:

1. A humane, participative, informed and transparent process for land acquisition for industrialisation, development of essential infrastructural facilities and urbanisation with the least disturbance to the owners of the land and other affected families;
2. Just and fair compensation to the affected families whose land has been acquired;
3. Adequate provisions for affected persons for their rehabilitation and resettlement; and
4. Ensuring that the cumulative outcome of compulsory acquisition should be that affected persons become partners in development leading to an improvement in their post acquisition social and economic status.

Provision for deemed lapsing of certain acquisition proceedings

Section 24(2) LARR Act provides that the land acquisition proceedings initiated under the Old Law shall be deemed to have lapsed where an award was made five years or more prior to the commencement of New Law but:

• Physical possession of the land was not been taken; or
• Compensation had not been paid.

Notable aspects of Section 24(2) of LARR Act

Section 24(2) of LARR Act has no express stipulation to exclude period for which the acquiring authority was precluded from taking possession or paying compensation, due to operation of court stay obtained by the landowner/s, for reckoning five years for deemed lapsing of acquisition.

At the same time, the LARR Act, specifically provides for exclusion of period of operation of stay granted by the court/s for reckoning period for the following:

1. Lapsing of Preliminary Notification if Final notification is not published within period stipulated [proviso to section 19(7)]; and
2. For payment on interest on market value from date of preliminary notification [explanation to section 69(2)].

Pertinently, the Parliamentary Committee when discussed the proposed Law, the Delhi Government had put forward a case that period during which acquisition proceedings remained stayed by court order should be excluded.  Yet, in Section 24 such exclusion is not incorporated.

Later, the Central Government had issued Ordinance[1] to amend LARR Act to exclude of period of stay for reckoning five years contemplated in Section 24(2) of the LARR Act.  However, the said ordinance lapsed.

Soon after enactment of the LARR Act, large number of litigation concerning the scope and applicability of its section 24(2) arose.

Decision in Sree Balaji Nagar Residential Assn. v. State of T.N.

A Division Bench of Supreme Court in Sree Balaji Nagar Residential Assn. v. State of T.N.[2], considered effect of section 24(2) of LARR Act on acquisition proceedings where award had been passed five years earlier to coming into force of LARR Act, but the respondent state could not take possession of the land, due to operation of interim stay obtained by the landowner from courts. The Bench held that Section 24(2) of LARR Act does not exclude any period during which the acquisition proceeding remained stayed on account of interim order granted by any court. The bench held:

1. The intention of the legislature in enacting Section 24(2) of LARR Act is to be culled out from its wordings and on the basis of other relevant provisions of the said Act.
2. A plain reading of Section 24 shows that it does not exclude any period during which the land acquisition proceeding might have remained stayed by court order.
3. In the LARR Act itself, the proviso to Section 19(7) in the context of limitation for publication of declaration under Section 19(1) and the Explanation to Section 69(2) for working out the market value of the land in the context of delay between preliminary notification and the date of the award, specifically provide that the period during which the acquisition proceedings were held up on account of any stay be excluded.
4. Legislature has consciously omitted to extend the period of five years indicated in Section 24(2) even if the proceedings had been delayed on account of an order of stay granted by a court or for any reason. Such casus omissus cannot be supplied by the court.
5. Even in the repealed LA Act, the legislature had brought about amendment in Section 6 to add Explanation 1 for excluding the period when the proceeding suffered stay by an order of the court, in the context of limitation provided for publishing the declaration under Section 6(1) of the Act. To a similar effect, the Explanation to Section 11-A was added.
6. Clearly the legislature has, in its wisdom, made the period of five years under Section 24(2) LARR Act absolute and unaffected by any delay in the proceedings on account of any order of stay by a court.
7. The plain wordings used by the legislature are clear and do not create any ambiguity or conflict. In such a situation, the court is not required to depart from the literal rule of interpretation.

The ruling in Indore Development Authority and Ors. vs. Shailendra

Recently, in Indore Development Authority and Ors. vs. Shailendra (Dead) through L.Rs. and Ors[3], alarger Bench of three learned Judges of Supreme Court overruled the decision in Sri Balaji. The reasoning in Indore Development Authority can be summed up as below:

1. When an interim order staying taking of possession or further proceedings etc., operated everything stood still; it precluded the authorities to pay compensation and take possession.
2. When a party is disabled to perform a duty and it is not possible for him to perform a duty; it is a good excuse. The consequences of interim orders could not be used against the State. No person can be made to suffer because of court’s fault or delay.
3. One cannot be permitted to obtain unjust injunction or stay orders and take advantage of own actions.  No litigant can derive benefit of pendency of a case in a court of law. The court should not confer benefit upon an unscrupulous litigant and cause unjust enrichment, the doctrine of restitution compels the court not to provide benefit of Section 24(2) to such litigant.
4. In case of any interim order passed during the pendency of litigation, it merges in the final order.
5. The Parliamentary Committee though noted the suggestions for incorporating a provision to exclude the period of stay and though ordinance had been promulgated to incorporate provision for exclusion of period of stay, the actual legal position, could not be ignored.
6. The principle that if something is expressed in a provision anything contrary is impliedly excluded, has no applicability in context of Section 24(2). Merely because express provisions are made in Sections 19 and 69 of LARR Act to exclude the period of stay, casus omissus cannot be inferred in respect of Section 24.
7. The intent behind section 24(2) of LARR Act is that authority should not have kept pending acquisition due to their laxity; it never intended to apply in case where the authority was disabled from proceeding further due to court order or conduct of the land owners.  Section 24 of LARR Act aims only at expeditious completion of acquisition proceedings.  Lethargy of authorities for five years or more is not tolerated by the legislature, the provision does not provide protection to cases where litigations were pending.
8. Section 24 did not exclude the principles of common law.
9.  An incumbent must succeed or fail in final decision in a pending litigation on what case he has set up in the petition. In case the possession is continued under cover of court’s order or the compensation could not be disbursed due to court order, Section 24(2) could not be invoked. The policy of law [in accordance with Section 24(2)] is not to benefit a litigant or to confer undeserving benefit by involving any lis and to reap fruits on the bases of possession on illegal basis without any right.

