In this article, Nitin Sharma who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses How do venture capital funds evaluate investment proposals?

This article will provide a simplified version of the investment evaluation process from a VC’s perspective. This article has broken the VC’s investment evaluation process into 4-steps. Entrepreneurs can use this to understand as to which step they are at vis-à-vis their fund-raising endeavours and how much work is left before they get a chance to see the money from the venture capital fund.

Step 1: Meeting with the promoters

If the venture capital investor likes the first teaser about the company, they set up a meeting with the promoters of the company. During this meeting, VC’s objective is to meet the core team, understand the team’s strengths and weaknesses, get a good understanding of business model, market potential, competitive landscape and exit options etc. This meeting is generally followed by a list of questions from the VCs and promoters answer to these questions with a lot of information.

Step 2: Validating the promoters “story”

After step 1, VCs do their own research to validate the promoters’ story. They mostly do it in-house but in rare cases, they hire an outside agency to verify the promoters’ claims about the business model, business potential, market size etc. They also talk to a few of company’s vendors, partners and/or customers to get some feedback on company’s background, market reputation of the promoters, product /service quality etc.

Step 3: Internal brainstorming and presentation to the investment committee

If the VC is satisfied with his findings in step 2, then the deal team inside the venture capital fund prepares the IM (Investment Memorandum) that captures investment rationale, valuation, exit scenarios, and key risk factors. VC presents this IM to his investment committee (IC).

Investment Committee is VCs internal group, which comprises of their limited and general partners and they provide their feedback on the investment opportunity. IC raises a number of issues about the investment and if after their discussion, venture capital fund is still positive about the investment then they call the promoters of the company for a presentation to some/all members of the investment committee.

The meeting with the partners is an important step in fund-raising process. The promoters should try to reach this step as quickly as possible by pushing their contact person in the VC fund. If the VC is being reluctant in setting up the meeting even after 10 weeks of first meeting, then promoters should realize that VC is not very interested in their proposal and it is most likely to result in a negative response.

Step 4: Detailed validation (due diligence) and shareholders’ agreement

If everything goes well during the IC meeting, VCs generally issue a term sheet mentioning their key terms and conditions of investment. Once there is an agreement on all the terms and conditions mentioned in the term sheet, VCs perform a detailed due diligence on the company. Since there is hardly any financial information to verify in case of a start-up company, the due-diligence process for start-ups is restricted to VCs trying to get into details of fund requirements, detailed usage of funds, month-by-month milestones etc.

Generally, VCs end up adding a lot of additional terms and conditions after the due diligence process under the section “conditions precedent” in the shareholders’ agreement. Once the promoters take care of all the issues identified during the due diligence process, VCs and promoters sign the shareholders’ agreement and money is transferred to the company’s account.

The venture capital investment activity is a sequential process involving five steps; Deal origination; Screening; Evaluation or due diligence; Deal structuring, and Post-investment activities and exit

Deal origination

A continuous flow of deals is essential for the venture capital business. Deals may originate in various ways. Referral system is an important source of deals. Deals may be referred to the VCs through their parent organizations, trade partners, industry associations, friends etc. The venture capital industry in India has become quite proactive in its approach to generating the deal flow by encouraging individuals to come up with their business plans. Consultancy firms like Mckinsey and Arthur Anderson have come up with business plan competitions on an all India basis through the popular press as well as direct interaction with premier educational and research institutions to source new and innovative ideas. The short listed plans are provided with necessary expertise through people who have experience in the industry.

Screening

VCFs carry out initial screening of all projects on the basis of some broad criteria. For example the screening process may limit projects to areas in which the venture capitalist is familiar in terms of technology, or product, or market scope. The size of investment, geographical location and stage of financing could also be used as the broad screening criteria.

Evaluation or due diligence

Once a proposal has passed through initial screening, it is subjected to a detailed evaluation or due diligence process. Most ventures are new and the entrepreneurs may lack operating experience. Hence a sophisticated, formal evaluation is neither possible nor desirable. The VCs thus rely on a subjective but comprehensive, evaluation. VCFs evaluate the quality of the entrepreneur before appraising the characteristics of the product, market or technology. Most venture capitalists ask for a business plan to make an assessment of the possible risk and expected return on the venture.

Deal structuring

Once the venture has been evaluated as viable, the venture capitalist and the investment company negotiate the terms of the deal, i.e., the amount, form and price of the investment. This process is termed as deal structuring. The agreement also includes the protective covenants and earn-out arrangements. Covenants include the venture capitalists right to control the investee company and to change its management if needed, buy back arrangements, acquisition, making initial public offerings (IPOs) etc., Earn out arrangements specify the entrepreneur’s equity share and the objectives to be achieved.

Venture capitalists generally negotiate deals to ensure protection of their interests. They would like a deal to provide for:

• A return commensurate with the risk
• Influence over the firm through board membership
• Minimizing taxes
• Assuring investment liquidity
• The right to replace management in case of consistent poor managerial performance.

The investee companies would like the deal to be structured in such a way that their interests are protected. They would like to earn reasonable return, minimize taxes, have enough liquidity to operate their business and remain in commanding position of their business.

Post-investment activities and exit

Once the deal has been structured and agreement finalized, the venture capitalist generally assumes the role of a partner and collaborator. He also gets involved in shaping of the direction of the venture. This may be done via a formal representation of the board of directors, or informal influence in improving the quality of marketing, finance and other managerial functions. The degree of the venture capitalists involvement depends on his policy. It may not, however, be desirable for a venture capitalist to get involved in the day-to-day operation of the venture. If a financial or managerial crisis occurs, the venture capitalist may intervene, and even install a new management team.

In this article, Neha Susan Rajan who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses Six key issues that you should look for in a Non-Disclosure Agreement. 

What is Non-Disclosure Agreement?

Non-disclosure agreement, often referred as confidentiality agreement, entered between disclosing party and recipient during course of the business, enables the owner of confidential information to share information to recipient and obligates latter not to disclose the said information. There are primarily two parties to the contract. The one who discloses the information is called disclosing party. The party who receives the information is called confidential information recipient party.

Non-Disclosure Agreements (“NDA”) are of two types: a mutual agreement or a one-sided agreement. Mutual agreement is entered when both the parties to contract have confidential information to share while in one-sided agreement only one of the parties makes the disclosure.[1]

NDA can be entered in many circumstances. These include presenting an invention or new technology or intellectual property (specifically trade secret) to a potential partner, investor or licensee, sharing financial, marketing, and other information with a prospective buyer of your business, allowing access to some sensitive information by virtue of receiving services from a company or individual and mandating employee to keep confidential information (propriety interest and client information) of a business enterprise as a secret during course of job.[2]

Dual purposes

NDA executed between two parties serves two purposes. First, it secures the business interest of the Company. This helps the company to be in a very stable position. Second, any breach of NDA can be remedied by exemplary liquidated damages or injunctive order, thereby placing the disclosing party in a better position.

Essentials of a Non-Disclosure Agreement

Breach of contract of confidentiality largely results from the poor drafting of Non -disclosure agreements. Every NDA generally entails six essentials. They are:

1. Obligations within an NDA
2. Scope of Confidential information
3. Remedies on breach of agreement
4. Marking certain documents as confidential
5. Provision for exceptions
6. Mechanism for return of the document

Obligations within a Non-Disclosure Agreement

Non -Disclosure Agreement is one of the vital documents generally entered in many contracts to protect the interests of the disclosing party. It should give the names of disclosing party and confidential information recipient party. It gives an elaborate account of the confidential information to be handled by the recipient and entails the rights and obligations of the confidential information recipient.  Any default from the part of the recipient will result in breach of contract.

Confidential information recipient is duty bound to not to disclose the scope, nature, object and future benefits of the confidential information to any party, which includes any person or entity or third party, other than the contracting parties. The recipient can be held liable for breach of confidentiality agreement by the employees or agent of the recipient who have access to the information.[3]

It is to note that while drafting a confidentiality agreement for any party, time frame of the agreement must be mentioned; it need not be necessary that there should be certainty to the date of expiration of agreement at the time of entering into the agreement.  Generally, NDA exclude subject matter of third party in the contract.  In order to hold the third party accountable, NDA must discuss their obligations as well as liabilities. The NDA can be perfected by including clauses like Non-Solicitation clause[4] (to prevent recipient from soliciting with disclosing party’s employees or clients), jurisdiction clause (to decide the place of suit in case of breach), injunction clause (right of injunction for disclosing party to prevent the recipient from sharing information to others), warranty clause (parties do not make warranty to the authenticity of the information shared) and no obligation clause (to terminate from contract at any point).

Scope of Confidential Information

The most important part of drafting an NDA is to determine the scope of confidential information. It should be described in detail with precision without leaving any confusion in minds of the recipient or leave a room for negotiation in future. Every NDA includes a list of confidential information and certain exclusions from the purview of confidentiality agreement.

It is the duty of the disclosing party to ensure that the confidential information recipient is aware of the fact that disclosure of the information does not entitle them any right, title or license on the confidential information but they have access to the information for the purpose of advancement of the contract. Hence the disclosing party must keep in mind that while drafting NDA, the scope of the confidential information must be kept wide enough to ensure more protection to current or future trade secrets by enabling the disclosing party to sue for any kind of breach of contract.

Mark Certain Documents as Confidential

While determining the scope of confidential information, the disclosing party must ensure to mark certain documents as confidential in order to add clarity to the protection of confidentiality.  This would make the confidential information user to be aware of the intended use of the shared, confidential information.

Documents such as business plan, documents on share value for the purpose of trading and documents on Intellectual Property owned by company such as patents, software patents, designs of modern equipments, automobiles, weapons, and trade secret are marked confidential normally.[5]

Remedies for Breach of Disclosure

One of biggest advantages of entering into Non-Disclosure Agreement is that it remedies the aggrieved party (i.e. the disclosing party) by providing appropriate remedies. These remedies include equitable remedies and liquidated damages. Equitable remedies include injunction wherein the disclosing party can prevent further breach of damage. Further, the Court can impose penalty on recipient that will be commensurate with the damage caused to the disclosing party from the breach.[6]

The disclosing party has the right to terminate the contract on breach of the agreement. It should contain a clause of arbitration in case of breach to prevent lengthy litigation, and jurisdiction clause to determine the place of suit in case of any breach of contract.[7]

Provision of Standardised Exceptions

When the confidentiality agreement is drafted, the drafters must ensure to include certain standardised exceptions to the agreement. The common exceptions include information that is

• Already known to the recipient at the date of disclosure
• Already publicly known (as long as the recipient didn’t wrongfully release it to the public)
• Independently developed by the recipient without reference to or use of the confidential information of the disclosing party
• Disclosed to the recipient by some other party who has no duty of  confidentiality to the disclosing party
• Disclosed due to legal process (i.e, through court order)

When the confidential information recipient is compelled to disclose information by a court order, the party must inform the disclosing party about it.

