In this article, Khadija Ashfaaq Khalil pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses Annual Compliance of a Private Trust in India.

What is a Trust

Trust is defined in section 3 of the Trust Act, 1882 as “an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another or of another and the owner.”[1] In simple words, it is a transfer of property by the owner to another for the benefit of a third person along with or without himself or a declaration by the owner, to hold the property not for himself but for another.[2]

Under the Indian trust law, a trust is an arrangement or a contract. As the name suggests, it is a contract of trust which the settlor reposes in the trustee for the benefit of the beneficiary. A trust creates “split ownership”. A trustee is a “legal owner” and beneficiary is a “beneficial owner”.  This means that where one is the owner in the eyes of the law, the other is the owner of the benefits arising from the trust property. This is one of the unique features of a trust.[3] The settlor/author is the person who is creating the trust and declares the confidence. The trustee is the person who accepts such confidence. The beneficiary is the person for whose benefit the confidence is reposed and the trust is created. Therefore, when Mr. X gives certain movable and immovable properties to his son-in-law to hold in trust for his daughter and to give certain amount monthly to his daughter, then Mr. X is the author/settlor of the trust while his son-in-law is the trustee and his daughter is the beneficiary.

A trust is created when the person creating the trust, termed the author of the trust indicates with reasonable certainty by any words[4] or acts on the following: the intention on his part to create trust; the purpose of the trust; the beneficiary; the trust property and there must be a divesting of the ownership by the settlor in favour of the trustee.[5]

What is a Private Trust

A Private Trust is constituted for the benefit of one or more individuals who are, or within a given time may be, definitely ascertained. The private trust caters to the needs of specific individuals and not the world at large. It is in personam and not in rem unlike the public trust. Private Trusts are governed by the Indian Trusts Act 1882. Public trusts are governed by the Religious Endowments Act, 1863, the Societies Registration Act, 1860, the Charitable and Religious Trusts Act, 1920, and the Charitable Endowments Act, 1890. In Maharashtra, public trusts are governed by the Maharashtra Public Trusts Act, 1950. A Private Trust can be created inter vivos or by will. If a trust in created by will it shall be subject to the provisions of Indian Succession Act, 1925.[6]

Registration of a Private Trust [7]

To register as a private trust in India, the following steps have to be complied with,

1. A Trust Deed must be prepared on stamp paper of the requisite value [8]. The Trust Deed must contain the name of the trust, its address, the object of the trust (whether charitable or religious), the settlor, two trustees of the trust as well as the property in question, i.e., either movable or immovable property.
2. Under the Indian Trusts Act, 1882, private trusts which wish to be registered are required to submit the following with the Local Registrar:
3. Trust Deed on stamp paper of requisite value (as stated above).
4. One passport size photograph & copy of the proof of identity of the settlor, each of the two trustees and each of the two witnesses individually.
5. Signature of the settlor on all the pages of the Trust Deed.
6. Two persons must be called in as witnesses to sign on the Trust Deed.
7. The Trust Deed must be submitted to the Local Registrar along with one photocopy for registration. The photocopy should also contain the signature of the settlor on all the pages. At the time of the actual registration, the settlor and the two witnesses are required to be personally present, along with their original identity proof.
8. The Registrar will retain the photocopy & return the original registered copy of the Trust Deed to the concerned parties.

At this point in time, it will be imperative to mention that private trusts which have the subject matter as movable property only need not be registered under the Registration Act, 1908.

Annual Compliance

e private trusts need to comply with the provisions under the Indian Trusts Act, 1882, the Income Tax Act, its Rules and Regulations and other relevant legislations. As far as annual compliances go, the general compliances for all private trusts are as follows:

1. Auditing of Accounts

When the total income of a Private Trust exceeds Rs. 1, 50,000(for FY 2016-17) which is the limit that has been given under the Income Tax Act, 1961 for non-taxable income, then the private trust must be audited compulsorily by a Chartered Accountant. [9]

2. Filing the Annual Returns

After the accounts of the Trust are audited by a CA, the audit report must be made. The report of audit of accounts must be in Form No. 10B.[10] The report must be filed along with the Annual Return of Income under Form ITR-7.

3. Foreign Contributions Report

Every Trust needs to submit a Foreign Contributions Report. There are two kinds of trusts, one which receives foreign contributions and one which does not. When a trust receives foreign contribution, it needs to submit a report to the Secretary, Ministry of Home Affairs, Government of India, New Delhi. The report must be duly certified by a CA and accompanied by the Income and Expenditure Statement, the Receipts and Payments Account and the Balance Sheet within 9 months of the closure of the financial year. If no such contribution is received during the last financial year then a ‘Nil’ Report needs to be submitted. [11]

4.  Furnishing Certificates of TDS if required

When a Private Trust is deducting tax at source for payment of salaries to the employees who have been kept for managing the Trust Property and other such allied purposes, it needs to furnish certificates of TDS to the persons on whose behalf TDS had been collected. This must be done within a month from the date of closure of the financial year.[12]

5. Publication of Accounts

Publication of Accounts in newspaper if the annual income or the receipts of the trust which have been generated from the trust property exceed Rupees One Crore. [13]

6. Filing of Value Added Tax and Service Tax Returns if required

If the gross turnover of a Private Trust exceeds Rupees 15 Lakhs[14], then it is liable to file VAT and Service Tax Return in the format prescribed by the government. VAT is to be deposited in every three months.[15]

Taxation of a Private Trust

A private trust is a separate entity in the eyes of the law. Thus, it is taxed separately. The income of a private trust is received by the beneficiaries, i.e., it is for the beneficiaries. There can be two different structures of a private trust, one where the beneficiaries are ascertained and the individual shares of the beneficiaries are known and the other is where the beneficiaries and their shares are unascertained and the income of the trust is determined by the trustees. The former is called as a specific trust while the latter is called as a discretionary trust. [16]

The income is taxed in the hand of the respective beneficiary when the individual shares of income in a private trust are identifiable. The Income Tax act imposes a liability upon the trustee to pay tax in respect of any income which he has received or is entitled to receive on behalf of the beneficiary. Thus, the tax can be levied and recovered from a representative assessee who is a trustee.[17] Because the share of income is not defined in a discretionary trust and the trustees decide the distribution of the income among the beneficiaries, the income of such trust is assessed in the hand of the trustees only and not at the hand of the representative assessee eats the maximum marginal rate.[18]

This rule on taxation of private trusts is applicable only when the income of the trust is sourced from the assets alone. For example: if the trust has immovable property in hand and decides to lease it, then the income generated from such immovable property is said to be derived from the assets of the trust. However, if the trust undertakes a business activity to gain income then this rule does not apply. The income from such a business will, in due course, of course be used to further the objects of the trust. In such a case, however, the income earned from the business shall belong to the trust and not to the author of the trust or trustees. Such income, arising from the business will be taxed at maximum marginal rate on the whole income. However, even so, there arise exceptions to the rule applicable to private trusts for which the taxation will be at the individual tax rate. Thus, the income will be charged at the same rate and in term a manner as it would be taxed in the hands of the beneficiary when the private trust is [19]:

• Created by a will for the benefit of the relatives, or;
• Created exclusively for the benefit of any relative dependent on the support and maintenance, or;
• Created exclusively by the settlor, i.e., the only trust declared by him.

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Endnotes

[1] The Indian Trusts Act, 1882; http://agritech.tnau.ac.in/ngo_shg/pdf/indian_trusts_act_1882.pdf

[2]Article titled ‘Trusts and its Types’ at: http://www.complianceindia.co.in/trusts-its-types/

[3] Article titled ‘FEMA Aspects of Private Trusts’ at: http://www.rashminsanghvi.com/downloads/foreign_exchange_law/FEMA/FEMA%20aspects%20of%20private%20trusts.htm

[4]http://www.advocatekhoj.com/library/lawareas/trust/private.php?Title=Trust&STitle=Private,%20Public%20and%20Religious%20Trusts

[5]Article titled ‘Formation and Taxation of a Charitable Trust’ at: http://taxguru.in/income-tax/formation-taxation-of-charitable-trust.html

[6]Article titled ‘Trust-An Overview’ at: http://www.rna-cs.com/trust-an-overview-2/

[7]Article titled ‘Procedure for Registration of Trust under the Indian Trusts Act, 1882’ at: http://indiamicrofinance.com/procedure-registration-trust-indian-trusts-act-1882.html

[8]Refer the Bombay Stamp Act, 1958 Schedule 1, Article 61

[9] Article titled ‘Annual Compliance of a Private Trust in India’ at: http://blog.ipleaders.in/annual-compliance-private-trust-india/

[10] Income Tax Rules, Rule 17-B

[11] Article titled ‘Annual Compliance of a Private Trust in India’ at: http://blog.ipleaders.in/annual-compliance-private-trust-india/

[12] Supra

[13] Ibid fn. 11

[14] Article titled ‘A brief on VAT’, at: http://ctax.kar.nic.in/what_vat/About%20vat%20nnew.pdf

[15] Ibid fn. 11

[16] Article titled ‘Taxation of a discretionary trust’ at: http://www.thehindubusinessline.com/iw/2000/08/20/stories/0720g201.htm

[17]Article titled ‘Taxation of a Private Trust’ at: http://www.fpgindia.org/2014/06/taxation-of-a-private-trust.html

[18] Supra.

[19] Ibid fn. 17

In this article, Kinjalkini Rai Choudhury pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses how to Start a Society in India.