Pending reference before larger Bench

Presently the correctness of decision in case of Indore Development Authority is under consideration by a larger Bench of five learned Judges of Supreme Court[4].

An alternative argument

The enactment of LARR Act is an event subsequent to the grant of interim order staying the acquisition proceedings. A possible view point is that under the New Law express provision for lapsing of acquisition having been made under section 24(2), the maxim that an act of court shall prejudice no man, may have no application. The subsequent legislation provides a fresh cause of action. It is not a case of action of court causing prejudice, but a subsequent legislation that confers benefit on landowners and enables lapse of acquisition. Such lapsing is automatic and independent of reason for not taking of possession or paying compensation. The equitable maxim that an act of court shall prejudice no man should not thus negate/override the plain language of section 24(2).

Having regard to the provisions in Sections 19 and 69 of LARR Act explicitly providing for period of stay and also having regard to similar provisions in the repealed LA Act[5], the legislature is deemed to be aware that in several land acquisition cases the possession could not be taken or compensation could not be paid on account of operation of interim orders granted by the courts. Yet legislature did not incorporate any provision to exclude such period for reckoning five years under Section 24(2). A further view point could thus be that when the plain language of Section 24(2) of LARR Act does not exclude the duration of any interim order for reckoning five years, the court may not look for intent of legislature.

The intent of the legislature, if at all relevant, could well be to put an end to the acquisition proceedings which have not been completed by five years.  In such cases the interest of the acquiring authority as well as the land owner is sought to be balanced. It is relevant to note that under the Land Acquisition laws the compensation payable to land looser is determined with reference to the date of Preliminary Notification.  If a land owner chooses to challenge the acquisition proceedings, eventually loose the same after several years, he is entitled to compensation at a rate prevailing on the date of Preliminary Notification, which by passage of time could have been rendered illusory. After deemed lapsing under New Law, while acquiring authority reserves the right to acquire the land afresh, the land owner is assured of transparent acquisition process and fair compensation on the date when fresh acquisition proceedings are initiated.  There appears to be nothing in Section 24(2) of the LARR Act which seeks to deprive the land owner of the benefit of lapse of acquisition proceedings which remained incomplete for reasons whether on account of lethargy of the acquiring authority, the court delays or the fault of the land owner himself.

Also in all cases where interim order continued to operate, it cannot be assumed that the same was due to fault of the land owners only. The delay could well be on account of lethargy of the acquiring authority or the court’s inability to deal with the case expeditiously.  One can find several instances where proceedings are lost on account of technicalities like law of limitation, non-joinder of necessary parties etc.  In such cases the owners could not be assumed to be the only defaulters.

An approach as aforesaid would further the laudable objective of New Law.

[1]Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (Amendment) Ordinance, 2014

[2] (2015) 3 SCC 353

[3]2018(2)SCALE1

[4]  As per order dated 6/3/2018 in Special Leave to Appeal (C) No.9798-9799/2016

[5] Section 6 and 11A of LA Act

The dawn of GST has left most of the startups in a situation of chaos and confusion. In this article, the content marketing manager of iPleaders, Aditya Shrivastava talks about what tax exemptions can startups in India avail. Read further to know more.

Startup India has faced a series of allegations since its very inception. Right from the day the scheme was announced a lot has been written and spoken against the campaign.

There are reports from Forbes which state that 90% of the startups will fail within one year of their incorporation. Another report by Quartz India reveals that “Almost half-way into plan tenure, just over 10% of the total fund has been released. As on Dec. 18, Rs. 605.7 Crore has been committed by SIDBI and Rs. 90.62 Crore disbursed to 17 Alternative Investment funds (AIFs), who in turn have invested Rs. 337.02 Crore in 75 startups.”

Another report by Business Standard writes, “Many companies lured by the attraction of B2C commerce have fallen by the wayside, and the success stories of entrepreneurial ventures in other consumer and business sectors have been few and far between.”

Is Startup India All That Bad?

It was in January 2016 when the ambitious Startup Scheme was first launched; the government received a lot of appreciation both from the aspiring founders and the investors. The tax exemptions, patent reforms, incubation programmes under the said scheme seemed promising and were aimed at encouraging the budding entrepreneurs. With the reduction in red tape and establishment of startup hub, it was expected that there would be excellent assistance provided too.