Mechanism for Return of Document

Every Non-Disclosure Agreement must contain clause for return of the document. It should entail a detailed mechanism for return of the documents.  Return of documents marks the termination of the confidentiality agreement. When the contract expires, confidential information recipient must transfer all documents of confidential information or extinguish it. The agreement should determine when and how this should occur. The recipient and disclosing party must delete their hard drives, drop boxes, thumb drives, email storage, etc.  If it is impossible to delete the information, the agreement must stipulate a clause restraining the recipient party from using this information in all future transactions.

Conclusion

Perhaps one of the biggest uses for nondisclosure agreements is in the protection of trade secrets. Unlike patents, which must be part of the public domain, trade secrets are, by definition, secret. In addition, trade secrets are only afforded protection if the owner takes measures to keep the secret and the secret gives the owner an advantage in the marketplace. Because of the tenuous nature of trade secrets, nondisclosure agreements are often used to protect them from becoming part of the public domain.

Perhaps the real purpose of nondisclosure agreements is to create confidential relationships between the party that holds the trade secret and the party to whom the trade secret is disclosed. Parties that contract into such relationships have a legal duty to keep the confidential information in confidence.

Non-Disclosure agreements constitute an exception to Section 27 of the Indian Contract Act, 1872 which denotes agreement in restraint of trade as void. Any kind of restriction during the course of employment is considered valid, however it is those which are applicable after the employment that has become the bone of contention over the years.  But luckily the courts have upheld the validity of such Non-Disclosure agreements post-employment especially with regard to trade secrets through various cases in recent years.[8]

Although legal concepts like Garden Leave Clauses exist to control the damage that could arise because of the breach of NDA by the recipient party or any other pitfalls from the side of the Disclosing party, the only solid and sustainable solution to avoid vagueness and confusion in such agreements is to draft it with meticulous precision and a prophetic foresight.

References

[1] ‘Non-Disclosure agreements, Are they enforceable in India?’, (Indian National Bar Association) INBA View Point, http://inba.tv/non-disclosure-agreements-enforceable-india/

[2] American Express Bank Limited v. Ms. Priya Puri 2006 (110) FLR 1061

[3] Rohit Shrivastava, Non-Disclosure Agreement,http://businesslawinindia.blogspot.in/2009/09/non-disclosure-agreement-nda.html

[4] Desiccant Rotors International Pvt Ltd v Bappaditya Sarkar & Anr., Delhi HC, CS (OS) No. 337/2008 (decided on July 14, 2009)

[5] Mr. Durani Murugan P.v.k, Negative Covenants And Agreement In Restraint Of Trade-an Insight Into Indian Laws, http://www.manupatrafast.com/articles/PopOpenArticle.aspx?ID=264fdfb0-bb02-416b-9eed-4ca76ca1ee46&txtsearch=Subject:%20Contract

[6]https://www.extension.iastate.edu/agdm/wholefarm/html/c5-80.html Overview of Confidentiality Agreements

[7] Employment Contracts in India : Enforceability of Restrictive Covenants, Nishith Desai Associates August 2014. http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/Employment_Contracts_in_India.pdf

[8] Gujarat Bottling Company Limited (GBC) V. Coca Cola Company AIR 1995 SC 2372 ;

   Diljeet Titus, Advocate v. Mr. Alfred A. Adebare and Ors. (2006) DLT 330

In this article, Mayank Garg who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses Five long-term sources of fund for a company.

Introduction

A company at its initial stage in its Memorandum of Association mentions the amount of authorised capital that is the maximum amount of capital which a company can raise. Once this limit is reached company can alter the amount as per the growth and requirement this is because growing business and increasing sales often requires purchase of assets such as new machinery and vehicles. As company requires a large amount of capital in order to furnish, it thus needs

As company requires a large amount of capital in order to furnish, it thus needs constant source of funding to its entity in order to bring out its efficient and effective production. Company thus uses the following ways in order to increase the fund of the company. It does it either through issuing equity and preference share or through loans and financial institutions or debentures or through retained earnings. These are thus 5 long term sources of fund for a company.

These are thus 5 long term sources of fund for a company. Company, when finds necessary, uses either of them in accordance to the need of capital. Herein below are the sources along with its advantages and disadvantages respectively.

Sources of fund

Sources of fund are classified into three distinct categories on the basis of time-period i.e. short term fund, medium term fund and a long term fund. Herein we are going to discuss the long term source of fund meaning capital requirement for a period of more than 5 yrs to 10, 15, 20 or more depending upon the factors. Expenditures in fixed assets like plant machinery, land, building etc are funded by long term fund. Therefore, long term source of funding can b in the form of Equity shares, Preference share, debentures, loans and financial institution and retained earnings.

5 long term sources of fund

Equity shares

Shares are share in a share capital of a company. It is basically smallest indivisible unit which is issued by the company in order to raise capital. Further equity share capital means all share capital excluding preference share ca voting rights capital. The shareholders of equity shares have voting rights proportionate to the paid up equity capital. A public limited company may raise funds from public or promoters as equity share capital by issuing ordinary equity shares. Ordinary shareholders are those who receive dividend and return of capital after the payment to preference shareholders.

Features

• It is one of the most important long-term sources of fund.
• There are no fixed charges attached to ordinary equity shares. If the there is sufficient profit earned by the company then only the equity shareholders get dividend but there is no legal obligation to pay dividends.
• Equity shares have no maturity date and thus there is no obligation to redeem.
• The firm with the longer equity base will have greater ability to raise debt finance on favourable terms. Thus issue of equity share increases the credit worthiness of the firm.
• The company can further issue share capital by making right issue and bonus issue.
• In India, returns from the sale of ordinary shares in the form of capital gains are subject to capital gains tax rather than corporate tax.
• Once the company earns profit it pays more dividends, thus bringing more investors and leads to appreciate the market value of equity shares of the company.

Preference shares

Preference share means share which enjoys the preferences in the following two rights over equity i.e. right to dividend at a predetermined rate before payment of dividend to equity shareholders and right to receive payment of the capital in the event of winding up before repayment of equity shareholders.

Thus long term funds are raised through preference shares by public share. It does not require any security nor is ownership of a firm affected. It has some characteristics of debt capital and some of equity capital. It resembles equity as preference dividend, like equity dividend is not tax deductible payment. Preferential shares can be cumulative or non-cumulative, participating or non- participating and redeemable or irredeemable.

Features

• Company can issue long term fund by issuing preference shares.
• If the profit is earned, dividend is paid to the preference shareholders but if no profit is earned then the company is under no legal binding to pay preference dividend.
• There is maximum advantage as it has fixed charges.
• Preference share capital is generally regarded as part of net worth. Hence it increases the creditworthiness of the firm.
• Assets are not secured in favour of preference shareholders. The mortgageable assets of the company are freely available.

Debentures

Debenture is a document given by a company under its common seal as an evident of debt to the holder. It includes debenture stock, bonds and any other security of the company whether charge on assets of the company or not. Company can issue redeemable or irredeemable debentures. Redeemable providing specific date of redemption whereas irredeemable providing no undertaking to repay. It is an instrument for raising long-term debt. Debenture holders are the creditors of the company. They have no voting rights in the company. Debenture may be issued by mortgaging any asset or without mortgaging the asset, i.e., debentures may be secured or unsecured. Therefore, there are different types of debentures as follows,

Unsecured debentures: Such debentures are issued without creating charge on any assets of a company. Therefore, the holders of these debentures do not have any security as to repayment of principal or interest thereon.

Secured debentures: Such debentures are secured by the mortgage of the whole or part of the assets of the company.

Redeemable debentures: A debenture holder receives repayment of amount after the expiry of a certain period.

Perpetual debentures: No specific time is fixed for repayment of loan, thus will be made on the happening of an event. It the above event does not happen then the debenture will continue for the indefinite period.

Features

• Cost of debenture is much lower than the cost of equity or preference share since interest on debenture is a tax-deductible expense.
• Also interest on debentures is charge against profit. It is an admissible expense for the purpose of taxation so tax liability on company’s profit is reduced which results in debenture as a source of finance.
• Investors prefer debenture investment than equity or preference investment as the former provides a regular flow of permanent income. Thus bringing more number of investors to the company resulting as a source of finance.
• Investors prefer debenture investment than equity or preference investment as the debenture provides a regular flow of permanent income.

Loans and Financial Institutions

In India, long term financial assistance is provided to public and private firms through commercial financial institution. Generally, firms obtain long-term debt by raising term loans. Term loans refer to as term finance; represent a source of debt finance which is repayable in less than 10 years. Giving long term is not an easy task. Before giving a term loan to a company the financial institutions must be satisfied regarding the technical, economic, commercial, financial and managerial viability of project for which the loan is needed. Term loans are secured borrowings and a significant source of finance for investment in the form of fixed assets and also in the form of working capital needed for new project.

The following financial institutions provide long-term capital in India

1. All Nationalized Commercial Banks.
2. Development Banks which include.

• Industrial Development Bank of India
• Small Industries Development Bank of India
• Industrial Finance Corporation of India
• Industrial Credit and Investment Corporation of India
• Industrial Reconstruction Bank of India.

3. Government Financial Institutions which include.

• State Finance Corporation
• National Small Industries Corporation
• State Industrial Corporation
• State Small Industries Development Corporation.

4. Other investment institutes which include.

• Life Insurance Corporation of India
• General Insurance Corporation of India
• Unit Trust of India.

Retained earnings

Retained earnings is basically a part of undistributed profit which a company keeps as free reserves and thus is utilized for further expansion and diversification programs. Also known as Ploughing back of profits or retained earnings. It increases net worth of the business because it belongs to equity share holders.

Although it is essentially a means of long-term financing for expansion and development of a firm, and its availability depends upon a number of factors such as the rate of taxation, the dividend policy of the firm, Government policy on payment of dividends by the corporate sector, extent of profit earned and upon the firm’s appropriation policy etc.

Features

• Cheapest method of raising funds.
• Provides sufficient capital for expansion and development.
• Entity does not depend upon lenders or outsiders if retained earnings are readily available.
• It increases reputation of the business, hence promoting investors to influx capital.

Conclusion

Therefore, it can be concluded by an old saying that “you have to spend money to make money” meaning if company has to raise funds at some point to develop products and expand into new markets, it has to find some long term source. The company may sell its products more than its cost to produce which in turn provide fund to a company but such source is not sufficient to provide capital to a company, it has to look for an alternative. The above stated sources are some of those sources which provide long-term fund to a company along with venture funding, asset securitization, international financing etc.

In this article, Mayank Garg who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses How to find investors for a small business.