The term society itself means a group of people who are involved in continuous social interaction with each other. A society also includes large social group sharing the same geographical, social territory. The term society has been derived from the Latin word ‘Socius’ which means association or companionship. An Individual or independent original human being is considered to be the basic component of the society. Now when one individual interacts or communicates with another individual then it gives birth to groups. When these groups again interact and communicate with each other then they develop some relationship with one another which leads to the formation of society. For example if the players of a football team or a cricket team or any other game come together then they will not be called a society but will only be termed as an aggregate of people. Within a society there must be groupings on the basis of likes and differences and dislikes. ‘Likeness’ helps in creating a series of relation among different individuals having similarity in different conditions like having same profession, same residence, same caste, family togetherness, same age group of people, sex and etc.

In a society people having same interest joins together and forms various groups and categories. Human begins are dependent on the society for their needs and satisfaction like food, shelter, protection, education, etc. Societies can be formed in local as well as in national levels.

According to A.W Green society is defined as, “It is a largest group in which individual has relationships”.

Prof. Wright says, “It is a system of relationship that exists among the individuals of the groups”.

The Starting of Society in India

The Indian Society Registration Act of 1860 was enacted and made during the British Raj in India, and is largely enforce in India today. It promotes and provides for the registration of scientific, literally and different charitable societies in India. Under this act the societies can be formed by way of memorandum of association in which seven or more people should be associated for any literally scientific or any charitable purpose of work. This memorandum needs and has to be filed along with the Registrar of the society. The memorandum has to contain the name of the society, its objects, and address and occupation of different members who are in the governing body, and in whatever name it may be called, which needs to be duly signed for consent and approval by all the members of the governing body and a duly signed copy containing the consent of all the members forming the society. A copy of all the Rules and Regulation has to be filed along the memorandum of the association. Usually a fee of 50 rupees is needed to be paid for registration.

Formation of Society

It takes place when there is togetherness of like minded people having similar interest and when they form groups and come together and they form a society. A society can be registered for promoting humanitarian activities like art, education, various types of music, different culture, various sports etc in India.

The Societies Registration Act 1860 lays down the way and procedure for how a society can be started and registered and operated in India. The Societies Registration Act was introduced for the better improvement of the legal conditions of the societies and for promotion of literature field of science or arts and also for spreading of helpful knowledge for charity purposes. This Act has been adopted and accepted by most state governments with/without anymore change or amendments.

Purposes for Society Registration

Under Section 20 of the Societies Act, 1860 the registration of a society should be done for the following purposes,

1. To get the grant of different charitable assistance
2. To create the funds for military orphan.
3. For the promotion and betterment of science.
4. For the promotion and betterment of literature
5. For the promotion and betterment of fine arts.
6. For the spreading and gaining of useful knowledge
7. Propagation of political education
8. To help in maintain and proper working of library or reading places
9. To help in main and proper working of public museum and gallery

Other than all the above purposes specified by the Societies Act, 1860, the registration of a society can also be based on other purposes and amendments that has been sanctioned in the Societies Act, 1860 by the concerned or respective State Government.

How the Registration of a Society is done in India

Usually a minimum of seven or more person are required for a society to be formed. Other than persons from India, foreigners, different companies, and other registered so cities can also take part for subscribing to the memorandum of a society. A society can also be registered or maybe unregistered like partnership firms. But only registered society can be able to get hold of vested properties or if needed can file a suit against the society. The registration of society are managed by the State Government , so if an application for registration society is to be made then it should be done to concerned authority in the state where the registered office will be situated. The founding members or the people who have formed society must prepare the rules and regulations and the memorandum and must decide and agree on the name that should be given for the society.

How the Memorandum of a Society is created

The Memorandum, the Rules and Regulations of the Society must be signed by all the founding members, and should be witnessed by an Oath Commissioner, the Notary Public, the Gazette Officer, an Advocate, a Chartered Accountant or it can be a Magistrate 1st Class with their official stamp in it and the complete address. The documents which must be prepared, signed and submitted for the registration of society are mentioned as follows

• There must be a covering letter requesting the registration of the society, and it must be signed by all founding members.
• The memorandum of Association of the Society must be given in duplicate and along with a certified copy.
• The Rules and Regulation of the Society must be signed by the founding members and the duplicate copy of it should be given.
• There must be affidavit shown by the President or Secretary of the Society and there should be the stating of relationship between the subscribers.
• An address proof for registered office of the society must be given along with an No Objection Certificate taken from the landlord.

All the signed Memorandum and the Rules and Regulations must all be filed with concerned Registrar of those societies of that particular state along with the prescribed fees. If the Registrar becomes satisfied with the given application than only the Registrar would certify or allow that particular society to be registered.

Why Registration of Society is Recommended

Usually during the registration of society stamp papers are not required but registration will give the society an important legal status and it is also essential for following things,

1.   For opening a bank account.
2.   For getting registration and also approval under Income Tax Act.
3.   For the lawful and proper vesting of properties of those societies.
4.   Giving a recognition to the society in all forums and before all authorities.
5.   Normally a suit can be filed by or against a registered society:
6. The case can be filed in the name of certain office bearers or any trustees, as it is provided or given by the Rules and Regulation of that society, or
7. It can also be filed in the name of any such persons as may have been appointed by the governing body of the society.

In the absence of the registration a society has got no legal status power or value and it has no power to sue or be sued.

The Governing Body of the Society

All the activities of the society are looked into, managed and executed by the governing body. The Act defines the members of governing body to be the following like governors, Council, Directors, Committee, Trustee or any other body to whom all the Rules and Regulation of the society work and management and other affairs are entrusted with. The basic rule is that there should at least be two members of any governing body. In the state of Tamil Nadu they have the rule that there should be at least three members for the governing body. The people who are the members of the governing body may be either elected or nominated as per it is given in the Rules and Regulations of the society. The term period of office for the member of the governing body is given in the rules of the society. In the case of Tamil Nadu the term period of office of a member of the governing body cannot be more than three years. The member of a governing body may be expelled or can also retire as it is according to the rules of the society.

The Basic Advantages of Society

1. The process of the registration is quite simple.
2. The process of record keeping is easier and the regulation is also very simple.
3. There is low changes of interference by the regulator.
4. Due to the charitable way of operation there us release and exemption.

The Disadvantages of Society

1. The tax exemption which are extended to the  society may also apply to different public trusts is only to the extent of the Income Tax department and they also has to accept these activities as charitable.

2. Commercial investors generally regards these sort of investment to be risky due to the lack of professionalism and managerial practices and therefore they are reluctant to provide large volume of funds in these cases.
3. There is no system of equity in investment or ownership, which makes is less attractive for any commercial investors who can be interested in microfinance.
4. As it is in a charitable instructional form there is inappropriate profit and no suitable strategic goal of financial operation.
5. There is also risk faced by various state governments under the Money lender Act.

Conclusion

Though the Societies Registration Act, 1860 may have few advantages and bit more disadvantages, still the registration of a society is important for the betterment and improvement of charitable activities in art, education, and different cultural work. Thus, the Societies Act is important for the starting of a better society in India.

REFERENCES

1. Society Registration in India
2. How to form a Society in India?
3. Abhay N
4. Societies’ Registration Act
5. Society
6. What is Society Meaning and definition of Society

In this article, Metta Hyndavi pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses how to fire a partner of an LLP.

LLP stands for limited liability partnership. Limited Liability Partnership has been recognised in India as Limited Liability Partnership Act, 2008. The Act, defines LLP as, A legal entity which is separate from its partners, a body corporate. LLP has a perpetual succession. An LLP is a separate legal entity which is liable legally. Where the assets, the liability of partners are limited on the basis of their contribution for such LLP. It is a combination of regular partnership business and acts like a separate legal entity, and deal with both at once. The essentials of an LLP are more than that of regular partnership but also requires lesser than a company as it acts as a separate legal entity of its own.

It has a perpetual succession and it does not get affected by the mere changes in the partnership.

It is an artificial person, having a separate legal recognition in the society, it enters into contracts, take up obligations, has its own recognition. But the partners are entitled to limited liability in case of loss according to their contributions, the partners fall into risk only to the extent of their ratios. In this kind of partnership business, there is very less risking of personal assets and properties of the partners unlike in regular partnership business.

Commencement

The limited liability partnership is commenced by making an agreement between the partners of the firm. The contents of the agreement entered between the parties consists of all the rules and regulation and the rights, obligations, privileges, and the contributions made by them to the firm and the proportions is calculated and clearly mentioned in the agreement like which is done in partnership business. In this type of agreement the liability of the partners is limited and the extent of the limitation is mentioned. The schedule 1 of the limited liability partnership agreement Act gives a detailed description regarding the rights and liabilities of the partners.

Once the partnership has been formed, during the run of the business, partnership do not run with the same partners throughout the life of the firm but the partners keeps changing. This change in partners and the partnership is due to different circumstances and situations.

Some of them include addition of partners, removal of partner, death of a partner, substitution of a partner, retirement etc. As the partnership is perpetual and works in a long run, the mere change in the partnership shall not affect the business and however, it do not make much difference unless it is a dissolution or winding up of the firm.

Firing of a Partner in LLP

A partner in order to be a partner of the firm, he shall meet the basic requirements to be called as a partner of the firm. A partner is the one who is of sound mind, solvent, capable to make decisions and lunatic. If the partner is not of sound mind, or not capable to make decisions on his own or is lunatic in only intervals of time the partners may be fired in such cases, as it is not a qualification to be a partner.