As per this article, “Startup India in January 2016 through its aggressive policies and incentives promised to provide any such assistance to such entrepreneurs. However, it failed miserably. Even after 2 years, Startup India doesn’t seem to be coming close to providing such assistance. It wouldn’t be entirely wrong to say that such flawed operations and inactive approach have only resulted in a handful of startups becoming successful.”

The only way that individuals have been able to keep themselves abreast with the new changes and policies is by either speaking to other entrepreneurs or by reading the endless content on the internet. In either case, they are often misguided or left confused. The ones which are a step ahead are taking up online courses which give them comprehensive guidance on everything they need to know. Apart from this one failure of proving the required assistance, the Startup India scheme does not seem too bad.   

There is a specific action plan which is designed by the government with an aim to promote financing, provide tax exemptions, and face various challenges amicably.

However, all such benefits and exemptions are restricted to only eligible startups.

Is Your Startup Eligible For Gaining The Benefits Under Startup India?

Startup India has certain eligibility brackets that one must fall under to avail any benefits. Here are the conditions that need to be fulfilled before any business is eligible for the exemptions and incentives:

1. If you are incorporated with an aim to work towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.
2. If you are incorporated as a private limited company, registered partnership firm or a limited liability partnership (and you are not a product of corporate restructuring).
3. If you are incorporated or registered in India for a period not exceeding 7 years.
4. If you are a biotechnology startup, you need to be incorporated for a period not exceeding 10 years.
5. If your annual turnover has not exceeded Rs. 25 Crores in any of the preceding financial years.
6. If you have obtained clearances from the Inter-Ministerial Board setup for operating your business.

If you fall into the above categories, you are very much entitled to all the benefits under the scheme. However, these exemptions are on incomes and gains. If you want to know about exemptions that can be availed under GST, you can take up this course to know more.

What are the tax exemptions I can avail?

You can avail these exemptions:

1. Enjoy a tax holiday for 3 years!

This exemption is provided to ensure that you are able to meet the working capital requirement in a block of 7 years. If you are a startup that has been incorporated after 1st April 2016, you are eligible to get a 100% tax exemption for a period of three years, provided that your annual turnover has not exceeded Rs. 25 Crores in a financial year in this span of these 3 years.

2. Get exemption on long-term capital gains!

Section 55 EE has been inserted in the Income Tax Act to ensure that an eligible startup can claim tax exemptions on a long-term capital gain. However, this is subject to whether such a capital gain or a part thereof is invested in a fund notified by the Central Government in a span of 6 months from the date of transfer of the asset. This exemption is subject to a limit of Rs. 50 Lakhs only. It is a prerequisite that such amount is invested in the specified fund for a minimum period of three years. If the fund is withdrawn anytime before that, the exemption is liable to be revoked on the amount withdrawn.

3. Investment above the market value? All hail exemption!

If you are an eligible startup, then you can avail exemptions on the investments which are above the fair market value. These investments include, and are not restricted to, resident angel investors, family funds or the funds which are not registered as venture capital investments. In addition to this, the investments which are made by any incubator above the fair market value are also exempted under the Startup India scheme.

4. HUF or individual? Claim exemption on long-term capital investment in equity shares!

Section 54 GB of the Income Tax Act, exempts a HUF or an individual’s long-term capital gains arising out of the sale of residential property, if the said gains are invested in a small or medium enterprise as defined under the Micro, Small and Medium Enterprises Act, 2006.

To ensure that such an exemption is provided in the startups also, this section has been amended accordingly. As per the new amendment, if an individual or a HUF sells its property to invest in a startup’s 50% or more equity shares, then they are eligible for tax exemption on long-term capital investment.

The condition to claim such exemption is that the shares are not sold for 5 years from the date of acquisition. The startups are also required to use the invested amount to purchase assets and not transfer the asset for a similar period.

It is undeniable that Startup India has its own set of loopholes, problems, and challenges. However, the only way to deal with a challenge is to find out the possible ways to combat it. The imposition of GST is already a question for many, and to avail tax benefits can certainly be a breather. You can learn much more about tax exemptions, business incorporation, challenges, and solutions by being smart and taking an online course which can help you through the thick and thin.

Good luck!

Each startup has a unique challenge and each challenge has a government policy to get through with it. In this article, Aditya Shrivastava, Content Marketing Manager discusses the top 5 startup challenges and government policies to overcome them.

Ever since the ambitious Startup India policy was announced, India saw an unprecedented growth in individuals coming up with new ideas, new innovations, and new startups. Although the perspective given to general masses is that there is a trajectory of growth, 90% startups fail within the first five years, as per a report by Forbes.

This hasn’t stopped some of the most promising startups and entrepreneurs from budding. While most of them have the prerequisite domain knowledge, business vision, zeal for becoming an entrepreneur and technical know-how, however, they often are either not able to find a survivable ecosystem or are unable to fathom the policies and schemes which could help them grow.

So where is that Mr. New Startup faces the biggest hurdle?

For the first-timers, be it entrepreneurs or startups, certain assistance is required to meet various conditions like innumerable registrations, certificates, finance, labor and environment-related compliances, and various other bureaucratic regulations. Startup India in January 2016 through its aggressive policies and incentives promised to provide any such assistance to such entrepreneurs. However, it failed miserably, as per a report by India Today.

Even after 2 years, Startup India doesn’t seem to be coming close to providing such assistance. It wouldn’t be entirely wrong to say that such flawed operations and inactive approach have only resulted in a handful of startups becoming successful.