Introduction

There are various types of Industries in the economy, i.e. manufacturing or service industries etc. Each of them requires finance accordingly and the decision of financing the business varies from situation to situation. Small enterprises are defined in various legislations in India and each legislation has its specific objective to clear and give the meaning of small business. According to MSMED Act, 2006, Small Enterprises, where the investment in plant and machinery is more than twenty-five rupees but does not exceed five crores.[1]

Finding Investors is a major task for an entrepreneur for his business plan as not everyone is interested in investing in small business. Investors always require a blueprint for securing his investment that communicates ideas and information. In India, venture capital financing takes place in very rare situations. Only a very few high-growth plans with high-power management teams are venture opportunities.  By the regulations under the RBI, banks are not allowed or supposed to invest depositor’s money in new businesses. Furthermore, a business plan don’t sell investors but investor must be convinced on security and profitability point of view that their investment is worth something.

It must be planned that what is the financing ratios of the business and proper SWOT analysis must be done from the side of entrepreneur and the investor both. Investing at wrong place will be futile.

Methods of getting investment

Venture Capital

As it has already been established that venture capitalists are not willing to invest in small businesses, the business of Venture Capital must not be misunderstood. Many start-up companies or entrepreneurs feel bitter about venture capital companies for failing to invest in new ventures or risky ventures. The businesses of venture capitalist are to charge investment of general public’s money or some other’s money. It shouldn’t be thought of as a source of funding for new business small business but for exceptional business plans.

There must be extreme solid business plan to get investment of a venture capitalist. To gain the interest of venture capitalist it is important to assure them regarding their investment to be increased as soon as possible and management of the company.

On the side of Venture Capitalist, he must take care of the situation as a whole while investing in any business.

If any entrepreneur is keen to get investment in venture capital, he must assure possible venture capital opportunities. People in these businesses probably know the market situation in a systematic manner.

Starting from this, an entrepreneur must search the internet for venture capitalists. Examples of searching the venture capitalists are  given below:

• The Western Association of Venture Capitalists publishes an annual directory. This organization includes most of the California venture capitalists based in Menlo Park, CA, which is the headquarters of an amazing percentage of the nation’s venture capital companies.
• Pratt’s Guide to Venture Capital Sources is an annual directory available online or in print format.
• Angel Investors and Others

Small businesses only resort to get finance is not venture capitalists but other investors as well. If any business doesn’t get investment from venture capital; this does not means that his business plan is a failure. He can invest from other sources as well. Angel Investment are other sources for small business to get investment.

Angel Investment, these are typically sophisticated investors and are considered highly knowledgeable regarding the industry as a whole. These are individual Investors which are keen to invest in the market and especially small businesses.

In 2013, SEBI instituted a mechanism to regulate angel investors. The policy reason behind this is since small business investment is extremely risky,  it is in general interest made only by the investors who have high knowledge regarding the industry and aware of the consequences of their investment.

If the investment is made by an individual, it will be governed by SEBI (Investment Advisers) Regulations, 2013and specifically been made on the basis of investment advice. On the other hand, if the investment is made by the pooled investment, i.e. people come together and join their money and a pool of investments are created then the  SEBI (Alternative Investment Funds) Regulations, 2012 will be applicable.

Many Angel Investor networks are merely a group of angel investors coming together so that they can have access to small business and investment opportunities.

Commercial Lenders

Banks are less interested in start-up businesses and are also not supposed to grant loan to them but they are very much interested in investment in small businesses. By the provisions laid down under federal banking laws, these commercial lenders are not allowed to invest in businesses (small and start-ups) as it will be against public good, equity and good conscience. Government by virtue of RBI Act prevents these investments by banks because society, in general, does not want banks taking savings from depositors and investing in risky business ventures, as the money is not of

Government by virtue of RBI Act prevents these investments by banks because society, in general, does not want banks taking savings from depositors and investing in risky business ventures, as the money is not of bank, it is public. There is no person in the country who want their bank to make such risky investments and it goes completely against public interest.

Apart from this, federal regulation provisions want banks to keep public money safe, in very conservative loans with proper and valid securities. Why then it is said that bank investments are more likely source of financing companies? All this is so because small business owners borrow money for their business for meeting their day to day expenses and fixed investment from banks. After in coming into existence, company generates enough capital to be kept as security with the bank that the investment from banker’s side is safe. There are various ratios determined by Finance department and Accounting Standards so as to decide whether the investment in particular business must be made or not.

Initially, the personal security of the entrepreneur is the medium to get security for their loans and after that only loan is approved. Hence, personal equity could be termed as the greatest source of small business financing.

Small Business Administration

These are appropriate for investment in small as well as start-up businesses. SBA loans are often done through local banks. There is a requirement of at least one-third capital be invested by the business owner or entrepreneur for start-up businesses and rest of the amount could be guaranteed by personal collaterals. For small businesses, if they have enough security that they could put as collateral to the bank then there is no controversy as they can keep those with the bank and get their loan sanctioned.

Banks need to check the type of business activity and the Accounting Standards so s to decide the loan amount to the small business owners. Proper stock and a green slip is issued to the small businesses as the proof of the stable financial position of their businesses.

Apart from this, bank can also interfere in the administration of the business because they are the money lenders o creditors of the company and in the loan agreement only, it must b clearly mentioned the rights of the creditor and liabilities of the company. So as to secure their investment, bank can also make a time to time survey on the business governance. If any complaint is filed by any person in general interest regarding the investment by the banks, the bank may also look into the situation and grant a green chit that could be served as a valid proof of stable financial position of the business in courts

Other Lenders

Various other lenders such as account receivable specialists, family members, friends etc. could also finance in the small businesses which may or may not be against account receivables.

“The most common accounts receivable financing is used to support cash flow when working capital is hung up in accounts receivable. For example, if your business sells to distributors that take 60 days to pay, and the outstanding invoices waiting for payment (but not late) come to $100,000, your company can probably borrow more than $50,000. Interest rates and fees may be relatively high, but this is still often a good source of small business financing. In most cases, the lender doesn’t take the risk of payment—if your customer doesn’t pay you, you have to pay the money back anyhow. These lenders will often review your debtors, and choose to finance some or all of the invoices outstanding.” [2]

The situation of business need to be completely examined and the risk point along with return on investment also must be taken care of. It would be better not to invest in any business if he risk point is high. There is a say “More risk- more profit” but risk must be calculated and money could not betted as anyone cannot afford to lose. The reason why the U.S. government securities laws discourage getting business investments from people who aren’t wealthy, sophisticated investors. The situation and economy by them cannot be fully analyzed and risk could not be calculated by them properly. If any parents, siblings, good friends or any other relative get ready to invest in your business, they have paid you an enormous compliment. Although you don’t want to rule out starting your company with investments from friends and family, don’t ignore some of the disadvantages. Go into this relationship with your eyes wide open.

Analysis

Private placements, angels, family and friends must not be taken as a good source of investment just because it is easier to get money from them but its implication is that they can provide money only up to a limited extent and it would be difficult for the business to invest and also limits the scope of growth. India, as a developing economy seeks to grow at a pace and for this schemes like Make in India and other schemes launched on 31^st December, 2016 are launched just to support and encourage small businesses to develop in the country.

Some investors are also the good source of investment for small businesses and some are not. Entrepreneur must keep their eyes open while making investment in any businesses. It is immaterial that the investment is made by any family member or friends, business must be kept aside to personal relations. There is no family member in business deals. Legal compliance like due diligence, proper contract drafting and terms and conditions must be drafted in a proper manner so as avoid conflicts with nay of the investor. There is no point investing any one’s money without compliance of provisions or without first doing the legal work.

“Never spend money that has been promised but not delivered. Often companies get investment commitments and contract for expenses, and then the investment falls through. Avoid turning to friends and family for investment. The worst possible time to not have the support of friends and family is when your business is in trouble. You risk losing friends, family, and your business at the same time.”

Conclusion

Starting a business is a great opportunity and there must be various new start-ups that the country could grow and GDP rate of the country increases. The prospect of offering a new product or service to the world, designing one’s own future, and creating a legacy are why many people step into the world of business. Yet, there are many mundane facets that must be addressed. One of these is obtaining the requisite funding to begin the business or to facilitate growth.[3]

Reference

[1] Section 7(1)(a)(ii).

[2] Business Articles, https://www.business.com/articles/7-ways-to-finance-your-first-small-business.

[3] Getty, Staff Inc., http://www.inc.com/guides/2010/07/how-to-finance-your-business.html, 30/03/2017.

In this article, Jyoti Nath who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses Ten things you should know about external commercial borrowing.

Introduction

From the year 1950 to early 1980s, access to international capital market was limited. In course of time, sources of finance were found inadequate and were supplemented with commercial borrowing through international capital markets. In mid 1980s the policy framework encouraged financial institutions and public sector undertakings to access the international market.

With the introduction of economic reforms since the balance of payment crisis, external assistance ceased to be an important element of capital inflows and private capital flows gained prominence. ECB rose significantly in this period, India pursued a regulatory approach of encouraging non-debt creating flows and placing restrictions on debt creating flows. Earlier Ministry of Finance used to decide the ECB policy however, in due course of time the responsibility of review and revision and implementation of ECB framework was transferred to RBI, under the consultation of Government of India.

Ten things to know about External Commercial Borrowing

1. Cheaper Funds – Firms if borrow from external sources globally the spread of rate of interest will be attractive and be lower than what is domestically available in India. The firms will get a wider scope of to borrow capital with an attractive rate of interest.
2. Global Playground – The scope of global financial market with attractive financial borrowing terms will be beneficial to the Start-ups or the new firms.
3. Controls – External Commercial Borrowing is a form of loan and hence the stake in the Company remains with the borrower and hence the Start-up and firms have major control over the stake as it cannot be converted to equity or given any voting rights.
4. Access to international market gives a better exposure to opportunities globally.
5. Economic development-Development of infrastructure and overall development will lead due to such financial inflow in the economy.
6. Improve profitability – Due to lower cost funds profitability and margin can be

To make Start-ups attractive under “Ease of Doing Business” under the Make in India policy so that Capital is easily available and at an affordable rate of interest External Commercial Borrowings (ECBs) is one such improvement towards financial reforms to enable the Start-up firm’s ability to obtain finance globally.

In 2015, Reserve Bank of India reviewed the decade old ECB framework, the aim was to strengthen the macroeconomic policy and broaden the reach of overseas debts of Indian borrowers. The revised comprehensive ECB framework was announced by RBI through the circular no. 32, date 30^th November 2015. However before we go deeper into RBI remodelling the old ECB framework, let us also look at Section 6 (3) (d) of the Foreign Exchange management Act, 1999 which was the origin for RBI control and regulate the borrowing or lending of external borrowings of capital. Therefore, RBI had categorised various forms of borrowing, like ECB, Convertible Bond from Foreign Currency, Shares & Exchangeable Bonds which are issued by an Indigenous Companies and subscribed by Non –resident. RBI has the power to modify, regulate through various notifications. Major changes are highlighted in July every year.