The partner shall be solvent and he shall not be the one who is decided as an insolvent person legally. But in case of an LLP as the partners has the limited liability, the above mentioned cases may not affect the firm ,but, the limited liability partnership also do not specify the grounds to remove or fire a partner from the firm. The Act did not prescribe the manner or measures to be taken or any procedure is not provided by the Act for firing a partner. This can be presumed as either the partnership or incapable partner do not affect the whole business or it is to the discretion of the partners how to solve it in case when such situations arise.

However, presumption is merely not dependable. The rules framed or the regulations that the partners chosen to govern them at the time of making an agreement will be effective. The agreement shall be lawful, legal and with a bonafide intention and do not include anything malafide or fraudulent clauses. This agreement might help the partners when such situations like a partner removal, firing, substituting, and addition may be required. The partners new or old shall be given a notice and a copy of agreement which contains all the particulars and details about their role and the other partner’s role in the business.

Partners has to construct the agreement carefully foreseeing and keeping in mind all the possibilities that might occur and try to solve them by writing them down in the agreement which is easier for them at the needy time. The courts are available to clear the issue and the problems where the partners are stuck but the agreement shall be made compulsory in order to avoid any conflict. In the extreme circumstances when the agreement of limited liability partnership is not made, the alternate means should be made or it id to the discretion of the other partners supporting and opposing in majority.

Though it is a limited liability partnership unless there is a strong reason behind removal or any disqualification which apparently contributes to the removal or firing of a partner, the firing shall be made. There should be a reason to believe that the partner is incapable of continuing as a partner of the business.And it is to the incapable partner to take the burden of proof and defend himself if he is alleged to be incapable but who is not actually an incapable partner.

Liability

The other partners will not be liable for the fraudulent acts of the partner. The risk or the loss will be divided between the partners and shared amongst all the partners so that the personal assets of the partners are not brought forward to calculate the loss which has been faced due to the misconduct of one partner of the firm.

There should be no malafide intention of the other partners to fire a partner intentionally. A partner is an investor and a decision maker of the business and the partner’s contribution do affect the long run of the business .the fraudulent firing of a partner shall not be allowed.

Investigation

The investigation will be made in order to confirm the disability of the partner who has been alleged by the other partners or so on to know how far is the allegation true. All the required documents and the proofs which are to be scrutinised shall be done by the inspector and all the investigation is to be done by him to know the truth behind the allegation.

The motive of the partnership should be profit earning and the dispute between the partners must be solved as per the agreement but not played fraud. If at all, with the consent of the other partners the partner can be a “buy out” partner, whose shares can be obtained by the other partners by paying him some money and paid some amount of his proportion in the business and such partner can be not made a partner from the next financial year.

But in case, if such partner hold out the maximum shares of the business this may not be a good idea yet find an another alternative to fire or remove such partner from the partnership. If the maximum investor of the partnership is the one who creates conflicts or is subject to the dispute, then the partnership may be dissolved. The partners also may choose to commence a new partnership business with the existing partners or by adding the new partners to the firm according to their wish and will.

Judicial Assistance

Courts are present to help out such business and entities and provide redressal to the grievances faced by such partners. Once the proceedings have been started it is to the discretion of the court to try and decide the case.

Court shall order as it feel would be the best thing that could be done taking into consideration of all the circumstances and the facts of the case and shall pass an order as may deem fit. The help of the experts can be taken in case of the technicalities or the explanation of the circumstances is needed.

Dissolution

The dissolution of the firm may be done if the court has ordered for the dissolution or with the mutual consent of the partners. When the buying out, holding back the shares or any misconduct by any of the partners are not spared then the business can be dissolved and a new business can be commenced instead of ousting such a partner from the business.

Conclusion

There is no manner which specifies to fire a partner from a partnership liability from the business; however it can be done by,

1) Agreement

2) Dissolution

3) Buying the partner

4) Or by the assistance of the court.

In absence of any such partnership agreement, either the court may be sought help or the discretion of the partners to resolve the dispute arose between them.

In this article, Mitalee Mulpuru pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses how NBFCs usually raise money in India

Lack of Traditional Sources of Money Supply

NBFCs are Non-Banking Financial Companies, meaning many of them do not rely on CASA (Current Account Savings Account) deposits in order to raise resources. CASA deposits are meant only for banks, wherein the RBI provides the banks with licenses in order to accept monies from the public. This means that NBFCs have to look for alternate sources of money supply, which are higher than the traditional deposits taken by banks, where the interest rate offered is between 4%-6%.

Business Model – NBFCs

As these financial institutions lack the ability to raise money supply at a low rate like banks, they end up raising funds at a higher interest rate, thereby causing the hurdle rate on their funds to increase proportionately in order to maintain Net Interest Margins between 1-3%. This causes NBFCs to seek alternative strategies for deployment of funds in order to generate a higher return (thereby taking on a higher risk pattern).

Measuring the Effectiveness of Fund Raising

The main objectives while raising funds are,

1. Monitoring the mismatch between assets & liabilities;
2. Minimising the mismatch.

Assets, in this case, are defined as the investments made (equity/debt/structured products) in the operations of an NBFC as a financing organisation, while liabilities are defined as the amounts owed to parties that have supplied the monies for the financing activity. The interest rate charged between both leads to an arbitrage, thereby resulting in a Net Interest Margin. The arbitrage so created is the value derived from the expertise and experience of the officials in the NBFC to identify correct segments for investment at a higher risk-reward ratio and generate extra-ordinary returns in the Indian/Corporate context.

Treasury and Rupee Resources Departments

Broadly, the act of raising money supply lies within the ambit of the rupee resources department, which manages long and short term instruments used within an NBFC to match the supply with the demand. Once the resources are raised and the funds are with the company, the Treasury department is responsible for the deployment, any asset liability mismatch and call/money market instruments to be decided when the funds are parked.

Source: CAIIB

Key Performance Indicators in assessing Asset/Liability match in an NBFC

For this purpose, the treasury and rupee resources departments rely on the following critical risk factors:

1. Liquidity Risk

The risk of an investment that cannot be marketed or sold off easily to a third party, in order to minimize losses.

2. Interest Rate Risk

Risk in interest rate while raising monies that affects the Net Interest Margin adversely, and erodes the value of the net worth of the NBFC.

3. Foreign Exchange (Forex) Risk

Risk of suffering losses in adverse exchange rate movements (such as the current demonetisation efforts), especially during an open position, either spot or forward or a combination.

4. Equity Price Risk

Risk that a loss may occur on account of public/private equity shares held in the portfolio, for the equity investments made by the NBFC. NBFCs manage and control their treasury activities on the basis of the various risks involved rather than on the basis of the particular type of financial instrument dealt with. Extensive IT systems are put in place to measure these risks along with VaR (value at Risk), and an appropriate haircut is made to the investment when necessary. At all times, a probability of default and a Loss given Default (LGD) is calculated, that varies with the change in the profile of the company that is invested in. The VaR method would be employed to assess potential loss that could crystallize on trading position or portfolio due to variations in market interest rates and prices within a defined period of time.

The changes in market interest rates have earnings and economic value impacts on the institution’s banking balance sheet (book size). Given the range of loan product offerings of an NBFC, it would be endeavoured to measure IRR on the banking book that assesses the effects of the rate changes on both earnings and economic value. As the simplest measure, the Treasury Mid-Office may compute simple maturity (fixed rate) gaps, re-pricing (floating rate) gaps and duration gaps. Considering the volume of data practically all the NBFCs use IT systems for maintaining treasury operations.

Sources of Funds – NBFCs

There are three primary sources of funds looking to raise money without deposits:

a) Long Term

These are through term loans obtained from banks in a single quantum, after deciding on the amount of funds to be deployed in the normal course of operations of the NBFC. The advantage of doing so is that banks can usually lend at much lower rates owing to the nature of the CASA deposits, which favours the business model of NBFCs that have a more aggressive risk-return profile. These kind of loans can be unsecured or secured through G-secs (which again is monitored by the Treasury Department), and repayment can be done in bullet or a structured schedule. This repayment should ideally be mirrored with the repayment schedules of the assets on the balance-sheet. A good credit rating is mandatory for raising large sums at a competitive interest rate.

b) Long Term

Bonds are used as a common route to reduce the interest rate on the sources of funds. The coupon rate on the bond is selected in order to reflect the rating profile of the NBFC as well as a return better than the G-Secs. In some cases, tax-free bonds are also issued for priority sectors such as infrastructure and roads. The maturity profile of these bonds coincides with the repayment/interest schedules of the investments made by the NBFCs (and displayed as assets on the balance sheet). Bonds can be issued to retail investors as well, which is a primary advantage for NBFCs during bond placement.

c) Short Term

Short term loans offered by an NBFC can be issued by raising funds through Commercial Paper (CPs). CPs are short term unsecured promissory notes issued by companies, with a tenure of 3 months to 12 months.

Asset Liability Committees in NBFCs

The ALCO would primarily be responsible to manage liquidity and interest rate risk of the organization. Such committees are usually headed by the CXOs in the organization, to keep an eagle eye on the costs should they spiral out of control and impact profitability, especially in a down market.

Role of the ALCO

• Balance sheet planning for appropriate risk-return, and the management of interest rate and liquidity risks.
• Product pricing for loans and advances, and assessment of a base rate.
• Deciding on desired maturity profile and mix of assets and liabilities that can be added on in the future.
• Developing a perspective on the interest rate and deciding on the future business strategy to contain interest rate risk.
• Reviewing the funding policy to minimize liquidity risk.