Imagine if Startup India had launched a comprehensive course which could cover every policy to help you and give you a practical sense of helping your business. How helpful could that be?

It is undeniable that there are tons of startup policies. What is more comprehensive than the policies is the list of qualifying parameters and compliances that the entrepreneurs are required to adhere to. These act as a major speed breaker for the companies. In addition to this, the functional hassles along with dealing with the officers just add on to the trouble. Thus, unless the new entrants have sufficient social and legal knowledge they do not receive the required recognition they deserve have tried to identify what are the major areas in which young entrepreneurs and innovative techies require help and what are the policies which could be helpful for them.

Read the 5 most helpful government policies and schemes that can help your startup grow:

1) Financial Assistance Schemes

Raising funds for any startup is the biggest task. The Ministry of Micro, Small & Medium Enterprises has launched various schemes for ensuring that funds are directed towards you in the easiest manner. Here are some of the schemes that can help you:

• Prime Minister Employment Generation Program

After the successful Prime Minister Rojgar Yojna (PMRY) and Rural Employment Generation Program (REGP), the government combined the two and launched Prime Minister Employment Generation Program in collaboration with Khadi and Village Industry Commission to ensure that employment opportunities are created for the urban and rural areas by the means of enabling them to start self-sufficient employment ventures. The scheme provides setting up of a project at subsidized costs and funding up to 25 Lakhs for setting up a manufacturing unit and up to 10 Lakhs for establishing a service unit.

You can read more about the policy here.

• Credit Guarantee Fund Scheme

Startups are often considered as high-risk loan areas and therefore banks are often skeptical to provide them loans. This leads to one of the major issues faced by most startups unless they are heavily financed or self-sufficient – non-availability of timely and adequate credit. In case they do, they face issues in getting it at the optimum credit rate.

The policy facilitates both term loans and working capital facility up to Rs. 100 Lakhs per borrowing unit. The best part of the scheme is that such credit is extended without any collateral security or third party guarantee to micro and small enterprises.

You can read more about the scheme here.

Apart from these policies, there are several other policies like Multiplier Grants Scheme, Credit Guarantee Scheme, Bank Credit Facilitation Scheme, Pradhan Mantri Mudra Yojna, Stand Up India, Sustainable Finance Scheme, SMILE, Startup Assistance Scheme.

2) Research and Development Scheme

After getting the due funds, the next area that startups struggle with is research and development. A startup which is continuously dealing with innovation or technology has to heavily invest in research and development. A startup dealing with artificial intelligence without R&D team cannot survive. While most of the startups undergo huge research before launching a product, after the launch they simply concentrate on the product and eventually lose their relevance. In order to save the entrepreneurs, the government has launched the following schemes:

• Promoting Innovations in Individuals, Startups, and MSMEs (PRISM)

This policy is launched by Department of Science and Industrial Research to support individual innovators with various financial grants. Under this scheme, funds are directly provided to the innovators with centres like SIIC, IITK which are playing a key role as processing and monitoring agencies. SIIC has been known to facilitate more than 17 innovators with the financial aid of 1 crore in the previous schemes. Under PRISM, another policy, a maximum grant of Rs. 50 Lakhs for developing prototypes is permissible.

You can read more about the policy here

3) Schemes for Technology Upgrade

Apart from research and development, startups struggle the most to stay at par with the international competition. In the longer run, it doesn’t work out. The technology they started with becomes obsolete or has a depreciating effect on the productivity. However, these schemes can help you sail through this low:

• Capital Subsidy Support on Credit for Technology Upgradation

A scheme designed to upgrade your business and matching up to the global standards, this scheme by MSME is a boon for your new business. The aim of this scheme is to provide credit/loan for upgrading the technology, at convenient rates. The scheme not only provides subsidy up to 15% of the capital but also has a provision for loans up to 1 Crore.

More details can be found here.

Interestingly, there are a lot of policies which are meant to help you with the technological update. A few of them like Technology Development Program, Infrastructure Development Scheme, Atal Incubation Centres, etc. are all developed and designed to ensure that the startups don’t suffer because of technological hush-hush.

4) Intellectual Property Protection Schemes

It is undeniable that India is leaving absolutely no room to make a mark in the international plenary in terms of technological advancement. However, given our past, it is in the alfresco that various countries have time and again claimed rights over our innovations.

What if this happened to you? You developed a world-class technology and before you could patent it, some Chinese company launched a similar product? What would you do? Intellectual property (IP) protection is one area you need to be extremely cautious about it. Read about it, learn or take an online course. It’s on you. Realising the importance of IP protection, for the first time government is trying it’s best to ensure that the history doesn’t repeat itself via these policies:

• Support for International Patent Protection in Electronics & Information Technology

Ministry of Electronics and Information Technology launched this scheme to enable startups to acquire support for International Patent Protect and encourage innovation. This is an attempt to assess the value and potential of the global intellectual property in addition to get a hold of opportunities in the Information Technology and Electronics sector. The government has launched this scheme in two phases:

1. Support for International Patent Protection in E&IT
2. Scheme to Support IPR Awareness Seminars/Workshops in E&IT Sector

You can read about the schemes here.