Therefore, RBI had categorised various forms of borrowing, like ECB, Convertible Bond from Foreign Currency, Shares & Exchangeable Bonds which are issued by an Indigenous Companies and subscribed by Non –resident. RBI has the power to modify, regulate through various notifications. Major changes are highlighted in July every year.

ECB can be reviewed under two routes- Automatic and through approval route. No approval is required under the automatic route however, borrowing not under the purview of Automatic route are allowed under the approval route. However, borrowing under both the routes are no less independent of rules and regulations and various controls and restrictions. Like for example under the Automatic route firms registered under Companies Act 1956, however, the span of eligible borrowers have expanded and now NBFCs, NGOs SEZs  all are part of the automatic route.

Also, it is interesting to note that borrowing of USD 750 million by Corporates and USD 200 million by Hotel and hospital and software sector is allowed under the automatic route however beyond the amount the same is considered under approval routes. Borrowers who would be eligible under the approval routes can be Banks and financial institutions like housing finance companies, Small Industries Development Bank, SEZ developers.  It is also imperative to reduce and dismantle restrictions on borrowers, lenders, all in cost ceilings, amount of borrowing, end use etc. wherever it does not directly conflict with the objective of reducing systemic risk.

That leads to the RBI current circular dated 30^th November 2015 wherein introduces to the new framework for External Commercial Borrowing (ECB), replacing the old guidelines. The ECB has being separated into three Tracks – like Track I, II, III respectively along with amendments in maturity timelines.

Track I wherein the EBC is for 5 years is a minimum maturity timeline for a value of up to USD 50 million three years maturity which was previously around USD 20 million. If it is greater than USD 50 million than the timelines are 5 years, Companies which were eligible were from manufacturing sector, software development, shipping and airlines companies, units in SEZs, Small industries and development bank of India and Exim bank.

Track II – Over ten years irrespective of amount, the eligible borrowers shall be all entities under track I and Infrastructure companies, holding companies, Core investment companies.

Track III- ECB in Indian Rupees and eligibility as track I and the eligible borrowers will be R&D companies, Companies supporting infrastructure, Logistic services, SEZ developers.

It is understood that LLPs are still not included in the list of eligible borrowers also the Hotels and hospitals which were covered under specified service sectors) however not covered in the list under three tracks.

The major lenders under the new framework were international banks, international capital markets, multilateral/regional / government -owned financial institutions, export credit agencies, suppliers of equipment, foreign equity holders and overseas long-term investors like pension funds, wealth funds, overseas branches/ subsidiaries of Indian Bank (Track I borrowers). We can conclude that new entry like overseas long term investors. Also it was mandatory that Lenders be from country which accepts FATF statutory guidelines along with due diligence from an overseas bank.

It is also noted that all in cost ceiling for track I shall be 3-5 years, 300 bps over a 6 month LIBOR. And greater than 5 years it is 450 bps over the 6 month LIBOR which has a penal interest of minimum amount 2% over and above contracted interest rate. Track II has a maximum spread of 500 bps per annum over the benchmark and Track III is aligned to market conditions. The crucial part to remember is that all in cost includes guarantee fees also. There is a reduction in 50 bps under track I as compared to the earlier policy.

ECB also has categorised under the three tracks:

Track I- Import of services, goods, technical know-how and license fees for capital goods. Modernisation and expansion of existing units, Shipping and airlines companies only for import of vessels and aircrafts respectively. ECBs under approval routs for import of second hand goods as per Directorate General of Foreign Trade guidance/notification & Exim bank lending.

Track II- Any end user other than following  – Real estate, lending to other entities with any of the above objectives, purchase of land.

Track III- SEZ developer only for infrastructure facilities with SEZs.

Some major key factors to understand under new Framework are highlighted below;

Limits under automatic route has been revised

Like Companies in infrastructure and manufacturing sectors –up to USD 750million. For companies in Software sector, the amount is raised to USD 200 million. For firms in micro financing activities the ECB limit is till USD 100 million and for other entities, it is upto USD 500 million. However, the call /put options are not permitted under the current framework. And future opportunities in regards to such revision exist.

Part refinancing

Part refinancing is permissible provided there is no reduction of residual in maturity of the ECB

Pre payment of ECB is allowed without any restrictions on amount subject to compliance with stipulated minimum average maturity.

Change of designated AD bank

Change of designated AD bank is allowed subject to NOC from existing AD bank.

Dissemination of ECB

All the details will be put up in RBI website for the automatic route purpose.

However, there might be some inherent risk too. Like exposure to foreign exchange fluctuations if they do not hedge their currency and can have a negative impact on their balance sheet. The Government of India should remove restrictions on the amount a firm is looking to borrow. It should be linked to hedge the currency exposure emanating from ECB. The policy should focus on removing of obstructions to develop domestic rupee debt market.

In short, the risk to the system from the ECP borrowing should be hedged through natural hedge or through financial hedge. The ratio of hedge will be the indicator of ECB policy and it would be modified to address systemic risk when required.

In this article, Joseph V Gregory who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses ten things you should know about foreign institutional investor.

India is the third largest economy in the world in PPP terms. According to a report by Bank of America Merrill Lynch, India is the most favourite equity market for global investors for the year 2015 at 43% followed by China at 26%. The commencement of inflow of foreign investment can be dated back to the policy in 1992-1993.

Of the different types of Foreign Investment, FII is an investor or investment fund registered in a country outside of the one in which it is investing. They are registered as FIIs in accordance with Section 2(f) of the SEBI (FII) Regulations, 1995.

As defined by the European Union (FII), it is an investment which are saved collectively on behalf of investors used to investment in a foreign market by specialised financial intermediaries, especially small investors, towards specific objectives in term of risk, return and maturity of claims.

FIIs net investments stood at Rs 18,106 crore (US$ 2.68 billion) in March 2016, out of which Rs 16,731 crore (US$ 2.48 billion) was invested in equities and Rs 1,375 crore (US$ 203.83 million) was invested in debt. Cumulative value of investments by FIIs during April 2000-December 2015 stood at US$ 179.32 billion. FIIs importance has grown in emerging countries like India on the backdrop of Brexit which accelerated the move to the fastest growing economies. It’s growth has been more rapid than international trade or world economic production generally and has impacted economies positively and negatively.

According to the Finance Minister, in the Union Budget 2013-14, accepted and differentiated between FDIs and FIIs, the most common form of investments as –

“Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII) is proposed to follow the international practice and lay down a broad principle that, where an investor has a stake of 10 percent or less in a company, it will be treated as FII and, where an investor has a stake of more than 10 percent, it will be treated as FDI.”

The foreign investments in India is regulated by the Reserve Bank of India by the provisions of Foreign Exchange Management Act, 1999 (relevant sections 6 & 47). FDIs and FIIs are defined in the Schedule 1 & 2 in FEMA (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000. SEBI acts as the nodal point in registration of FIIs. FIIs by individuals cannot exceed 10% of paid up capital of a company while foreign corporates or individuals registered as sub-accounts of FII cannot exceed 5% of paid-up capital.

A Foreign Institutional Investor may invest only in the following:-

1. Securities in the primary and secondary markets including shares, debentures and warrants of companies listed or to be listed on a recognised stock exchange in India; and
2. Units of schemes floated by domestic mutual funds including Unit Trust of India, whether listed on a recognised stock exchange or not
3. Units of scheme floated by a collective investment scheme
4. Dated Government Securities
5. Derivatives traded on a recognised stock exchange
6. Commercial papers of Indian companies
7. Rupee denominated credit enhanced bonds
8. Security receipts
9. Indian Depository Receipt
10. Listed and unlisted non-convertible debentures/bonds issued by an Indian company in the infrastructure sector, where ‘infrastructure’ is defined in terms of the extant External Commercial Borrowings (ECB) guidelines
11. Non-convertible debentures or bonds issued by Non-Banking Financial Companies categorized as ‘Infrastructure Finance Companies’(IFCs) by the Reserve Bank of India
12. Rupee denominated bonds or units issued by infrastructure debt funds
13. Indian depository receipts; and
14. Such other instruments specified by the Board from time to time.

Following foreign entities/funds are eligible to get registered as FII

1. Pension Funds
2. Mutual Funds
3. Investment Trusts
4. Banks
5. Insurance Companies / Reinsurance Company
6. Foreign Central Banks
7. Foreign Governmental Agencies
8. Sovereign Wealth Funds
9. International/ Multilateral organization/ agency
10. University Funds (Serving public interests)
11. Endowments (Serving public interests)
12. Foundations (Serving public interests)
13. Charitable Trusts / Charitable Societies (Serving public interests)

FIIs are the major source of liquidity in the Indian market. High volumes of FIIs indicate confidence in the Indian market and hints at the strong base of domestic stock market to domestic investors. Foreign institutional investment can supplement domestic savings and augment domestic investment without increasing the foreign debt of the country. Such investment constitutes non-debt creating financing instruments for the current account deficits in the external balance of payments

The advantages and disadvantages are mentioned below

Advantages

1. Enhanced Flow of Capital

It helps in growth rate of the investment whereby development projects – economical and social infrastructure is built and so does boosts production and employment and income of the host country.

2. Managing Uncertainty and Controlling Risks

It helps promote hedging instruments and improve the competition in financial market and also alignment of assets which help in stabilizing markets.

3. Improved Corporate Governance

The FIIs constitute professional bodies like financial analysts who through their contribution to better understanding improve firms’ operations and corporate governance and overcome problems of principal-agent.

Disadvantages

1. Potential Capital Outflow

Since FIIs are controlled by investors there can be sudden outflow from markets leading to shortage of funds.

2. Inflation

Huge inflow of FII funds creates high demand for rupee and whereby pumping huge amount of money by the RBI into the market. This creates excess liquidity creating inflation.

3. Adverse Impact on Exports

With FII inflows leading to appreciation of currency, exports become expensive which ultimately leads to lower demand and hence shortfall in the export of goods, reducing competitiveness.

Unfortunately, there are certain myths about FIIs :

1. FIIs only participate in stock and exchange and never in unlisted entities.
2. FIIs investing during initial allotment of shares are FDIs and cannot invest at time of allotment.
3. FIIs do not generally influence management of enterprise and are mostly interested in capital gains and monetary price differences, unlike FDIs who invest directly in technology & management.

According to section 15(1)(a) of SEBI FII Regulations, 1995, an FII could invest in the securities in the primary and secondary markets including shares, debentures and warrants of companies unlisted, listed or to be listed on a recognized stock exchange in India. Infact FIIs are active in the OTC markets and in IPO market in India. Recently FIIs also have started influencing decisions in companies where they hold shares.