Liquidation: Treasury Ops

The Treasury Ops are divided into The Front Office, the Mid Office and the Back Office. The Treasury Front Office within the institution is the clearing house for matching, managing and controlling market risks. It also provides investment support for the assets and liabilities generated by regular business of an NBFC. All dealers active in day-to-day trading activities have to adhere to FEDAI / FIMMDA and other regulatory codes of conduct. The dealers must also adhere to the Internal Stop Loss Limit.

The back office ensures compliance of transactions undertaken. Moreover, prompt reconciliation of all dealing accounts is an essential control to ensure accurate identification of risk exposures.

The mid office is an on-site monitoring department and to provide value added support to Front office activities. It acts as independent risk monitoring functionary.

LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join:  

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This article is written by Ramanuj Mukherjee, Co-Founder, and CEO at iPleaders.

If there is one category of professionals who need to have a strong professional network, that is a lawyer. Not only for getting more work, but even getting work done that others find difficult to do is a function of who are the people you know and how well you know them. If you are in a job the importance of who you know may be still relatively low, but once you begin to practice on your own or start a law firm with some partners, being well connected is critical.

Even if you are a lawyer just doing a job, with no plans to start on your own in horizon, you should still invest in building a professional network. From landing the best jobs to getting brilliant speaking opportunities, your network can do wonders for you.

I don’t think I need to convince any lawyers that they should have a good professional network, so let’s dive right into how to go about building it.

There are two parts to creating a powerful network. The first part is to increase the number of interactions with the sort of people who should be in your network. The second part is to deepen the relationships so that you are not just a number saved on the phone and forgotten, or a business card lost in a drawer.

The first thing you must do, however, is not to go and create new relationships with strangers. That can work but is quite unnecessary. Most of the time, we know people we can help, and those who can help us, but never actually make the effort to know the other person.

Networking begins with you contributing to other people. You add value to the lives of other people – it can be in any way. It is not necessary that you add value as a lawyer, by giving a legal advice or a helping out when they are in a fix. You can help them out with anything, anything at all. Maybe you can help them out to get an introduction in the school where they want to send their kids! Maybe you can recommend them to a great yoga teacher or insurance broker when they are finding it difficult to find the right one. Maybe you help them to get a ticket to their favourite concert or take them out to the best coffee place that not everyone knows about yet.

The most well connected people are favour machines, helping out people on every turn without asking what is in it for them.

And then, when they need help themselves, they know who to ask. And most of the time, even before they ask, someone shows up to help or connect.

Even you want to be a very well connected guy, you must be the giver, who is not afraid to help someone who may or may not ever return the favour. Hence, you must be very resourceful. Good thing is that more you do this, more resourceful you become.

Remember, it is also a favour when you ask for a favour. You give another person an opportunity to contribute in your life. When you ask for help, you show that you trust that person. It is a gift. Don’t hesitate. However, be the guy who can give ten time more than what he asks for. Such people are rarely turned down and emerge as natural leaders.

Relationship building begins at home

Building a good network is not about knowing more and more people, but all about creating remarkable relationships by contributing to the people who come in contact with you. There are probably hundreds of people you already know who can use your expertise, benefit from your advise, suggest your name or refer someone to you, but unfortunately they do not even know what exactly you do or they don’t make the mental connection to realize that they should approach you for something in the first place.

Hence, you begin your journey of building an amazing professional network by connecting with the people you know the best.

Do your parents know what you do? Start there. Remember, Bill Gates would not be rich unless his mother knew someone at IBM which agreed to use Windows OS in their computers! Your parents know people and love to talk about you. Hence, keep your parents updated about what you do. It may sound crazy, but a mandatory first step. Sound out your parents on the kind of work you are doing and ask for their opinion. I was very scared initially to do this with my parents as I was they will not understand what exactly I do, and also because my father always gives me unwanted advice about how I should leave everything I am doing and start practicing in the Supreme Court. However, since then I explained to them exactly what I do. Guess what, my parents went and told all his friends about the kind of work I do, and how many people work at iPleaders, what kind of challenges I am facing etc. Since then, a few of those people have approached me asking for advice on various problems they are facing.

While others in your family, such as siblings, uncles, aunts and cousins may not broadcast about what you do, but they are your well wishers, and it is easy for them to recommend you. However, they know you as a family member and not as a lawyer. So it does not occur to them to recommend you. Hence, what works best is to call them up and let them know what kind of work you are doing, sharing photos of your new office, calling them up to ask about advice regarding how they would suggest that you expand your practice, sharing the articles you write and get published in the family whatsapp groups – just to ensure they know what you are upto in your professional life. First they are likely to approach you for their own work from time to time, usually as a favour, but if they like it – they are going to tell anyone else who may need your service that you are the one they should approach.

It goes without saying that this may work better if you are working as a matrimonial lawyer or a property lawyer and not so well if you are a securities lawyer. Accordingly, you should adjust your approach. However, make sure that your immediate family and people who care about you know what you do. They will suggest your name where they can, and being well connected is all about creating more chances in your favour.

Another mine of amazing professional relationships will be your school friends. Do you know where the people who went to school with work now? Do you know who they know? Everyone is a source of potential recommendations and references. Of course, you need to reconnect with them. You need to build credibility and goodwill with them. However, you already have a shared background, affinity and a connection with them. It is much better to build on that rather than creating fresh new relationships. You will where you need to create new ones, but to abandon people who you are already connected to is inexcusable for a master networker. You don’t leave people behind. Re-establish your connection with them, discover what they are doing now and help them out.

However, the most important people from your life who can help you out the best are the people you went to law school with. They are now all dealing with their own professional struggles, some are doing very well while others may not. All of them can potentially refer you clients, interns, juniors, secretaries who can improve your life, softwares that make your work easier, invite you to speak at conferences they are organizing and what not. However, they will do these things for you only if you take the first step probably, which usually means calling them up, staying in touch, talking to them about what they care about, and being a part of their journey. It’s the same with former colleagues.

It is easy to do a favour when people come and ask you. Before you become that person, for a while you must make the effort of discovering how you can contribute.

Events – organize, talk, attend

One great way to quickly building a fabulous network is to organize events. You can organize events, weekly, monthly or annual, under your own umbrella, or help someone else to organize. Everything works. You get to know the co-organizers. You get to know the speakers, who are usually difficult to approach otherwise.

You don’t have to necessarily organize huge events. The events can be small, held in a cafe (or a free/cheap venue) for 10 or 20 people who have an intimate roundtable discussion. Some of the best events in Delhi where I have met some high quality people were organized in small cafes in Hauz Khas Village or Shahpur Jat, in some quaint cafes like this and this.

I have also organized large budget events in placed like India International Centre in Delhi with guests flying in from across the country. If you have reached the scale and afford it, and see some clear benefit, go for a big event. There is no limit really, but I want you to keep in mind that small scale events where intimate discussions are possible and which happens at regular intervals are the best if you want to begin organizing events.

If you want to organize big events, begin by volunteering for some other big events in town. If nothing else, definitely attend some events. Meet people there with only one agenda, how can you contribute and add value to them. You must be always asking yourself, how can I add value to this person? What can I do that this person will be pleasantly surprised by, grateful for or simply delighted? What can I give? That’s all it takes to build great connections.

However, aim to speak in some of the events. Create a speaker profile and pitch to events expressing interest in delivering interesting talks on topics that will be relevant and highly interesting to them and their audience. If you have been helping to organize events check with them if you can give a talk. If nothing else, organize your own event, and call other speakers but reserve one spot for yourself.

If you meet a person and have a great conversation right there but never follow up later on, that is not another person added to your network, but a missed opportunity. You must follow up later on, connect with them over email or phone, and make plans to meet again. And yes, make a difference in their life. Do not assume you have added someone to your network until you have done at least 3 favours to them.

What should be a good conversation be like, when you are meeting people, strangers or even people you already know, with the intent of a powerful networker?

The first principle of networking is that if you like people, they will like you. If you don’t like them but you are just faking it, you are manipulating and it is unlikely to turn out well.

If you want people to respect you, then start by respecting them. Exude warmth and stay in high energy. People who are quiet, pensive, worried, tensed are unlikely to leave a great impression on people.

Yes, you should add value, but that does not mean you keep talking. The best conversationalists are those who listen actively. Take a deep interest in whatever the person in front of you have to say. Learn from them about what they care about. That is your key to their world. Get into their world and explore. People love to talk about themselves and what they care about. Listening, and caring about what they care about is a huge value add.

It is easy to drift away when you are talking to other people you don’t really care about and they talk about things you don’t care about. This is why networking is not about shaking hands with more and more people, but to learn how to be interested, genuinely, in other people.

Always look for what you can appreciate about them. Say it aloud in public, acknowledge people openly. However, make sure that the appreciation is heart felt. Feel it before you say it. Otherwise it is fake.

When you are the sought after person, who is being approached for advice, investment, opinion etc., it is a good idea to use a humility marker that equates you with the other person and breaks ice, putting the other person in ease. For instance, if someone approaches you for free advice, you could say “I need free advice from my friends all the time, so I guess I should give back sometimes.” This is much better than making the person feel that you are doing a big favour for him by giving free advice, which would not make him feel great about himself, and consequently not very good about you.

People never remember what you said about them, but always remember what you made them feel. So make people feel amazing, and your network will be growing in no time.