5) Scheme for Marketing

Widely unidentified, marketing is one of the biggest challenges for a startup. While most of the companies think that sales is a hurdle and once there is a stable market they can be successful, however, what most don’t realize is that sales are not possible without marketing. Even if they realize, they are generally out of funds to support marketing vertical. The government has come up with the following policy to overcome this challenge:

• Scheme for Providing Financial Assistance For Marketing Support

A scheme specifically designed to provide institutional support to Micro, Small and Medium Enterprises, this scheme’s objective is to facilitate the formation of a consortium of MSMEs to market their goods and services. The scheme is designed to enhance competitiveness and marketability of their products through National Small Industries Corporation (NSIC). Apart from offering assistance towards airfare, space rental & shipping/transportation charges the scheme offers 20% of the total subsidy admissible under advertisement, publicity and theme pavilion subject to a maximum of Rs. 20 Lakh.

You can read more about the scheme here.

There is no denying the fact that Startup India has given a huge boost to the startups in the country. As mentioned in this article, “Startups seem to be the next darling of the Indian middle class, right next to Bollywood and cricket.” However, lack of awareness or problematic government assistance could prove to be a catastrophe for your startup. It could go from being glamorous to clamorous. A little knowledge, some updates, and a lot of passion could certainly change that.

Stay updated, stay ahead. Good luck!

In this article, Preetham Kumar J pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses Legal Issues in 3D Printing and Product Liability.

Introduction

Technology has always been the touchstone of human progress. It has revolutionized the way of living, communicating and trading. Every decade since 1950 has had a marquee technology that further boosted human progress. The narrative with most technological inventions right from cloning to the Internet and to the recent mobile phones has been same-initial euphoria of the benefits of the invention and the establishment of the regulatory structure to prevent misuse or infringement. Going by the precedents, it is likely that this pattern of the narrative will apply to future technological inventions too.

3D Printing technology

• One such technological invention that has fallen into the fold of this narrative albeit in the early stage is the additive manufacturing technology or more commonly known as 3D printing technology.
• The application of this technology ranges from Industrial tooling to Bioprinting which involves the printing of human tissues from human cells.
• 3D printing refers to processes in which material is joined or solidified under computer control to create a 3-dimensional object by adding material together.[1]
• This technology emerged in the 1980’s largely for industrial applications and has hence expanded to various fields which include food and medicine.
• The 3D printing process involves a digital file also referred to as CAD(Computer Aided File) in which the object to be printed is digitally formatted using either a 3D printer software or a 3D scanner.
• The file is exported to a 3D printer using dedicated software which transforms the digital model into a physical object through a process in which material is built up layer upon layer, in an additive manner, until a finished object emerges. [2]

Advantages of Applications

The impact of this technology has grown across industries and is only set to grow manifold in the future. Below is only an indicative list of most popular and contentious uses of this technology.

Product Prototyping

By helping create a 3-dimensional prototype of a product, it helps high intensive innovation and research industries to clearly visualize, test and iterate the product before mass production thereby reducing costs significantly.

Food Industry

It helps in food customization and automation of time-consuming aspects of preparation and assembly in large food processing setups. Also, it has been used in extracting and converting alternative ingredients like proteins from algae, beet leaves and insects into tasty meals. [3]

Medical Industry

Medical technology is set to create the maximum impact in this industry. The applications range from Bioprinting human organs from human tissues for drug trials to printing customized medical devices for patients. It has also been used for creating customizable composite drugs by mixing one or more drugs in specific combinations.

Recently a drug called “spritam” a completely 3d printed pill was approved by the Food and Drug Association of USA to be sold by a private company called Aprecia pharmaceuticals. [4]

Need for Regulation

1. This technology was initially envisaged for industrial purposes only. However, due to widespread demand of this technology from different industries and individuals, the affordability and accessibility to this technology via the 3D printers have increased thus leading to an unregulated, unauthorized and sometimes illegal printing of products that has resulted in the violation of various laws like:
   1. Intellectual Property Right
   2. Patent law
   3. Copyright law, and
   4. Design law apart from those relating to product liability laws.
2. Therefore, it has become exigent for the lawmakers to carefully study the legal issues resulting from the various aspects of the use of this technology by all the stakeholders concerned.

The Legal Issues

As outlined above, the main legal issues resulting from the use of 3D printing technology by various stakeholders which includes Industries and Individuals. Most problems arise because of the use by these Individuals or Hobbyists which lead to violations of law. The laws violated broadly are as follows:

Intellectual Property Laws

It includes:

• Patent
• Copyright, and
• Design law violations.

Tort Law Violations

Tort Law violations which result due to product liability issues arising from the end ‘printed’ product.

The IP law issues

The IP laws violations arise largely due to the following components of the technology:

3D Printer

• The 3D printer which is used to create or print the objects whether this printer can print objects under patent protection or whether the printer itself can be patented.
• The access to 3D printer to private individuals has raised concerns about the printing of those products which are under patent protection which can lead to increase in counterfeit products.
• This has been a difficult problem to reign in largely because it is difficult to track individuals who print these protected objects inside the confines of their home.
• However, the printer itself can be patented if the printer fulfills the criteria required for patenting viz novelty and capable of industrial application.