The following Guidelines are laid-down to enable the Foreign Investment Promotion Board (FIPB) to consider the proposals for Foreign Investment and formulate its recommendations.

1. All applications should be put up before the FIPB by the SIA (Secretariat of Industrial Assistance) within 15 days and it should be ensured that comments of the administrative ministries are placed before the Board either prior to/or in the meeting of the Board.
2. Proposals should be considered by the Board keeping in view the time frame of 30 days for communicating Government decision (i.e. approval of C&IM/CCEA or rejection as the case may be).
3. In cases in which either the proposal is not cleared or further information is required, in order to obviate delays presentation by applicant in the meeting of the FIPB should be resorted to.
4. While considering cases and making recommendations, FIPB should keep in mind the sectoral requirements and the sectoral policies vis-a-vis the proposal(s).
5. FIPB would consider each proposal in totality (i.e. if it includes apart from foreign investment, technical collaboration/industrial licence) for composite approval or otherwise. However, the FIPB’s recommendation would relate only to the approval for foreign financial and technical collaboration and the foreign investor will need to take other prescribed clearances separately.
6. The Board should examine the following while considering proposals submitted to it for consideration:

• Whether the items of activity involve industrial licence or not and if so the considerations for grant of industrial licence must be gone into;
• Whether the proposal involves technical collaboration and if so:- the source and nature of technology sought to be transferred.
• Whether the proposal involves any mandatory requirement for exports and if so whether the applicant is prepared to undertake such obligation (this is for items reserved for small scale sector as also for dividend balancing, and for 100% EOUs/EPZ units);
• Whether the proposal involves any export projection and if so the items of export and the projected destinations;
• Whether the proposal has concurrent commitment under other schemes such as EPC Scheme etc.
• In the case of Export Oriented Units (EOUs) whether the prescribed minimum value addition norms and the minimum turn over of exports are met or not;
• Whether the proposal involves relaxation of locational restrictions stipulated in the industrial licensing policy;
• Whether the proposal has any strategic or defence related considerations, and
• Whether the proposal has any previous joint venture or technology transfer/trademark agreement in the same or allied field in India, the detailed circumstance in which it is considered necessary to set-up a new joint venture/enter into new technology transfer (including trade mark), and proof that the new proposal would not in any way jeopardize the interest of the existing joint venture or technology/trade mark partner or other stake holders.

In this article, Sachin Vats of RGNUL discusses steps to take when an employer fires an employee without giving due salary.

The Indian Constitution provides power to both the Central and State Government to make legislation regarding labour relations and employment matters as labour is a subject under the ‘Concurrent List’ of the Constitution. So, the primary source of the employment depends upon both the Central and respective State legislations.

Some of the major legislations regarding the labour and employment laws in India are,

• Industries Development Act, 1947
• Contract Labour (Regulation and Abolition) Act, 1970.
• Employees’ Compensation Act, 1923.
• Factories Act, 1948.
• Shops and Establishments Act for different states.

The concept of employment is determined by the following essential ingredients

• Employer – One who works or engages the services of others.
• Employee – One who works for the others after getting hired.
• Contract of Employment – The contract of service between employer and employee where the employee agrees to serve the employer subject to his control and supervision.

There are three main categories of employees according to the Indian Labour and Employment laws.

• Government Employees.
• Employees in Government controlled Corporate Bodies known as PSUs
• Private Sector Employees.

There is no any standard labour legislation in India for the protection of the workers who are employed in any establishment. The different legislations are made for different categories of employees depending upon the nature and the type of work performed by the employee.

Rights of an Employee

Many laws in India are made which has several provisions to safeguard the interests of employees. There is no any specific law which governs private employment in but an employee has many rights given under various laws.  

• Written Employment Agreement – The Written Employment Agreement is a legal document containing terms and conditions of the employment. It must be provided to an employee by the employer which lists all the rights and obligations of both. So, the written document provides security and protection to both the parties and should be provided at the starting of the job.

An Employee can take various types of leaves during the course of employment depending upon the situation such as casual leave for urgent and unseen matters, sick leave for medical related problems, privilege or earned leaves for plans in advance. So, these leaves are the right of an employee during the employment and they cannot be fired for such leaves.

The Employees get protection from sexual harassment at the workplace. It is a punishable offence under the Indian Penal Code and an aggrieved can seek remedy under Sexual harassment at workplace (prevention, prohibition, Redressal) Act, 2013. The Maternity Benefit Act, 1961 gives provision for the maternity leave for pregnant women during the course of employment. They cannot be fired on the basis of absence due to pregnancy. The female workers get the paid maternity leave for 26 weeks now in the private sector.  

Gratuity is a statutory benefit paid to the employees who have rendered continuous service for at least five years. A statutory right of employees cannot be denied by the employer on the ground that they are being provided with provident funds and pension benefits. Employment Provident Fund is a retirement benefit scheme available to all the salaried employees. It is managed by Employee Provident Fund Organisation of India and any company with over 20 employees is required by law to register with EPFO. Both the employer and the employee have to contribute 12% of their basic salary to the provident fund as per the law. If any employer is deducting the whole provident fund from an employee’s salary then it is against the act and he can apply against the same in Provident Fund Appellate Tribunal.  

What to do if an employee is fired without being paid the due salary

Many cases has been reported in India regarding firing of an Employee without giving due salary to them by the Employer. The allegations have also been made against the big and reputed companies regarding these issues. Many a time the employers do not like to pay for a notice period also.

Actually, it is “illegal” to not pay the due salary of an employee after being fired by the employer. The employer has to pay the due salary along with the payment of the notice period.

• An employee can file a suit against the employer because of the violation of the rights in accordance with the various prevailing laws. Normally, an employee should follow the given process if his or her rights regarding payment of due salary has been violated. :-
• First of all, the employee should send a legal notice to the employer regarding payment of the due salary which was not paid to him after being fired. The employer has to answer the notice being sent to him with valid, reasonable and competent legal reasons. The action taken by the employer against the legal notice decides the further course of action to be taken by the employee.
• If the due salary is not paid even after giving the legal notice. An employee after waiting for a reply for reasonable days, can file a police complaint regarding the cheating or breach of trust against the employer. The police will decide the further course of action depending upon the result of the investigation done by the police.
• If his complaint is not heard by the police or the competent authority the he can approach the District Magistrate with the copy of police complaint. The matter can also be taken before the Registrar of the companies to make him aware about the malpractices and cheating done against him by the employer of the company.
• Generally, the dispute gets resolved at this stage because the employer does not like to fight a long case for such amount of money. But, if it does not get resolved then an employee has further methods to get his due salary.  
• The employee can file a suit in Labour Court before the Magistrate against the employer for recovery of all pending dues. The employee is entitled to get the payment of even the notice period.

Notice Period

The employers are required to give notice of termination of their employment in accordance with the employment contract. Generally, various states have their specific legislations which provide for a minimum notice period of one month.

• The time period between the receipt of the letter of dismissal and the end of the last working days is known as Notice Period. The notice of the dismissal must be given to an employee by his or her employer before his employment ends. It also refers to the period between resignation date and last working day in the company when an employee resigns. The Notice Period as per the terms and conditions of the employment contract is applicable.
• In India, the notice period is generally 30 days for staffs who are still serving on probation and a period of 90 days for the confirmed employees.

When the Termination is Unlawful

An employer terminated by the employer have certain rights. In private industry there is employment ‘At Will’ in most of the cases where an employer can terminate an employee at any time and for any reason but the reason should not be illegal and contrary to any agreement.

• Termination may be unlawful if it done on the basis of following grounds :-
  • If there is an Implied Agreement and the Court considers that the employer has promised about continued agreement then the termination will not be taken as lawful.
  • There must not be violation of public policy by the employer in firing the employee as it is considered as unlawful. The termination done on the basis of discrimination between employees and job application based on race, religion, sex, ethnicity, background, etc. are considered as unlawful.
  • An employer cannot fire an employer only on the ground that certain unlawful activities have been reported against him or her. The termination cannot be done only on the basis of retaliation for a specific act.

What are the benefits available if the termination is lawful or one has willfully resigned

• The employee gets some benefits after termination if the termination is lawful or the employee has himself or herself willfully resigned. These benefits include:
• • The “Final Paycheck” must be given by the employer to their employee. It s better understood as “collection of dues”. It generally depends upon the condition whether the employee quit or employer fired the employee.
  • The Severance Package is one type of contractual agreement between the employer and the employee. The employer will provide the terminated employee with a severance package but it is not compulsory by law.
  • The Health Insurance is provided to the terminated employees. They have right to health insurance coverage after their separation from the employer. It is only for the specific period of around 20 to 24 weeks.
  • In India, those who come under Employee’s State Insurance Scheme are applicable for “unemployment benefits”. These are provided to unemployed worker who are qualified but are in search of employment.
  • The employer also issues a “letter of reference” to the outgoing employee stating his or her duration of employment, position and quality of performance.

Conclusion

There are many laws in every sector either public or private for the protection and welfare of different kinds of workers whether they are permanent, contractual or part time but very less people know about the proper use of the existing laws to avoid any type of exploitation by the employer. There is a need to make workers aware of their rights and laws to avoid misuse of laws and do not enter into contract agreement or bond without reading and knowing the legal prospect and conditions.

In this article, Jimsi Tassar who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses how to get a loan to start a business from the government?

Definition of Loan

As per the Business Dictionary, a Loan is a temporary transfer of Cash, from its owner or any financial institution (lender) to the borrower who promises to return it as per the terms and conditions of the agreement, usually with an interest for its use, which is elaborately put down in a Loan Agreement, that becomes enforceable when the Loan amount is advanced to borrower, with a stipulated time period for the amount to be returned to the Lender, along with the interest rates that has been determined as per the Loan Agreement.

There are various kinds of Loan

Demand Loan, Instalment Loan, and Time Loan depending upon its nature. For instance, a Demand Loan is one which is repayable at the demand of the Lender for repayment.  If the Loan is repayable at equal monthly instalments, then it is an Instalment Loan, and if there is a time bound payment on the loan’s maturity, it is called a Time Loan. Such specifics of Loan needs to be mentioned in the Loan Agreement between the lender and the Borrower, and could be

The Banking regulations and practise has further classified their Loans into: Consumer, Commercial, Industrial, Construction, Mortgage Loans, and Secured and Unsecured Loans.

Consumer Loan

A type of Loan which is given to an individual in a non secured basis for personal, family, vehicles and home loans etc.  A loan which is in a non secured basis means, without any collateral for security to the bank. Consumer Loans are usually regulated by the Government Regulatory Agencies for their compliances with the consumer Protection Agencies, also known as Consumer lending or Consumer credit.