Write to people, message them, be in touch

Networking is hard work. It requires you regularly stay in touch with people. This means you should often get in touch with people by writing to them or simply call them. It is not possible to call everyone, but comparably quite easy to leave a message or drop an email. You need to be on top of their mind. Here are some ideas as to how you can do it, but you are free to come up your own ways too:

1. Write to people if you like what they have written. If you read an article, and like it, immediately either email the writer or tweet your appreciation to them. End a mail with an open ended question so they feel the need to reply to it.
2. Just read about someone you know who just got a promotion or shifted jobs? Call them up to congratulate. Say hi, and ask them how they are and how is life. Invite them to meet for coffee.
3. Wish people on their birthday. Ask them how they are celebrating. If you can’t call at least message on whatsapp. They will feel special. Making people feel great is great value addition and top notch networking.
4. Send out an amazing quote to all your whatsapp contacts. Chat with those who bother to reply.
5. Share a positive review of someone’s most recent work. People love it.

There is no way you can build an amazing network that will set you up for life in a 6 months. Or a year. You need to do the write things over a long period of time, and do valuable work to create an amazing golden circle of high profile contacts. You have to earn your way one person at a time, one favour at a time. This is not meant for impatient people who are not ready to put in the time, effort or care.

However, those who do, find it to be exceptionally useful and profitable.

Increase the average that you are

There is a very famous quote, which is also very useful. Motivational speaker Jim Rohn said that we are the average of the 5 people we most interact with. If you are interested in being a better version of yourself, you have to increase the average. Interact with awesome people and the awesomeness will rub off on you. If you want to become a karate blackbelt hang out a lot with people who already have a blackbelt. If you want to get rich hang out with people who are already rich. If you want to be an amazing arguing counsel make sure you get to spend some time learning from great arguing counsels. If you want to be a great law firm administrator then seek out those who have done or doing a great job at it.

Yes, good people are busy and they don’t always have time to hang out with newbies. However, worthy people always find their way in. It’s a delight to share the art with people who are worthy of it. You need to become worthy unless you already are. That’s why networking is a long term pursuit that often requires you to transform yourself.

If you want to become the most well connected lawyer in town, you definitely need to work on all the outward activities that get you to meet people, shake hands with them, have great conversations, contribute in their lives etc., but it is in equal measure an inward journey to become the person who does so naturally, because he loves doing it and not because there is an agenda and ulterior motive behind all of it.

In this article, Shreedutta Das pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the licensing and registration process for opening a bookstore.

Books are lighthouses erected in the great sea of time.  – E.P. Whipple

E.P. Whipple has rightly said that books are the lighthouses, books are the keys to the wide world and books are that friend of one’s life that never left them alone. Books inspire us to work hard with hope and courage.

Opening of a book store provides an opportunity to encourage knowledge and help people to get the desired book as well as a good source of income to the book store owner. One can also enjoy an excellent reputation as an important part of your local business community. Many booksellers make a significant impact on the city or town where they live. one could open a bookstore that becomes a town institution or a must-see for tourists.

According to a survey published in a popular newspaper says the average Indian is spending more than 10 hours reading books per week which puts India on top in comparison with other countries like China and the US. So opening a book store can be a profit making business in India.

Steps for opening a book store

• Business plan

Before starting any business its planning is important. Business planning serves as the backbone of any business. For opening a book shop one should first think of start-up cost, list of owners, location, market strategy, pricing scheme, projected profit and loss and etc.

• Selecting a place for the book store

Finding a good place is really an important factor of opening a book store. Book store must be located a place where people could recognise the store and it should be away from the noisy traffic.

• Books for the book store

A book store must have books of different genres for different ages of people. It should have book from fairy tales to non-fiction like The Man Hunt. Ordering books from suppliers and publishers are crucial. It is important to build contact with them.

• Making the business legal

This means applying for a business license and deciding on your legal business form.

• Advertisement of the store

One should advertise in the newspaper, in pamphlets, in social medias regarding the store.

• Other offerings at the store

 To make the book store more appealing, provision for café, book signing programme by authors, classes or seminar on any book, review of people on any book recording like things can be done.

• Investment Requirement

In India establishing a book store does not need huge amount of investment according to a website there are two major areas of investment one is infrastructure and stocking of books. The lowest investment for opening a book can be rupees 50 lakhs

Some of the common legal steps

The most important step for opening a book store is legalising the business. In India, there is a very flexible way of legalising the business. Some steps can be –

• VAT Registration

VAT stands for Value Added Tax. It is a type of general consumption tax that is collected incrementally, based on the value added, at each stage of production and is usually implemented as a destination-based tax, where the tax rate is based on the location of the customer. VATs raise about a fifth of total tax revenues both worldwide and among the members of the Organisation for Economic Co-operation and Development.

A person doing business or a legal entity is eligible to apply for VAT registration.      The unregistered dealer cannot charge VAT. The application for VAT Registration Number needs to be done with the specific commercial tax department of a particular state or local VAT Office, where the business is located.

The Tax Payer’s Identification Number (TIN) is new unique registration number that is used for identification of dealers registered under VAT. It consists of 11 digit numerals and will be unique throughout the country. First two characters will represent the State Code as used by the Union Ministry of Home Affairs. The set-up of the next nine characters may, however, be different in different States.

• Trademark Registration

Trade mark is a visual symbol in the form of a word, a device, or a label applied to articles of commerce with a view to indicating to the purchasing public that they are the goods manufactured or otherwise dealt in by particular person as distinguished from similar goods manufactured or dealt in by other persons. A person who sells his goods under a particular trade mark in relation to those goods.

An office called the Trade Mark Registry has been established for the purpose of registration of trademarks, maintenance of the register and matter incidental to.

So one should register the unique name of the book store so that it can be distinguished from other stores.

• IE Code

IE Code stands for Import and Export code. All Importers who import goods into India require an IE Code. The IE Code must be quoted while clearing customs. Also, banks require the importers IE Code while sending money abroad. All Exporters who export goods or services from India require an IE Code. The IE Code must be quoted while sending shipments. And banks require the exporters IE Code while receiving money from abroad. Even individuals who are proprietors of a business can obtain IE Code in their name. It is not necessary to incorporate a business entity for obtaining IE Code.IE Code can easily be obtained from Directorate General of Foreign Trade (DGFT)within 10-15 working days after submission of the application along with all the necessary information. It is not necessary to show proof of any import or export to obtain IE Code.

Customers may want books of foreign authors which to be imported from foreign countries. In such cases IE code is needed to clear customs.

Under Shop And establishment act

One of the most important enactment is Shop and Establishment  Act. A book store should be registered under this act.

This act provides that a commercial or trading or banking or insurance establishment or an establishment or administrative service in which persons employed or mainly engaged in office work, or a hotel, restaurant, boarding or eating house, a cafe or any other refreshment house or a theater, cinema or any other place of public amusement or entertainment.

The objective of the act is to provide statutory obligation and  rights to the employee and employer in unorganised sector of employment and its most important work is to regulate the conditions of work and employment in shops, commercial establishments, residential hotels, restaurants, eating houses, theatres and other places of public entertainment.

This act provides that different state will have their own different legislation. Applicable to all persons employed in an establishment with or without wages, except the members of the employer’s family. State government can exempt, either permanently or for a specified period, any establishments from all or any provisions of this Act.

The definition of Shop include where goods are sold, either by retail, wholesale, or  where services are rendered to customers. It includes an office a store-room, godown, warehouse or work place, whether in the same premises or otherwise, used in connection with such trade/ business

A shop does not include a factory, a commercial establishment, residential hotel, restaurant, eating house, theater or other place of public amusement or entertainment

This act lays down the following rules:

Working hours per day and week.
• Guidelines for spread-over, rest interval, opening and closing hours, closed days, national and religious holidays, overtime work.
• Rules for employment of children, young persons and women.
• Rules for annual leave, maternity leave, sickness and casual leave, etc.
• Rules for employment and termination of service.
• Maintenance of registers and records and display of notices.
• Obligations of employers as well as employees.

Registration process under the act

 As a business owner of a shop or establishment, you are compulsorily required to get the same registered under the Shops and Establishment Act. Here are the specific rules:

• An application to be submitted in the prescribed form to the Inspector of the area within 30 days of starting any work in your shop/establishment. The application is to be submitted along with the prescribed fees and should contain the following information:

o Name as the employer and the name of a manager, if any;
o The postal address of the establishment;
o The name of the establishment;
o Such other particulars as may be prescribed.

• Upon receiving the application for registration and the fees, the Inspector shall verify the accuracy and correctness of the application. Once suitably satisfied, he shall enter the details in the Register of Establishments and issue a registration certificate of your establishment to you. This certificate will be valid for 5 years and has to be renewed thereafter.
• The registration certificate has to be prominently displayed at your establishment.

And in case of closure, the same has to be communicated to the authorities within 15 days from the closing of the establishment.

Conclusion

Books have a very crucial role to play in our life.Opening a book store is a very noble work as well as a profit making institution so before opening a shop one should be aware of the legal requirements to be fulfilled.

2 day workshop on Drafting Commercial Contracts is back! Join us on 16th and 17th September (Sat – Sun), iPleaders Delhi Office, INR 4500, Register by 14th September, [20 seats only]

We had an amazing contract drafting workshop last month, and your support for it was incredible. There was so much that everyone learnt, and the energy in the room was riveting. We have decided to hold the workshop again on 16th – 17th September.

If you are interested in knowing what the workshop will be about and what you should expect from it, go on.

What, according to you, stops young lawyers from drafting their best contracts?  