CAD file

• The CAD file or the digital software which has the design/model or the scan of the object to be printed whether this leads to copyright infringement of reproducing software without authorization.
• The more contentious legal issue with 3D printing is related to copyright infringement resulting from the use of the CAD file or the digital software used for modeling or scanning the object.
• The CAD is the key to creating the prototype product and is considered as software hence protected as artistic work under copyrights law.
• The Indian copyrights act, 1957 offers protection from the infringement of artistic work under the provisions mentioned under section 14 of the act.
• The provision for protection with respect to 3D printing is mentioned section 14 (c) (i) which restricts to reproduce the work in any material form including in three dimensions of a two-dimensional work or vice versa.[5]
• Therefore, by scanning of an object and creating a 2D file and then printing the 3D object amounts to copyright infringement as copyright persists in the CAD file itself and the 3D print of it amounts to infringement of the author’s copyright of the file.

Final design

• The final design of the product printed whether the design of the final product infringes on the design of a design protected product.
• In case of Design of the final printed object, only the visual features, as severed from the functional part of the printed object can be subject to copyright protection.
• Therefore, if for instance there is an intricate pattern in a 3D printed chair, only that pattern would be protected and not the chair itself. Also, the word design itself does not fit into the legal definition under the act in all cases.
• Section 2(d) of the Designs Act, 2000 requires that visual features be applied by an industrial process. However, the courts have interpreted the industrial processes as those that are carried out on large scale. Therefore, making it difficult to bring those objects that are printed using portable 3D printing devices at home and offices under the ambit of the statute. [6]

Tort law/Product liability issues

• Product liability regulations refer to the manufacturer as an entity liable for damages arising through the use of products.
• However, the application of product liability principles is uniquely challenging in the 3D printing space largely due to the supply chain and the business models involved which makes it difficult to pinpoint the liability. [7]
• At any given time, the people who may liable for a defect in the product created from a 3d printing process are as follows:
  • The manufacturer or the supplier of the 3D printer.
  • The manufacturer or the supplier of the 3D printing material.
  • The printer owner.
  • The person who designed or sold the original project on which the 3D printing design is based.
  • The person who created or shared the CAD blueprint of the object.
  • The person who created the object using the 3D printer. [7]
• Thus the above list indicates the difficulty in placing liability leading to legal vacuum thus leading to protracted litigation to ascertain the responsibility for any mishap resulting from the 3D object created from the 3D printer. As of now, the courts have not laid out any guidelines to answer the above questions.
• In India product liability is governed by the following laws:
  • The Consumer Protection Act,1986.
  • The Sale of Goods Act,1930.
  • The law of Torts.

None of the above statutes address any of the issues arising from the use of the 3D technology yet.

The way forward

1. The narrative/position of the 3D printing technology with respect to issues raised is not unique and it has been the case with many path-breaking revolutionary technologies before it.
2. The gaps in the law are taken note of and new ones (gaps) will emerge with the growing demand and use of the technology.
3. However, the lawmakers and the legal community should take into consideration the gravity of the situation especially given the technology’s impact in sensitive sectors like medicine and pharmaceuticals.
4. Given the impact and the application of the technology, this technology is here to stay, hence it is only prudent that these issues are addressed at the earliest.

References

[1]www.wikipedia.org

[2] http://www.wipo.int/wipo_magazine/en/2017/01/article_0006.html

[3] http://www.wipo.int/wipo_magazine/en/2017/01/article_0006.html

[4] http://www.wipo.int/wipo_magazine/en/2017/01/article_0006.html

[5] Indian Copyright Act,1957

[6] https://spicyip.com/2014/01/guest-post-3d-printing-and-indian-copyright-law.html

[7]http://www.lawjournalnewsletters.com/sites/lawjournalnewsletters/2016/09/01/emerging-legal-issues-in-3d-printing-and-product-liability-2/?slreturn=20180030081923

In this article, Rahul Kumar pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses Legal framework regulating Equity Financing in India.

Introduction

Equity financing is to raise capital by selling shares in the business. The definition of a common scenario is to raise funds for the company to meet liquidity needs of an organization by selling company’s stock in exchange for cash. In wider prospect, the company goes equity finance with an object, the motive to have diversification or expansion of the company.

Equity Financing

1. When a business owner uses equity financing, they are selling part of their ownership interest in the business firm. There are some significant factors or developments encouraging or inhibiting private equity transaction.
2. Government from time to time also takes the responsibility for entrepreneurship and business management. On foreign investment, the government has also taken some crucial reforms in FDI policies.
3. Equity financing is raised by an entrepreneur from:
   1. Friends
   2. Family, and
   3. Initial Public Offering.
4. Equity financing process is governed by:
   1. Local, and
   2. National securities.
5. It is built with a sole motive to protect the investing public from unscrupulous operators who raise funds. Equity financing is totally different from debt financing, where funds are borrowed by the business to meet liquidity requirement.
6. In a family-owned company, equity shareholding is generally with many family members. In such cases, the promoters of the group are lead members to exercise right on their behalf.

Different types of equity financing

Angel Investors

Angel investors are the people who invest their personal wealth into specific business on an individual basis. They are generally former or current business leaders in the market. They also provide guidance and valuable advice to the company in taking crucial decisions.

Venture Capital

Venture capitalists are individuals or firms who manage funds to invest in a new business. Venture capitalist firms focus on young and high growth companies. They invest in a high growth company and take active role and decision of the Company. A venture capital firm is an LLP and its main objective is raising money to invest in the private equity of the new company

Friends and family

They are the excellent sources of equity investments because they are persons whom you can trust and they the one who know your vision, desire and your potential. It generally sounds like an informal business relation build between both the parties.