Commercial Loans

A type of Loan is usually advanced to a Business rather than a Consumer. Commercial Loans are usually for a short term period of 30 days and up to a year, which has been either secured with collateral or is unsecured, and are generally advanced for financing equipments, or could be a Loan for a Business to Business Transaction and in the form of Machinery, or in a kind of Inventory. The Banks usually requires the Commercial Borrowers to submit financial statements of the banks and to maintain some security by having insurance on the purchased item like machinery or heavy financial vehicle for commercial purposes.

Industrial Loans

A type of loan which is always forwarded towards financing a project and for commercial and industrial projects in the form of working capital or to finance major capital expenditures, and thus, an Industrial Loans are always forwarded against collateral for a short duration and is made on the basis of financing projects.

Construction Loans

A type of Loan which is usually short term for up to three years, and is always a secured loan, and it is a real estate financing, which is secured by a mortgage on the property that is being financed, for covering the cost of construction and land development and is usually advanced through pre- arranged methods and procedures, and are usually categorized as developmental Loans.

Mortgage Loans

A type of Loan which is usually advanced against Collateral, and the Mortgagor or the lender usually gives it to the Mortgagee (borrower) as a lien on the property, which expires when the Mortgage is paid off fully. The bank usually removes the lien on the property, when the Mortgage Loan is paid off in totality.

Secured Loan

A Secured loan is a type of Loan, which is usually guaranteed by the borrower giving Assets as security or collateral for security. The normal practise is to secure the land ownership documents or property ownership documents for the best interest of both parties.

Unsecured Loan

A type of Loan which is borrowed without collateral and only with the credit worthiness of a borrower. It is usually called a signature Loan or a personal Loan. The rate of interest can get very high in this regard due to unsecured loan category which puts the Lender in a higher risk category.

Apart from the Personal Loans between individuals, the Banking Sector in both Private and Public sector play the biggest role in advancing Loans to individuals and communities or corporate or organized sectors. Besides, the Non Banking Financial Institute and other Micro Financing institute for various determined sectors like Agriculture and farming is also being encouraged through subsidies and advancing loans with low rate of interests to support the rural economy.

NABARD

National Bank for Rural and Agricultural Development is an institutional Credit and loan providing body, which has been taken up by the Government in the year through NABARD legislation in the parliament through Act 61 of 1981. Thereafter, NABARD came into existence in the year 1982, with the Agriculture credit functions, and refinance facility of Agriculture Refinance and Development Corporation (ARDC) being transferred to NABARD.

Thus, NABARD is an Institutional subsidy advancing agency of the Government and also, A Micro finance unit that advances small loans for schemes and projects related to Agriculture.

Micro Finance

Micro- Finance is a type of Banking service that is provided to an unemployed or low income individuals or groups who otherwise has no access to financial services to start up a project or become stable financially and economically self reliant.

The Government of India, attuned to the governing principle of ‘Socialism’, as highlighted in its preamble in the constitution, has managed to bring out financial structures to reach out to masses that are from a certain financial background, and with no access to capital for initial investment. The Government of India to gives loans, the person (borrower) needs to be an Indian Citizen, and with no criminal turpitude, and with the submission of a Project Report and schedule of Payment, and submitting a solid project plan with profitable profits.

The Start Up India, is claimed to be a revolutionary scheme that has been initiated by Department of Industrial Policy and Promotion (DIPP) and launched by the Prime Minister of India to enable young entrepreneurs and Start up campaigns for making people self reliant.

Pradhan Mantri Mudra Yojana (PMMY)

Micro Units Development and Refinance Agency ( MUDRA) bank is a new institution being set up by the Government of India, for development and refinancing activities relating to Micro Units, with the main objective of providing funds to Non-corporate small Business sector, with the long term goal to youth for being job creators and not job seekers. As per the scheme, there are three loan structures:

1. Sishu-Loan upto 50,000/-
2. Kishore- Loan upto 50,000/- to 5,00,000/-
3. Tarun- Loan upto 5,00,000/- to upto 10 lakhs.

MUDRA Bank, or Micro Units Development and Refinancing Agency Bank, is a public sector financial Institution in India which has been launched on 2015. The MUDRA Bank provides loans at low rate of interests to Micro Finance Institute and Non Banking Financial Institutions, and which ultimately provides credit to the MSMES or the Micro, Small and Medium Enterprises, and it has been found that Artisans, fruit and vegetable vendors, shopkeepers, Small Manufacturing Units have been able to borrow from MUDRA Banks.

MUDRA Bank therefore, has been launched for benefitting small entrepreneurs, and act as a regulator for Micro Finance Institutions (MFI), besides laying down guidelines for Policy for Micro Finance Business and registration of MFI entities and their accreditation.

MUDRA bank objective is to provide last mile financers with money to reach out the small scale entrepreneurs and business holders who usually remain cut off from the banking system.  Thus, the main target group of MUDRA Yojana is the young, educated and skilled workers, entrepreneurs including women entrepreneurs. It was established as a subsidiary of the Small Industries Development Bank of India (SIDBI) with an initial corpus of Rs 5,000 crore to provide capital to all banks seeking refinancing of small business loans under PMMY.

SIDBI

Small Industries Development Bank of India is a financial Institution that was set up on April 2, 1990 through the Small Industries Development Bank of India Act,that aims to provide financial aid to the growth and development of micro, small and medium scale enterprises (MSME) in India. SIDBI is a subsidiary of Industrial Development Bank of India (IDBI), and is owned and controlled by 34 government Institution, and actually started off as a Refinancing Agency to banks and state level financial Institutions  for their credit to small industries. SIDBI has the main function of Promotion, Development and Financing of the MSME and related institutions.

Credit Guarantee Fund Trust for Micro and Small Enterprises popularly known as CGTMSE is widely being used by many PSU Banks and Private sector banks to fund MSME sector.

Stand up India Scheme

Start up India is a flagship initiative of the Government of India to build a sustainable eco system for growing and nurturing start ups in the country that will lead towards a sustainable growth to enable start ups to grow through innovation and design.

Start up is an entity incorporated or registered in India, not prior to five years, with annual turnover not exceeding INR 25crore in any preceding financial year, and which is working towards innovation, development, deployment, or commercialization of new products, processes or services driven by technology or intellectual property, and is eligible for tax benefits after it has registered with the inter ministerial Board for tax benefits.

For Scheduled Tribe or Scheduled Caste or a Women Entrepreneur for starting an entrepreneur skill, and it was launched to facilitate a loan amount of Rs 10 lakhs to 1 crores, to at least one scheduled Tribe or scheduled Caste citizen, and one women entrepreneur borrower per branch in a bank, and only for setting up a Greenfield Enterprise, which could be in manufacturing or services or Trading sector.

Also, if it is a Non Individual Enterprise, then at least 51% of the shareholding and controlling stake is required to be held by the member of ST/SC or Women Entrepreneur. Thus, the main objective of such scheme is to economically empower the women or members of ST and SC community with financial aid through lending such amount with very low rate of Interest. It is also to be noted that, such a Loan, under the scheme is not required to have a Guarantor as it is in the case of other Loans and schemes.

ELIGIBLITY:

The eligibility criteria for a Borrower have been put down as a guideline for being qualified for the Scheme.

1. The Scheme applies only to a Scheduled Tribe and scheduled caste person as defined in the Constitution of India under the Schedule VI and V.
2. The Scheme applies also to Women Entrepreneurs who are above 18 years of age.
3. Loan under the scheme is eligible only for Green Field Project, which signifies, a first project from the grass root, which consists of a first time venture of the beneficiary in the Manufacturing, Services or the Trading sector. Here Manufacturing would apply to a establishing any unit from the scratch, a project without any previous investment. Services could apply to establishing Service provider or unit centres to cater to other business houses. A Trading sector applies to any sort of trade which indicates all sorts of exchange and production of goods and products in exchange of the monetary units or currency.
4. The Loan under this scheme is also eligible for Non Individual enterprises, and business house, with 51% of the share holding, or the major stake is in control of woman, or a ST/ Sc entrepreneur. Thus, the enterprise eligible for loan has to be within these criteria.
5. The Loan Scheme would not be eligible for any person or enterprise that have been a defaulter or has not been able to make a repayment and the Asset had been declared as a Non Performing Asset (NPA), as per the SARFAESI Act. The Loan would also mean the amount taken by any other Non Banking Financial Institution.

Purpose or Objective of Loan is for economic empowerment of women entrepreneur or member of the Scheduled Tribe or Scheduled caste, which means that the Loan is nothing but an extension of a scheme of the Government of India to reach out to the start up or innovative or fresh ventures, and small to medium scale entrepreneurs in the field of Trading, manufacturing and Service sectors.

The Loan structure

The Loan is called a composite loan, which is 75% project cost of term Loan and the working capital for investing in the venture or the project instantaneously. The 75% scheme would not apply if the convergence cost covered by the borrower exceeds 25%, of the Project cost.

Rate of Interest of the Loan

The rate of Interest as per the scheme would be the lowest as compared to the categories available to any bank and their rate of interest. However, the rate of interest cannot exceed the base rate + Marginal Cost of Lending Rate+3%+ tenor premium.

The Security required is the basic primary security

The loan may be secured by collateral security or Guarantee of Credit Guarantee Fund Scheme for Stand Up India Loans, (CGFSIL) which is at the discretion of the lending bank to decide as per the terms.

Repayment terms and conditions

The loan amount is to be made repaid within seven years of repayment period, and with an extended maximum moratorium period of eighteen months.

Working capital and overdraft

The process of drawing an amount of Rs 10 lakhs the amount may be sanctioned by the way of an overdraft. A credit card is possible to be drawn for drawing the capital for the convenience of the Borrower The working capital limit above Rs. 10 lakhs that needs to be sanctioned by way of cash credit limit.

Margin Money

As per the scheme, the borrower is supposed to be investing 10% of the cost of the project as its own contribution towards the project. The Scheme highlights that about 25% of the margin money towards the project which can be converged against any other central or state schemes available.

The Guideline for availing Stand up India scheme is to be operated from the by all the scheduled commercial Banks of India. The loan can be availed directly from the Branch, or through a SIDBI’S Stand up India Portal. (standupmitra.in) or through the Lead District Manager of the scheduled bank. The portal would be quite a platform for availing information as well as feedback for preparation and for providing a feedback for hand holding of potential borrowers and projects that put forth as proposal.

Handholding

The information required for initial stage for the project to be facilitated by the interface portals are to create a portfolio of the borrower and the potential project in the form of understanding the proposal of the project and the background of the borrower in terms

The information required for initial stage for the project to be facilitated by the interface portals are to create a portfolio of the borrower and the potential project in the form of understanding the proposal of the project and the background of the borrower in terms of the character and handholding required for accumulating margin money or not, with any background experience of the borrower, thus allows the portal to make a distinction between a Trainee borrower and a ready Borrower.