Reading a contract (or a book on contract drafting) and drafting contracts everyday are entirely different ball games. You may have read a book, you may know how to draft, but you may find yourself stuck when it comes to drafting the right clause all by yourself. It can give you a tremendous sense of responsibility and fear.

Even if you have been drafting, reviewing and vetting contracts for years, some external discussion and guidance always helps. While working in isolation, there is always a risk of picking up and developing unhealthy habits (and this applies to drafting contracts as well).

Typical barriers which creep up, irrespective of one’s level of knowledge are:

• Anxiety and fear, which stop us from even typing a contract, or takes up too much time and reduces productivity.
• Focussing on issues which are not important for the client.

There is so little that is taught in law schools about contract drafting that any real life practice you can get is worth having. We met people who worked in companies, who were bold enough to share with us that they have only learnt through trial and error, and despite that they have no access to be sure about the correctness of what they are doing!

Many practices are superfluous, anachronistic or even counter-productive, but out of lack of clarity, there has been a resistance to improve in the corporate sector. Why? If there’s a mistake, who will take responsibility?

In internships you rarely get work beyond proof-reading of a contract. Proofreading skills and contract drafting skills are poles apart. In a law firm, the seniors and partners don’t have time to teach you and you have to figure out things yourself.

However, there is a cost to that – you don’t develop as a professional, and clients can be put off very easily by this work.

What is the downside of not learning and sharpening your contract drafting skills in law school?  

If you don’t have contract drafting skills, it has a very visible impact on your career:

1. You don’t have an opportunity to distinguish yourself in interviews, which simply wipes off many jobs you could have secured.  
2. When you start work, seniors don’t give you any concessions for not knowing contract drafting beforehand, despite knowing that you were not taught this in law school, and despite not having learnt this themselves in law school.
3. You will end up taking too much time on drafting assignments, spending time on trivia and technical factors which do not impact the direction of the deal. Clients and seniors can get the experience that you are not focussing on their business and the deal, but are wasting time on technical aspects at their cost, and you’ll not know why. In fact, on one of his first assignments at Trilegal, Abhyuday, co-founder of iPleaders, had spent almost two hours listing the statutory provisions that the other side must comply with in one of the clauses to the contract, which was later replaced by my senior adding a simple ‘The client will comply with all statutory requirements’ by his seniors. He spent two hours on something that should have taken only 30 seconds to a minute. This was only one area of improvement, and there were countless others which he learnt over the year.

iPleaders is announcing a live 2-day workshop on Drafting Commercial Contracts to impart the next level of practical training, which will be led by Bhumesh Verma, Founder and Manager of Corp. Comm. Legal, who was earlier a partner at several big law firms in India.

There are only 20 seats, and you will get in-depth guidance and personalized feedback.   

Imagine applying yourself to construct an entire contract from scratch. Imagine unlocking your mind to think freely of all the different permutations and combinations in which you can draft each clause. You will dive into the situation head on and get extensive practice and feedback.  

What will your performance be like if you learn and practice drafting contracts clause by clause and learn from the expertise of a senior partner?  

How much time, struggle and effort will you save in your career? What will that be worth? What kind of results will you create?    

Even if you have read a book or taken a course on contract drafting earlier, we suggest you participate and don’t miss out on the opportunity. At the end of the workshop, you will have a new level of freedom with drafting contracts.

Dates and Timings

16th September (Saturday): 4 pm – 9 pm

17th September (Sunday): 11 am – 5 pm

Those who are interested can register here.

What will you learn in the workshop?

When you first start working on drafting contracts, certain practical questions need to be answered:

• What your client expects and how to add maximum value to transactions?
• How can you ensure that every contract you create is your best contract?
• Is your client’s interest being adequately expressed in words, timelines and money? How will you know if the contract adequately protects your client’s interest?
• How should you work with templates? How to decide what to add, edit or delete?
• How to foresee new kinds of risks that the parties didn’t contemplate and allocate responsibility for them?
• How to express your client’s intentions in language even if you haven’t drafted that kind of contract earlier contract?
• How to review contracts quickly and suggest changes that matter?
• What to look for in contracts will conducting M&A or banking & finance due diligence?

Key exercises and methodology of the workshop

You will learn how to draft more than 20 critical clauses and perform very interesting exercises that simulate real life situations, such as finding a missing clause in a template, preparing a list for a client and drafting a real contract from scratch, without any precedent during the workshop.  

In the process, you will get a real sense of what happens at each stage from the time when the client briefs you till the point you complete the work. You will also get the point behind each and every word in each clause you write and appreciate its relevance. It will literally get into your second nature. Your contracts will also be very sharp and precise.

It is very different from copying things from a template or reading in a book. The kind of energy you discover will move you.   

• Draft contracts and clauses from scratch, and without any precedents and templates.   
• Get one-to-one feedback on your work.  
• Participate in teams and groups to represent your interest.
• Identify gaps in clauses and suggest critical modifications.
• Move beyond your fears and doubts and draft with ease.  

Day-wise itinerary and syllabus

16th September (Saturday):  4 pm – 9 pm   

• What is the gap in how students & professionals learn drafting?
• What should be your primary focus while drafting an agreement?
• How to capture commercials from your client for drafting an agreement?
• How and when to use precedents / templates and when not to?
• Creation of an agreement clause-by-clause.
• Why and how you should balance a draft?
• How to remember all that you learn in the workshop for your life?

Exercises

1. Write, edit and critique clauses of a contract (this will be a group-level contract creation exercise. You will give up any fear of drafting a contract).   
2. Prepare a requisition list for capturing commercials for an agreement from your client.
3. Identify missing clauses in a template for an agreement.

You will get a 30 minutes snack break (tea and biscuits will be provided, for anything else, you will need to make your own arrangements. There are plenty of places nearby.)

17th September (Sunday):  11 am – 5 pm

All day exercises and contract drafting session

You will be drafting two contracts and get live coaching as you draft it. You will first get an overview of what such a transaction does, the commercials of the deal and the interest of the client. However, we will not give you templates, the intention is to free you up completely to draft in any situation.

• Joint Venture Agreement
• Lease Agreement

Identify missing clauses in a template

You will have a 1 hour lunch break between 1 – 2 pm (You can step out or have a biryani at the venue.)

Faculty

The session will be led by Bhumesh Verma, Founder & Managing Partner at Corp Comm. Legal at iPleaders New Delhi Office. He has been a partner at Khaitan & Co., Paras Kuhad & Associates and Link Legal India Law Service and has authored a very successful book on Drafting of Commercial Agreements.  

Address

iPleaders Office (New Delhi),

33A, Mehrauli Badarpur Road,

Saidulajab, (Around 100m walk from Saket Metro Station (Saidulajab Exit) on the main road)

New Delhi – 110030.    

Landmarks: Next to Lingaya’s Building / Red Onion Restaurant on Mehrauli Badarpur Road  

Cost

INR 4,500

Seats

20 only, selected on a first-come-first-serve basis (block your seat by registering here).

In case you have any questions, feel free to call us on 011-33138901 or write to [email protected].

Best Regards,

Team iPleaders

In this article, Shringar Bhattarai pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the Steps for inducting a new Co-Founder in a private company.

Among various forms of business organizations, a company signifies a body acquiring a unique character of being a separate legal entity. It is clothed with a legal personality to have its existence distinct and separate from its members. A company is an artificial person having perpetual succession and is unaffected by the changes in role of its members. A private company is a limited liability corporation having multiple ownership but their shares are not offered to the public and shall comply with lesser legal requirements than that of a public company. A private company may commence its business immediately after incorporation, it does not require to issue prospectus or hold statutory meetings and hence legal formalities are less onerous for private companies. A business plan highly depends upon how founders wishes to strategize, plan and manage complex, difficult and unforeseeable situations with their expertise. Before understanding the steps, it is appropriate to have known the meanings of relevant terms.

FOUNDER

Founder is the mastermind involved in the creation of a business or the mindset behind the inception of a business, who plays a vital role in laying the foundation and endows a quality, intelligence, asset or funding, independently or in assistance of co-founders. The idea or opinion originates from a founder and he shall further execute the emergence of such concept materially whether or not it is profitable, to be a founder. A founder is generally labeled with eminence for his implication of creativity and innovation, strength of will, insight and sense of fearlessness. He owns every risk and reward for the conception of idea into creating something from nothing. The initial ownership lies with the founder who works to bring in resources to build up an enterprise.

CO-FOUNDER

The idea of inception does not necessarily come from single founder or that founder may not be able to execute the same independently, thus, for the conceptualization of such ideas, a founder may require additional persons who joins the company as co-founders at the earliest stage and assists in financing, recruiting, strategizing, product development and mentoring. Co-founders have much deeper and focused involvement for a longer period of time. They bring in commitment and valuable experience for a highly potential start-up. A co-founder is equally involved in materializing the concepts and plays similar role as that of a founder in transforming the visualized idea into reality. Before incorporation, the idea may generate between two or more people who become co- founders or an additional person with skills to execute the idea may come forward as a co- founder. After incorporation, a co- founder may be introduced with a percentage of share that he would own and  duties of control and management, specified in the co-founder’s agreement, if the existing founders while exploring possibilities senses that an additional person with skilled knowledge and certain professional expertise is required to push the growth and development of the company or if the previous co-founder wishes to quit or retire or circumstances arise such that the responsibility and position remains vacant.