Institutional Investors

Institutional investors include an insurance company, pension funds, mutual funds, these are the main investors in private sector and helpful in long-term financing.

Corporate investors

In a corporate world, the much big company purchases the equity of younger or newly established company. The company who invest are known as strategic partners, such investors create a network of companies.

Types of equity finance

There are two types of equity finance:

1. IPO (Initial Public Offer)
2. Without IPO

It is governed by the SEBI regulation, Companies act, 1953, RBI guidelines

There is two main equity market exchange in India.

BSE (Bombay Security Exchange)

It is established in 1875, BSE is Asia’s oldest stock exchange and the first stock exchange recognized by the Government of India under securities contract regulation act.

NSE (National Security Exchange)

It is established in 1992 as India’s first screen-based electronic trading platform. The Nifty 50 index is the NSE’s benchmark stock market index for the Indian Equity market. NSE was instrumental in creating the national securities depository ltd, which allows investors to surely hold & transfer their shares and bonds electronically.

Small and medium-sized enterprise segment was introduced by the BSE and NSE on 12.03.2012 and 31.08.2012 respectfully to facilitate the listing and trading of shares of small and medium-sized enterprises.

Without IPO

It is subdivided into three parts

Right issue

It is a dividend of subscription rights to buy additional securities in a company made to the company’s existing security holder. This done when the company plans to tap the market after their IPO’s. It is governed by the section 62 of the companies act, 2013.

Private Placement

Companies using private placements generally take a small amount of capital from a limited number of investors. A private placement is an offering of securities that are not registered with the securities and exchange commission. A private placement is governed by the section 42 of the companies act, 2013

Preferential Allotment

The preferential allotment is a process by which allotment of shares is done on a preferential basis to select a group of the investor. Thus, a company plans to raise funds for its expansion and reduction of debt. In preferential allotment, a company raises its shares to a particular group or sector. The process is quite speedy to raise funds for the company. The process of preferential allotment is governed by section 62 of the companies act, 2013.

In order to avoid dilution of the stake of existing shareholders, company issues “rights” shares in proportion to their current holding. This is done when the company plans to tap the market after their IPO.

The main regulatory bodies are as under:

1. SEBI
2. Department of economic affairs.
3. Ministry of corporate affairs.
4. RBI
5. Policies and decisions of central government.

These regulators draft legislation and circulars, notifications and guidelines to regulate the securities market in India and have powers of oversight on the various market participant.

Stock exchange also frames their own rules, regulations, and bye-laws to regulate the market. The key statutes and regulations governing equity securities market in India are:- Companies act, 2013 rules, SEBI act, 1992, depositories act, 1996.

Laws which governs the equity finance in India

Foreign Investment Laws

When investment flows from one country located outside India for investment in some business activities and not merely for stock or trading. The amount is treated as FDI, every year the ministry of commerce and industry issues as an FDI policy. The concerned policy is reviewed and changed every year and change depending on the market scenario and policies implemented by the government.

FDI routes

FDI falls under two different routes such as:

1. Automatic route
2. Government route

Automatic Route

The investors can directly invest in the target company without obtaining any prior approval from the government. The automatic route subject to the pricing, guidelines or the valuation norms are prescribed by the regulations under FEMA, 1999, for listing companies a valuation has to be made under SEBI for the issue of capital and disclosure requirement and regulations. FDI policy requires that any amount received by the target entity against capital should be reported to the RBI.

Government Route

FDI policy restricts the level of investment in certain sectors such as:

1. Defense sector
2. Broadcasting
3. Air transport etc.

Laws governing listed companies

Listing means an admission of securities to dealings on a recognized stock exchange. A company, desirous of listing its securities on the exchange shall be required to file an application in a prescribed form. The company is required to follow the guidelines, requirement, and criteria of Stock Exchange Board of India (SEBI) from time to time.

The main and sole object it is to protect:

1. Liquidity of securities
2. Protect the interest of the investors, and
3. Mobilize their saving.

Insider trading regulations

An offense under SEBI (prohibition of insider trading), the main object is securities while in possession of unpublished price of sensitive information, thus if these things will be published will affect the price of the securities of the company. The companies act, 2013 has introduced the provision of insider trading, section 195 of the companies act, 2013 applies to unlisted companies and also lays down the punishment also.

Guidelines of SEBI for equity finance

1. The object of SEBI is to stop fraudulent activities carried in the stock market, SEBI provides for the establishment of a board to protect the interest of investors in securities and promote overall development.
2. Initially SEBI was a non-statutory body without any statutory power, however, in 1995 the SEBI was given additional statutory power by the government through some amendment. In the year 1998, SEBI made as an overall regulator of the capital market.
3. All the mutual funds whether promoted by the public sector or private sector are governed by as per the guidelines of SEBI.
4. SEBI also plays a very crucial role in IPO, the overall rules, regulations, and procedures relating to public issues are governed by independently by SEBI only. SEBI also regulates the business in stock exchanges and other securities market.
5. SEBI governed the registration, regulation and the whole working of stock broker, sub-brokers, share transfers agents, merchant bankers, portfolio manager and investment advisers etc. SEBI perform three important functions such as- quasi-legislative, quasi-judicial, quasi-executive.