Ready Borrower

A Borrower who does not require any handholding and the application process for Loan starts at the selected bank, and an application number is generated, and the information of the borrower is shared with the concerned bank, and the relevant linked office of the NABARD / SIDBI. Also, the LDM posted in each district, is informed of the concerned bank is informed of the same. The SIDBI/NABARD is made the Stand up Connect Centres, and the loan application is tracked through the concerned portal.

Trainee Borrower

When the portal and initial application of Loan requires handholding, then the application is forwarded to the LDM of the concerned District, and the relevant officer of SIDBI/NABARD. The application process would be electronic, and could be applied by a borrower, or through a bank branch officer dealing with MUDRA.

Grievance Redressal and District Level credit Committee: There will be portal for grievance addressing and also, a periodical meet to follow up the project accepted.

The stakeholders are the Borrowers, SIDBI, NABARD, DLCC, LDM, and the bank branches to monitor, facilitate, handholding, support, solve problem, monitor performance etc.

Conclusion

Loan by Government for Business is therefore not possible through any other institution but the banking sector and any other such Non-Banking Financial Institutions which advance loan or act as lending agency to potential borrowers.

 The definition of Government or State is wider than the institutions and constitutional bodies that are authorities for advancing loan amount to any borrowers. The Public Sector Banks and Private Sector banks, and Scheduled and Commercial banks are institutional bodies that provide loan to borrowers as per their own guidelines and through the governing principles of reserve Bank of India, like Credit Reserve Ratio, Statutory Liquidity Ratio, Repo Rate and Reverse Repo Rate.

However, The Government provides scheme that could facilitate the lending of Loan amount to the Borrowers through Public Sector units like SIDBI, IDBI, NABARD etc.

Therefore, the Government through legislation can promote schemes that enables the Borrower and the Lender to have a relationship that enables and promotes entrepreneurship, start ups, skill developments, and thus, enables the Government to achieve its long term goals through its action plan, as a roadmap towards achieving the principle of Justice- Economic, Political and Social, and dwell on the Socialist principle highlighted in the Preamble of the Indian Constitution.

In this article, Bhawana Tiwari who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses important clauses of Labour agreement.

Introduction

Contract labour is one among the acute style of unorganized labour. Beneath the system of contract labour employees could also be utilized through contractor on the contract basis. Workmen shall be deemed to be used as “contract labour” or in reference to the work of an institution once he’s employed in or in reference to such work by or through a contractor, with or while not the information of the principal leader.

During this category of labour the contractors rent men (contract labour) who do the work on the premises of the leader, called the principal leader, however, don’t seem to be deemed to be the staff of the principal leader. The variety of tasks performed by such contract employees varies from security to sweeping and job and is steady increasing. it’s been felt, and justly too, that the execution of a piece on contract through a contractor who deployed the contract labour was to deprive the labour of its due wages and privileges of labour category.

The contract employee could be a daily wager or the daily wages are accumulated and given at the tip of the month. The industries justify contract labour on the grounds that the necessity is temporary or seasonal. all the same, there are prepared instances of contract labour being deployed for tasks as security, sweeping and cleanup, although it’s tough to understand however these tasks are temporary and don’t justify full time regular staff. The managements attempt to by-pass the provisions of social legislations unless they’re lawfully at bay or forced by circumstances, whereas the judiciary has forever upheld the thought of social justice, dignity of human rights and worker’s welfare.

Contract labour in India

The system of using contract labour is rife in most industries in numerous occupations together with trained and semi trained jobs. it’s additionally rife in agricultural and allied operations and to some extent within the services sector. A working person is deemed to be used as Contract Labour once he’s employed in reference to the work of an institution by or through a contractor. Contract workmen are indirect employees; persons who are employed, supervised and compensated by a contractor who, in turn, is remunerated by the institution. Contract labour should be used for work that is restricted and for definite period. Inferior labour standing, casual nature of employment, lack of job security and poor economic conditions are the key characteristics of contract labour. whereas economic factors like price effectiveness might justify system of contract labour, concerns of social justice necessitate its abolishment or regulation. Varied Commissions, Committees, and additionally Labour Bureau, Ministry of Labour, studied the condition of contract labour in India before independence and after independence. of these have found their condition to be appalling and exploitive in nature. The Supreme Court of India within the case of normal Vacuum refinery Company Vs. their workmen ascertained that contract labour shouldn’t be used where: —

• The work is perennial and should press on from day to day;
• The work is concomitant and necessary for the work of the factory;
• The work is decent to use sizable variety of whole time workmen; and
• The work is being drained most issues through regular workmen.

Manpower is that the prime propulsion behind any triple-crown venture. It’s the provision of quality hands at an affordable value that usually determines the gain and success of a business.

Sourcing of hands is one in every of the most important challenges faced by an organization as a result of it’s time intense and involves extended efforts. it’s because of this reason that hands provide is sometimes outsourced to contractors UN agency are specialized in supply human resources. They recruit and train people from varied locations and create their labour out there to businesses at their factories or offices.

Important clauses of a labour agreement

Details of the institution

All details concerning the institution – whether or not it’s an organization, firm or sole ownership – shall be mentioned, in conjunction with the small print of the human and his/her designation.

Nature of labour of the corporate

The nature of the operations of the corporate shall be mentioned additionally to the statement that, the comes are of temporary nature that makes it not possible to rent workmen as permanent workers. Thus, the necessity for hiring temporary men gets highlighted.

Position of the corporate beneath the Contract Labour Act

If the corporate is registered as a Principal leader beneath the Contract Labour (Regulation and Abolition) Act of 1970, it shall be mentioned. Consistent with the aforesaid Act, any company that employs over twenty workers shall be registered beneath the Act if there’s any engagement of contract labour.

Details of the Contractor

Details of the contractor could also be specified as well as his PAN and Bank details for payments.

Details of Licensing

If the contractor is holding a license beneath the Contract labour (Regulation & Abolition) Act 1970, it shall be another in conjunction with the registration number. this is applicable solely to Contractors World Health Organization appoint over twenty staff.

Terms And Conditions

Nature of relationship

The terrible nature of the connection between an organization and therefore the contractor has to be highlighted. The connection between the Contractor with the corporate is of associate degree freelance Contractor and not that of an Employer- worker or Principal-Agent.

Nature of labor

It is of importance to outline the tasks to be performed by the workmen. the precise kind of work to be done by the workmen shall be mentioned very well, as well as the sub-processes that frame the total work.

Notice amount

The contractor sometimes wants it slow to rearrange the men needed for a specific order. the quantity of days of notice to tend to the contractor for creating arrangements of the men shall be specified beneath this.

It may even be mentioned that within the event of non provide of an equivalent, the corporate shall be creating arrangements from different third parties that the prices are going to be recovered from the contractor.

Transportation

Transportation is one in every of the foremost necessary aspects of men provide. It shall be specified whether or not the transport of workmen to the manufactory or geographic point shall be the responsibility of the corporate or the contractor. Sometimes it’s the contractor who makes arrangement of such transportation.

Reserve men

It is very important to create the contractor make sure that the desired range of workmen are present through the length of the work mentioned within the contract. The contractor ought to even be created to take care of adequate range of workmen in reserve to fill within the gaps within the event of any absence.

Quality of men

It is necessary that the workmen be of sound health, each physically and mentally, so as to hold out the work assigned to them. the corporate could demand the contractor to provide medical certificates for any employee, if needed. The age of the staff is additionally necessary. Ideally it ought to be mentioned as to not be but twenty one and no more than fifty-five years.

Supervision

The contractor could also be alleviated from the responsibility to supervise the work done by the workmen. During this case, the supervising shall be administrated by the corporate through its representatives whereas the workmen shall be sure to follow the directions given to them.

Alternatively, the contractor could also be created to appoint a supervisor World Health Organization shall be accountable to create the workmen perform the directions given by the corporate. and therefore the remuneration for the supervisor shall be paid by the contractor.

Remuneration

The rates at that the contractor agrees to provide workmen to the corporate shall be listed. the costs could also be on a monthly, weekly, daily or hourly basis.

The list shall conjointly contain the kind of the manpower- as an example, skilled, semi skilled; unskilled or specific kind of men like Security guards, plumbers, carpenters, and housekeepers among others.

Direct Payments

Sometimes, the corporate could also be needed to create some payments on to the workmen as a result of the wants of labor laws, particularly Contract Labor Act. In such an occasion, the contractor could also be created to reimburse an equivalent out of the quantity collectable to him.

Payment details

The length of the payment cycles from the corporate to the contractor shall be mentioned. the opposite terms of payment embody the non payment of wages on to the workmen and therefore the responsibility of the contractor in disbursing an equivalent.

The company could choose to appoint a representative to be gift at the time of disbursement of wages so as to certify that the payments are created consistent with the terms of the contract.

Attendance and Targets

The contract ought to contain details concerning however the group action would be taken, by whom and the way oftentimes the staff are going to be needed to administer their group action. the corporate might also offer sure deadlines to the workmen at intervals that the given works shall be completed. There shall even be details concerning daily targets if any to tend to the workmen.

Penalty

A clause could also be another, which might create the contractor accountable if the staff is unable to fulfill the wants of your time limits and targets. In such an occasion, the penalty could also be subtracted from the quantity as a result of the contractor.

Replacement

If the workmen are unable to perform the given tasks satisfactorily or at intervals the desired time period, the contractor could also be asked to switch them from succeeding day. an affordable fundamental measure of a minimum of at some point could also be given to the contractor to mobilize the backup men.

Code of Conduct

The sites of labor typically have sure rules and rules about the behaviour of persons within the premises. this can be for the security of men and machinery. Machine elements will get broken as a result of improper handling. Thus, it’s necessary to speak to the staff concerning the code of conduct and marking the out of sure areas. If any loss arises as a result of mistakes from the facet of the staff, the contractor is created to reimburse it out of the payments as a result of him.

Theft

If any property of the corporate is broken or any stealing takes place within the company premises as a result of the staff, the contractor shall be created prone to pay compensation to the corporate and additionally to switch the lost or broken material to the extent of its business worth.

Identity cards/ Badges

It shall be mentioned that the corporate provides identity cards to the workmen for granting them entry to the work web site. Such cards or badges shall be the property of the corporate and therefore the workmen at the conclusion of their work shall give the same. This can be mentioned so as to forestall misuse of the badges or cards.

Workmen details

With each new batch of workmen being provided by the contractor, the contractor shall supply the corporate with the list containing the address and different details of the employee. this can be positive to confirm} responsible ness on a part of the contractor and to create sure that individuals of undesirable backgrounds don’t seem to be employed.