A private company may engage a new co-founder by entering into an agreement with that person, determining the percentage of share for him and his responsibility of control and management, called co-founder’s agreement. But certain essentials need to be reviewed before entering into such agreements with a new co-founder i.e. firstly, if the company is a registered company, articles of association and memorandum of association of that company may provide for power to induct a new co-founder and in absence of which amendment to this effect has to be made, secondly, there might be a recruitment clause in the original co-founder’s agreement, specifying the rights and duties and steps of inducting a new co-founder and thirdly, there might be an established procedure for recruitment of new co-founder as per the necessity.

CO-FOUNDER’S AGREEMENT

A co-founder’s agreement essentially governs the professional relationships between founders who have started a new business or who intends to implement their ideas into a new business. The purpose of agreement is to determine the functions of the company, relationships and obligations between co-founders legally binding through a formally written agreement.  It is extremely important for the co-founders to determine the terms of business and maintain a clarity by way of agreement in respect of investment and resources to operate professionally. The factors that is required to be undertaken are the foreseeable future goal of the business, time devoted by the co-founders, allocation of responsibility among co-founders and a profit sharing ratio among the founders.  The objective of the agreement is to minimize the possibility of disputes in future when the business is functional. It provides protection and safeguard to the core aspect of the business when the agreement requires an open discussion between the partners regarding the functional aspects.

A co-founder’s agreement must have following elements[1]:

Business Definition and Milestones: Defining potential venture of a company with clarity and establishing business terms is essential to prevent the exiting co-founder from engaging into competing business or using the brand name. A specific milestone may be described to determine the future potential in the idea.

Ownership:  The ownership element deals with the equity, percentage or number of shares held by each co-founder. Each co-founder’s contribution and role should be taken into consideration. The division of ownership may be done in the following manner:

• Rule of N: equal distribution among number of members.
• On the basis of efforts and capital contribution: it involves a consideration of the efforts made by an individual in working or through his capital contribution and division of ownership shares is made in its proportion.
• Vesting: granting of shares of company and right to buy back shares
• Departure and dis-ownership: In case of departure of founder, the agreement shall clearly determine the rights of the founder and there shall be limits upon selling away of the shares.

The conflicts may arise upon the distribution of profits in a business thus there must be clarity and definite specification in the agreement regarding the distribution of profits among the members.

Roles and Responsibilities: The co-founder agreement shall clearly determine the roles and responsibility of each member and its extent to avoid future conflicts among the founders. Any significant role to be designated to any individual in future must be decided from the very beginning. The decision making procedures should provide leverage for redefining roles at various stages if felt necessary. The founders though play a significant role at the very beginning by laying a strong foundation, they shall also define roles and responsibilities for role players of future to avoid conflicts and failure of business.

Firing a Founder: It must be addressed in the agreement that at which event and manner a founder must be fired. It is a crucial issue and there might be endless conflicts in future in the agreement does not lay down the circumstances to tackle such issues.

Decision Making: In order to avoid conflicts arising out of complex situation in the process of development of business, a co-founder agreement shall clearly mention how decision are to be made.

Conflict Resolution: An alternative method for settlement of disputes must be clearly mentioned if in case members aren’t able to resolve dispute among themselves. Predetermined conflict resolution procedure helps in proper functioning of the business.

Non-Compete:  This clause of is very essential in a business to ensure that any founder who steps out of the business would not compete with the original business. There shall also be a clause imposing obligation to maintain confidentiality regarding sensitive matters of the business. The existing founder shall continue to be faithful to the company by not attempting to solicit clients or employees of such company to another company.

Compensation: At the beginning of life of the company, it is essential to determine provisions for revenue, profits, compensation and reimbursement of expenses of the founders. These aspects are very sensitive as it involves rewards as well as risk, thus the provisions must be specified with clarity in the agreement.

Loan from Founders: The agreement shall clarify how the loans from founders are to be treated. Unless otherwise, mentioned in the agreement the founder’s loan must be paid back with interest or other benefits.

Induction of New Co-Founders:  It would be appropriate if the agreement provides for a clause mentioning the manner in which a new co-founder may be inducted and the extent of his role in the business.

Other Provisions relating to Removal, Resignation, Dissolution, and Termination, etc.

Although, the most essential step for inducting a new co-founder is formation of co-founder’s agreement, it cannot be said to be effective enough if it does not comprehensively cover over all aspects of the business. This agreement minimizes the legal inconvenience of signing various documents individually and collectively covers all aspects in one single document. The original agreement shall clearly specify in a clause the manner to be adopted when a new co-founder is to be brought into the company along with their rights and duties. A precise and literal agreement is required to be made before inducting a co-founder into the company as it is a sensitive issue and requires cooperation of the existing members with the new member. A private company shall form the agreement in such a manner that protects and safeguards overall interests of the company.

References

[1] https://www.linkedin.com/pulse/20140612075141-18771188-co-founder-s-agreement-basics-that-every-entrepreneur-should-know

In this article. Jahnavi Murthy pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses clauses to look out for in a co-working space agreements.

Co-working space essentially means leasing office space to individuals or groups of people via an agreement or on a subscription basis[1]. In 2005, Brad Newburg introduced this concept by inaugurating the first work communal space in San Francisco.

Usually, different professionals share this workspace, which frequently results in boosting innovation among them as each one is a different profession and sharing the workspace creates easy camaraderie and exchange of ideas. The ease of communicating with other professionals and sharing their ideas or taking advice, provides the added advantage of resolving any issues or business problems in an effective and timely manner. Hence, new entrepreneurs prefer this concept of working in an affordable and lively atmosphere, while building and establishing their businesses.These workspaces have greatly benefitted those individuals who believe in working in a vibrant environment to foster their thoughts whether it contains a professional element or an artistic element.

The concept of sharing workspace was introduced in India in the last few years and has become very popular especially in cities like Delhi, Mumbai and Bengaluru.The demand for a moderate workplace has increased two-fold resulting in many realtors opening such work spaces to meet the demand. This concept is a big success amongst start-up companies in India[2] as promoters take up such work spaces to keep down their overhead costs while building their businesses.

Coworking spaces have become popular in the recent years due to the influx of young professionals looking to explore a multitude of options in various spheres around the world. Coffee shops and cyber rooms had become a popular place for young professionals and entrepreneurs before the rise of coworking spaces. However, in the last couple of years, with the rise in such spaces being used in countries like USA and UK, India has also seen a boom in the rentals of such workspaces. For landlords, this offers an alternate means of earning money as they may share the space with other individuals who are prepared to pay a certain sum of money for a fixed period of time. It serves as a temporary platform to individuals who are new in their line of work and gives them flexibility in terms of rental.

The basis of the shared work space is the ‘Co-working space agreement’, which is an agreement that establishes the willingness of co-workers to work in a common workspace in their professional capacity, and legalises the terms of the work arrangements. Generally, a membership agreement is drafted after the submission of a business plan, following the signing of the coworking service agreement. Sharing a co working space usually lasts for over a year as laid down in the agreements signed by the professionals.

Important Clauses that must be included in a Coworking Service Agreement 

1. Nature of the Agreement

The coworking space must be used for the purpose of work alone and nothing else. No co-worker may share his/her space with any friend/relative unless specified in the service agreement. The agreement lasts for a stipulated period of time and must be kept in mind while leaving the said co working space or while renewing the agreement in the next time period. The terms of the agreement are meant to be kept confidential and must only be discussed between the Co-worker and the Company or firm leasing the workspace. A certain set number of documents must be submitted alongside the signed service agreement for the purpose of proof and collateral in case the Co-worker violates any of the terms mentioned in the agreement.[3]

2. Monthly Fees and Payments

The monthly fees, payments, additional fees and renewal fees must be mentioned in the agreement. The amount paid under each kind of fee including the security deposit must be mentioned. The mode of payment must also be specified along with the penalty fee. The deposit refund in case of termination of the agreement must also be specified.

3. Use of Premises

The use of the workspace must be clearly specified by the Client (the company/individual that leases the space) and must be included in the agreement after deliberation with the Owner of the workspace. The physical attributes of the workspace must be kept in mind while deciding on the number of co-workers and the type of work to be carried out, since it is a shared space and all co-workers’ needs are to be taken into consideration. The agreement must specify the prohibition of altering or changing the workspace in any way and the penalty levied in case of every such violation. The access of the workspace must be clearly mentioned including timings and days of the week. The use of other co-worker’s tools or space must be treated with utmost care and attention. The use of illegal downloads or infringement of copyrights/trademarks must also be mentioned in the agreement. A termination clause detailing the reasons for termination by the Owner in case of violating any clauses of the agreement, is a must.

4. Insurance

Most clients or co-workers take up such workspaces on a short duration basis and hence do not take Insurance cover. However, in a coworking service agreement, the facility owner must clearly specify that in the event of any loss or damage of the client’s property, he/she is not liable to pay any compensation. Hence, typically, the Owner usually advises the client(s) to purchase personal rental insurance to cover their assets within the shared workspace.

5. Policies of the Workspace

Since there are different people from different fields renting the common workspace, the use of assets and physical furniture and fixtures such as tables, chairs, electrical fixtures, kitchen utensils, etc. are to be clearly specified in the agreement. In the event of needing any additional equipment or items, or using any assets beyond reasonable and usual usage, the client must inform the Owner in advance, in order to avoid any penalties or charges, as well as to avoid disturbing other co-workers.