Conclusion

Equity finance is a long-term finance of the company, it is done in the form of shares and stocks. It gives the investors the ownership right to it. In equity finance investors bears the risk of investing in the company with a hope of getting a good return in future, for investing in the company, gets dividend or interest depending upon the ratio of shares. In a wider meaning equity finance is an assurance that the company can easily cover all lose of the company efficiently.

Reference

[1] www.sebigov.in

[2] www.taxguru.in

[3] www.investopedia.com

[4] www.moneycontrol.com

[5]www.iclg.com

[6]www.rbi.org.in

[7]www.google.com

[8]http://www.yourarticlelibrary.com

In this article Aditya Shrivastava, Content Marketing Manager at iPleaders discusses what are the three most important factors you need to consider before deciding your business model. Read this article to know more.

Indian startup scenario is at a novice stage. While we see numerous ex-professionals using their expertise to come up with new ventures, there is also a significant rise in the number of fresh graduates entering the startup ecosystem.

With informed choices, relaxed policies, and rise in innovation, it is undeniable that the wide range of free content available on the internet has further fostered this growth. With extremely relevant and informative content on the internet, individuals can easily mold their ideas into reality. There are several online courses, blogs, and websites which are specially designed to help budding entrepreneurs and to save them from the risks, procedural difficulties and potential disasters. They are specifically equipped to make the aspiring entrepreneurs understand the basic do’s and don’ts of the business.

If you are about to start your own business, one of the primary questions that you need to consider is what kind of business structure should you adopt. This is important because any future action, right from registration, profit sharing to the division of liability, in case of any mishappening, will be impacted.

India, for a very long time, had only three kinds of business models. Sole proprietorship, partnership and company (public or private). However, exactly a decade ago, India has also seen a new hybrid form of ‘partnership and company’ which is Limited Liability Partnership (LLP). You can read this article to find out more about each of these structures as each one of them has its own pros and cons.

In order to determine which structure will suit your business the best is absolutely dependant on your business and relevant circumstances. There may be some additional factors which you would want to consider before finalizing a decent business model. Here are the top three factors which can help you take a wise decision:

1. What Kind Of Ownership Do You Want?

This is perhaps the most important question you would want to consider. Do you want to be the only owner, or do you want a business with equal participation and distribution of liabilities? Do you want more investors? Do you want to have limited liability? These are some of the basic questions which are based on your business model.

If you plan to have a limit on the number of people who can invest in your business, you can opt for sole proprietorship or partnership. However, if you need more investments and inclusion of international investors, then you are looking for a company or an LLP.

If your confusion is in between Company or LLP, then you might want to consider the level of authority involved between the two. While companies have a fair system of hierarchy, decision-making, LLPs are more direct in maintaining their relationship between the management and the owners. However, if you seek an absolute control over everything, then sole proprietorship is the solution for you.

2. What Kind Of Liability Will You Incur?

If I were to ask you what is that one thing you want to ensure before opening a business, I am sure you would say that you want more gains and lesser or no liabilities.

It is undeniable that most entrepreneurs look at ways to minimize risks and liabilities in the business. If you are on a lookout for the same you might want to cancel sole proprietorship and partnerships out of your list. The liability in these two forms of business are not different from their owners and you might not be able to avail protection from any future catastrophe.

However, in an LLP your liability is limited only to the extent of contribution you have made towards your firm. Company, on the other hand, limits the liability to the extent of the amount required to be paid on each share.

It is recommended to opt for either of these two business models, as both of these have an existence as a separate legal entity thus creating a barrier between your business and your personal property (of course, unless there is non-compliance or fraud). However, these are more credible and enable you to easily access more capital opportunities with minimal risks.

3. What Goes With Tax, Comes Around Or Goes Away?

Both LLP and Company are taxed equally at a rate of 30% on income along with education cess and senior and higher education cess. The LLPs are required to pay an additional surcharge at 10% if the income crosses a slab of 1 Crore. An LLP is also required to pay an Alternative Minimum Tax (AMT) at a rate of 18.5% along with the surcharge and cess on the adjusted total income if the income tax is lesser than AMT.

The companies, however, only pay a surcharge of 5% in case the income exceeds the same bracket. If the income crosses 10 Crores, then the surcharge applicable is 10% on the companies income. In case of a company, the AMT is also fixed at 18.5% along with surcharge and cess on the adjusted total income.

However, apart from these two taxes, an additional Dividend Distribution Tax of 16.609% on dividends is not applicable to LLPs unlike companies. Even the advance tax which is to be paid in 4 quarterly installments by the company are only applicable for 3 quarters in an LLP.

Sole proprietorship is the safest option in case of tax liabilities. You can show the business’s income as yours and easily file it as regular personal income tax.

Apart from these three crucial factors, there are various other factors like securing more funds, administrative requirements, dispute resolution, and other compliance-related framework that can impact your decision-making.

The decision-making mechanism is definitely based on a lot of technicalities. You need to ensure that you are taking wise steps and not relying on free information on the internet. Try to talk to the experts or if you want to be self-sufficient then take up a course which can teach you what’s needed right from the basics.

Remember, there cannot be a quick answer. Take your decision slow, wise and informed. All the best.