Safety Measures

The details of safety measures to be provided by the corporate have to be listed.

Safety equipments embody protecting shoes, gloves, helmets, eye glasses and the other accessories essential for the security of the workmen throughout the course of the work done by them within the company. the corporate shall conjointly maintain an adequately equipped attention box and make sure that adequate coaching is provided to the workmen in operational machineries if there exists a risk of injury. this can be to go with legal procedures and additionally to confirm the security of workmen.

Accident and Insurance

If a employee suffers injury or loss of life as a result of his own negligence or for not following the security measures taught to him, the corporate shall not be created answerable for providing any compensation to the working person or contractor. it’s for this purpose that the contract shall mention concerning safety coaching, precautions and security measures.

However, if an accident takes place in spite of following of the prescribed safety measures by the employee, Any injury or loss of life to the employee shall be created to be salaried by the corporate consistent with the prevailing labour laws.

Food

Provision of food, beverages and refreshments play a crucial role in productivity of the workmen. It shall be specified whether or not the contractor makes arrangements for an equivalent or whether or not the corporate provides food to the workmen in their canteens.

It may even be specified whether or not further payments are going to be created to the contractor for providing food to the shoppers or not. just in case the corporate is providing concessional food passes to staff, it ought to be mentioned whether or not any deduction would be made up of the quantity collectible to the contractor.

Amenities

The contractor shall provide any amenities that have to be provided lawfully to the workmen. Sometimes, if the contractor doesn’t create such amenities obtainable, the corporate could also be needed to produce it at intervals the cut-off date specified beneath law.  The contractor is created to reimburse the expenses towards an equivalent.

Deductions

He creates any quantity collectable by the contractor deductible from the quantity collectable. This shall be mentioned so as to create the company’s position safe and to avoid legal hassles so as to say such amounts.

Registers and Records

Indian Laws typically need each the contractor and therefore the company to take care of necessary registers and records containing the particulars of contract labour used. this can be necessary particularly if the Contract Labour (Regulation and Abolition) Act,1970 is applicable to the contract. The register shall embody explicit concerning the character of labor administrated and therefore the rates of wages paid to the workmen.

Minimum wages

It shall be the responsibility of the contractor to pay minimum wages as prescribed beneath any applicable law, significantly the said Contract Labour Act. This clause is another to confirm that the corporate isn’t concerned in any legal hassles.

Overtime

If the workmen are needed to figure over the quantity of hours per the contract, the corporate shall comply with to pay overtime wages to the workmen through the contractor.

Interruptions

The company could add a clause that the workmen shall not have interaction in any strikes or cause interruption within the work for any reason. within the event of such interruptions happening, the contractor is created to compensate the corporate for any losses which will have arisen.

Assignment

It is mentioned that the contract might not be assigned  by the contractor to any third party while not the written consent of the corporate and consistent with the terms and conditions stipulated by the corporate

Termination

The grounds of termination of the agreement shall be mentioned, which can embody the following:

• By consent of any of the parties, by giving a notice of 1 month in writing
• On the ending of the amount mentioned within the notice.
• The contractor becomes insolvent.
• The COMPANY goes into liquidation voluntarily or otherwise.
• If the contract becomes ill-gotten by virtue of any law.

Jurisdiction

The contract shall mention the courts beneath whose jurisdiction any dispute shall lie, just in case of any violation of the terms and conditions beneath the contract.

Men provide Contract ought to ideally be a tool to push trouble free provide of men and uninterrupted flow of processes at a piece web site. Precise drafting of such a contract will avoid many another attainable dispute since managing human resources will sway be an advanced affair.

In this article, Debiyanka Nandi who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses the process of venture capital financing in India. 

What is Venture Capital Fund and Venture Capital Financing?

Venture Capital is a private institutional investment made to start-up companies at early stage. Venture capital funds are the investments made by the investors who seek private equity stakes in small to medium business which are potent enough to grow. These investments are generally high-risk/high-return opportunities. The ventures involve risk in the expectation of sizable gain. The people who invest this money become the financial partners are called venture capitalist (VCs). Venture capital is the most suitable option for funding a costly capital source for companies and mostly for

Venture capital is the most suitable option for funding a costly capital source for companies and mostly for business that have huge capital requirement with no other cheap alternatives. The most common cases of venture capital investments are seen in the fields of Software and other Intellectual property as the value is unproven and are considered to be the fastest growing.

Venture capital financing is a type of financing by venture capital. It is private equity capital provided as seed funding to early-stage, high-potential, growth companies (start-up) or more often it is after the seed funding round as a growth funding round (also referred to as series A round). It is provided in the interest of generating a return on investment through an eventual realization event such as an IPO or trade sale of the company[1].

Therefore from the above definition we can say that venture capital investments have the following features:

• It is a high risk investment made with an intention of making high profits
• The investment made are based on long term goals
• The investments are made in a start-up which are potential enough to grow
• The start-ups have lack of funding
• Money is invested by buying equity shares in the start-up company
• Investments are generally done in innovative projects like in the fields of technology and biotechnology
• Supplier of venture capital participate in the management of the company

What are the types of Venture Capital Financing?

The various types of venture capital are classified based on their application on various stages of business. The three main types of venture capital financing are:

• Early stage financing
• Expansion financing
• Acquisition financing

The various financing based on the stages of business development are as follows:

• Low level financing for proving and fructifying a new idea
• Start-up financing where the new firms need funds for expense relating marketing and product development

• First round financing which includes manufacturing and early sales funding
• Second round financing, which includes operational capital given for early stage companies which are selling products but not returning a profit
• Third round financing, which is also called a Mezzanine financing and includes the money needed to expand a newly beneficial company
• Fourth round financing also called Bridge financing and includes the financing the going public process.

The process of Venture Capital Financing

Venture capital financing is generally done following six main steps, namely:

• Deal Origination
• Screening
• Evaluation
• Deal Negotiation
• Post Investment Activity
• Exit Plan

The above-mentioned steps are explained in details below;

Deal origination

Origination of a deal is the primary step in venture capital financing. It is not possible to make an investment without a deal therefore a stream of deal is necessary however the source of origination of such deals may be various. One of the most common sources of such origination is referral system. In referral system deals are referred to the venture capitalist by their business partners, parent organisations, friends etc.

Screening

Screening is the process by which the venture capitalist scrutinises all the projects in which he could invest. The projects are categorised under certain criterion such as market scope, technology or product, size of investment, geographical location, stage of financing etc. For the process of screening the entrepreneurs are asked to either provide a brief profile of their venture or invited for face-to-face discussion for seeking certain clarifications.

Evaluation

The proposal is evaluated after the screening and a detailed study is done. Some of the documents which are studied in details are projected profile, track record of the entrepreneur, future turnover, etc. The process of evaluation is a thorough process which not only evaluates the project capacity but also the capacity of the entrepreneurs to meet such claims. Certain qualities in the entrepreneur such as entrepreneurial skills, technical competence, manufacturing and marketing abilities and experience are put into consideration during evaluation. After putting into consideration all the factors, thorough risk management is done which is then followed by deal negotiation.

Deal negotiation

After the venture capitalist finds the project beneficial he gets into deal negotiation. Deal negotiation is a process by which the terms and conditions of the deal are so formulated so as to make it mutually beneficial. The both the parties put forward their demands and a way in between is sought to settle the demands. Some of the factors which are negotiated are amount of investment, percentage of profit held by both the parties, rights of the venture capitalist and entrepreneur etc.

Post investment activity

Once the deal is finalised, the venture capitalist becomes a part of the venture and takes up certain rights and duties. The capitalist however does not take part in the day to day procedures of the firm; it only becomes involved during the situation of financial risk. The venture capitalists participate in the enterprise by a representation in the Board of Directors and ensure that the enterprise is acting as per the plan.

Exit plan

The last stage of venture capital investment is to make the exit plan based on the nature of investment, extent and type of financial stake etc. The exit plan is made to make minimal losses and maximum profits. The venture capitalist may exit through IPOs, acquisition by another company, purchase of the venture capitalists share by the promoter or an outsider.

Advantages and disadvantages of venture capital financing

The advantages and disadvantages of venture capital financing are various. Some of the advantages and disadvantages are given below.

• The autonomy and control of the founder is lost as the investor becomes a part owner.
• The process is lengthy and complex as it involves a lot of risk
• The object and profit return capacity of the investment is uncertain
• The investments made based on long term goals thus the profits are returned late
• Although the investment is time taking and uncertain, the wealth and expertise it brings to the investor is huge
• The sum of equity finance that can be provided is huge
• The entrepreneur is at a safer position as the business does not run on the obligation to repay money as the investor is well aware of the uncertainty of the project

Examples of venture capital funding[2]

Kohlberg Kravis & Roberts (KKR)

One of the top-tier alternative investment asset managers in the world, has entered into a definitive agreement to invest USD150 million (Rs 962crore) in Mumbai-based listed polyester maker JBF Industries Ltd. The firm will acquire 20% stake in JBF Industries and will also invest in zero-coupon compulsorily convertible preference shares with 14.5% voting rights in its Singapore-based wholly owned subsidiary JBF Global Pte Ltd. The funding provided by KKR will help JBF complete the ongoing projects.

Pepperfry.com

India’s largest furniture e-marketplace, has raised USD100 million in a fresh round of funding led by Goldman Sachs and Zodius Technology Fund. Pepperfry will use the funds to expand its footprint in Tier III and Tier IV cities by adding to its growing fleet of delivery vehicles. It will also open new distribution centres and expand its carpenter and assembly service network. This is the largest quantum of investment raised by a sector focused e-commerce player in India

Conclusion

In India, the venture capital plays a vital role in the development and growth of innovative entrepreneurs. Venture capital activities were primarily done by only a few institutions to promote entities in the private sector with funding for their business. In India, funds were primarily raised by public which did not prove to be fruitful in the long run to the small entrepreneurs. The need on venture capitals was recognised in the 7^th five year plan and long term fiscal policy of the government of India.

VC financing really started in India in 1988 with the formation of Technology Development and Information Company of India Ltd. (TDICI) – promoted by ICICI and UTI. The first private VC fund was sponsored by Credit Capital Finance Corporation (CFC) and promoted by Bank of India, Asian Development Bank and the Commonwealth Development Corporation viz. Credit Capital Venture Fund. At the same time Gujarat Venture Finance Ltd. and APIDC Venture Capital Ltd. were started by state level financial institutions. Sources of these funds were the financial institutions, foreign institutional investors or pension funds and high net-worth individuals. The venture capital funds in India are listed in Annexure I.

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[1] Wikipedia

[2] http://www.yourarticlelibrary.com/financial-management/venture-capital/process-of-venture-capital-financing-6-main-steps/72037/