6. Universal Feature

A coworking service agreement must be universal in nature as it caters to different people. Typically, the space is shared by people who work in startups, established companies or service professionals who are in consulting or advisory fields. Another popular set include artists and performing professionals who need such a space to explore the depths of their profession and carry out their work in a professional environment. Keeping all these elements in mind, the agreement must be of a wide nature to allow for such diverse individuals to enter into such agreements with ease. The use of legal words and phrases may be minimised to make them easy to understand. Since the co working space is shared in casual camaraderie, the tone of the agreement can also stay casual, while ensuring the legal protection of all involved parties.

iKeva

iKeva is a well-known coworking space rental online firm that deals with leasing out such spaces for different individuals to use over a period of time. It has formulated its own service agreement that consists of the elements mentioned above. It has its office rentals primarily in cities like Bangalore, Hyderabad and Chennai and targets individuals that are working in different fields[4].

Top Space Rentals in India

In India, many coworking space rentals have opened up following the increase of Startups and individual entrepreneurs that look for such spaces. [5]

1. AltF CoWorking

It is a well-known space rental founded in 2015 in Noida that caters to the needs of many different professionals who work in different fields. Customisation of a workspace can be done according to the needs of client. A common Team Room is also built for professionals who need to engage in activities like brainstorming.

2. 91SpringBoard

It was founded in 2012 originally in Noida but has its spaces in the cities of Bengaluru, Chennai and Mumbai. It is currently working with over 300 companies and 1000 co-workers in India.

3. Base Station

It is a web design studio which is also open to freelancers and entrepreneurs to share a common workspace.  It is located in Delhi and has a colourful setting which enables professionals to brainstorm as well as work in a very relaxed manner.

4. Awfis

It offers renting co-working spaces for a duration of over 9 months-12 months. It has an application that is available to iOS users as well as Android users. Apart from renting co-working spaces, it also offers third party meeting rooms for leading five star hotels across India.

5. Bengaluru Alpha Lab

It is more commonly known as BAL space. It offers a vibrant setting for professionals to work as well as keeps them motivated to achieve a certain goal. It is targeted at those individuals who are just starting out in the professional world and also helps Entrepreneurs to build their business.

Conclusion

Co-working spaces have been a success in India over the number of years and have proven to be elementary in the building of profession for Startups and Entrepreneurs. They have been well equipped with the needs of the clients that hire such spaces to work. It has progressed alongside the advancement of technology and now, many co-working space rentals have built online applications and websites that make it easier for individuals to book such a space in a short span of time. Usually, such spaces also get booked for a number of activities that involve professionals who work in different field but come together and interact in a common space.

References

[1]http://economictimes.indiatimes.com/small-biz/startups/why-co-working-spaces-in-india-have-startups-and-entrepreneurs-hooked/articleshow/53040951.cms

[2]http://www.indianweb2.com/2014/06/04/co-working-spaces-boon-startups-india/

[3]https://www.ikeva.com/wp-content/uploads/2015/04/TERMS-AND-CONDITIONS-for-coworking-space.pdf

[4]https://www.ikeva.com/

[5]https://inc42.com/buzz/coworking-spaces/

In this article, Sujit Bhargav Shelar pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the difference between responsibility and rights of a partner and a designated partner in an LLP.

History

Earlier the business was being conducted mainly by forming three business entities mainly,

• A company registered under the Indian companies act.
• A partnership firm registered under the Indian partnership act/ unregistered partnership firm.
• Proprietary business handled by a sole individual.

Out of all the three business entities mentioned above a company was the most preferred and safe choice. The reason being a company enjoys a separate legal entity which is distinct from its members who form it. Generally speaking forming a company to conduct the business is found to be safe and reliable as the liability of the persons running the company is very limited. In case of winding up of a company the liability of the company does not pass on to its director is in their personal capacity. Therefore this aspect of limited liability was considered to be very attractive as the persons running the said company are protected by the corporate veil. However, there are various compliances to be made in case of a registered company with the Registrar of companies and other authorities. Such compliances do tend to be tedious at times.

Partnership business

Though not riddled with lot of compliances and statutory limitations the major drawback of a partnership was the unlimited liability of its partners. In case, after dissolution of partnership firm it is found that the assets of the said firm are not enough to meet the creditors demand then the personal property of the partners is also liable for attachment towards the satisfaction of the creditors. Therefore, partnership business carried a certain risk factor in it.

Limited Liability Partnership

To more effectively conduct business by partnership firms without the risk of unlimited liability and to promote business in a more professional manner like a company the limited liability partnership act 2008 was enacted by the Parliament. The LLP firm is a body corporate and a separate legal entity from its partners which has perpetual succession similar to company. Under the LLP act 2008 any written agreement between the partners of the LLP or between the LLP and its partners which determines the mutual rights and duties of the partners and their rights and duties in relation to that LLP. It is not necessary to enter into an LLP agreement as per LLP Act, 2008. In the absence of LLP agreement, the mutual rights of partners & in relation to LLP will be determined as per schedule I of the LLP Act, 2008. Unlike the partnership under partnership act which may or may not be registered, every LLP has to be registered with the registrar.

Definitions

Section 4 of the Indian Partnership Act defines partnership as the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individually “partners” and collectively of “firm”.

Under the LLP Act 2008 as per section 2 (n)

“Limited liability partnership” means a partnership formed and registered under this Act;

Sec 2(q) “partner”, in relation to a limited liability partnership, means any person who becomes a partner in the limited liability partnership in accordance with the limited liability partnership agreement;

Sec 2(j) “designated partner” means any partner designated as such pursuant to section 7;

Responsibilities and Rights of a Partner under the Partnership Act

1. The very definition of partnership suggests that it is the relation between persons who have agreed to share the profits of a business. Therefore the first and foremost responsibility of a partner is to conduct the business of the firm to the greatest advantage, to be just and faithful to each other and to render true accounts and full information of all things affecting the firm to any partner.
2. Is since it is the foremost responsibility of a partner’s to conduct the business to the greatest advantage of the form it is just and right that there is also a responsibility on the partner of indemnifying the firm for any losses caused to it by the fraud in the conduct of the business.
3. Usually, any contract in restraint of a trade is void under section 27 of the Indian contract act, however, is how exception is made so far as the Indian partnership act is concerned. Under section 11(2) of partner can be restrained from carrying on any other business than that of the form while he is a partner in the said firm.
4. Usually, the rights of a partner are predefined by the contract between the partners however the general rights of a partner are as under.
5. every partner has a right to take part in the conduct of the business.
6. Every partner is bound to attend elegantly to his duties in the conduct of the business.
7. Any difference arising as to ordinary matters connected with the business may be decided by a majority of the partners and every partner shall have the right to express his opinion before the matter is decided, but no change may be made in the nature of the business without the consent of all the partners.
8. Every partner has a right to have access to and to inspect and copy any of the books of the firm.

Responsibilities and Rights of a Designated Partner under LLP Act

1. The definition of a designated partner under section 2 of the LLP Act merely states that it is a partner as designated under section 7 of the act. Therefore a reference to section 7 has to be made to understand the exact nature of a designated partner. Section 7 of the act states that every LLP shall have a minimum of two designated partners out of which one shall be a resident of India. A partner can also become a designated partner by virtue of the incorporation document. Further, the consent of such partner to act or become the designated partner is essential and such consent has to be filed with the registrar. Similar to the companies act wherein every director has to obtain a direct identification number (DIN) from the ROC, every designated partner of LLP has to obtain designated partner identification number (DPIN) from the central government. A reading of section 3 of the act clearly suggests that since LLP is a body corporate formed and incorporated under the act it is a separate legal entity than that of its partners. Since it is a body corporate formed and incorporated by an agreement, the mutual rights and duties of the partners are governed by the said agreement.
2. Every partner of a LLP is an agent of the LLP and not of the other partners. Therefore, his acts bind the LLP provided that he has acted within his authority.
3. Every designated partner of the LLP is liable for punishment with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees for non-compliance of section 34 of the LLP act. Therefore, it is but obvious that it is the responsibility of a designated partner to maintain proper books of accounts of the LLP as prescribed under section 34 of the said act.
4. Similarly, under section 35 of the LLP act every designated partner must ensure that the LLP shall file an annual return duly authenticated with the Registrar within sixty days of closure of its financial year in such form and manner and accompanied by such fee as may be prescribed.
5. Every designated partner shall also ensure that he does not make statement-
   • Which is false in any material particular, knowing it to be false; or
   • Which omits any material fact knowing it to be material;

Such act or omission by the partner is punishable under section 37 of the act for a term which may extend to 2 years and also a fine which may extend to Rs. 5 lakhs but shall not be less than Rs. 1 lakh.

6. It is also the responsibility of a designated partner to answer any question or make any declaration or supply any details or particulars in writing to within a reasonable period to the registrar if so requisitioned by him under section 38 of the said act.
7. Every partner under the LLP has a right to apply for investigation of the said firm if he has good reasons to believe that an investigation is required by the inspector under section 44 of the act.
8. Under section 47 of the act it shall be the duty of the designated partner and partners of the limited liability partnership-
   • To preserve and to produce before an inspector or any person authorised by him in this behalf with the previous approval of the Central Government, all books and papers of, or relating to, the limited liability partnership or, as the case may be, the other entity, which are in their custody or power; and
   • Otherwise to give to the inspector all assistance in connection with the investigation which they are reasonably able to give.

The structure of LLP, broadly speaking, is based on the company module to bring in more accountability and structured working of a partnership on the lines of a body corporate like a company. The limited liability similar to a company makes an LLP more beneficial to the partners and conducive for business.