This article is written by Shamika Vaidya and edited by Abhyuday Agarwal, COO, iPleaders
There are certain basic statutes like the Contract Act, Indian Penal Code, Evidence Act, etc. which every lawyer needs to have a basic understanding about. Similarly, one of such statutes is the Companies Act, which can be crucial for you to succeed when you practice in a number of areas.
When someone says that he or she is a corporate lawyer or works at a corporate law firm, you could expect the person to be working in one of the following practice areas:
- General Corporate practice
- Mergers and Acquisitions (M&A) practice
- PE & VC investment practice
- Banking & Finance practice
- Capital Markets practice
- Dispute Resolution practice
- Projects practice
- Insolvency and restructuring practice
- White Collar Crime Litigation
If you practice commercial disputes, arbitration, corporate litigation, insolvency laws or debt-recovery related laws, even then you will find knowledge of company law essential for understanding the fact situation in a given scenario better.
If you work as an in-house counsel in a company, knowledge of company law is fundamental, as you will be involved in strategic decision-making by the company’s CFO and the promoters, corporate governance, due diligence, compliances, contracts and a bunch litigation by and against the company (you will brief law firms and arguing counsels where required).
Since company law is so essential to all the functions performed by an in-house counsel, companies in India have traditionally had a preference for hiring only those people as in-house counsels who are dual-qualified, that is, who possess qualifications as company secretaries (CS) and lawyers.
From our research, we found a huge gap between the course and what is expected today of corporate lawyers and in-house counsels – it is designed to fulfil the requirements of those who want to be company secretaries (not corporate lawyers) and assist companies with their secretarial work (record-keeping of various registers, resolutions, making filings to the Registrar of Companies and ensuring correct procedures are carried out for various aspects such as conducting meetings of the company).
That is why we had Komal Shah, a dual-qualified person with qualifications as a Company Secretary and a lawyer, who has herself worked as a company secretary and a lawyer in an in-house role (legal and compliance) both in India and abroad, anchor the development of our Diploma in Companies Act, Corporate Governance and SEBI Regulations and Certificate Course in Companies Act, both with live classes, simulation exercises and personalised feedback.
She had practiced in India and was involved in the IPO of IndiaInfoline in the year 2005 and then in Ireland where she worked in the banking and financial services industry (BFSI), which is a highly regulated sector globally. We also involved Suman Bahrunani, another lawyer and a company secretary with a few years of experience, assist her in creating the course.
As they have both have a qualification as a company secretary and have worked in the industry as lawyers they know where the gaps are. Hence, they know what is required to be taught to bridge those gaps, and are familiar with Lawsikho’s teaching methodology.
Let us see in this article in which areas lawyers are required to have a grip on company law and what work requires them to utilize this skillset.
General Corporate
Large firms have a general corporate team which is separate from the M&A and Capital Markets teams, whereas in smaller firms the ‘corporate’ team deals with all the corporate work.
If you work in the general corporate and lawyers have a detailed understanding of:
- Advise companies on investment options and entry routes into India
- Assist with incorporation of a subsidiary/branch office/liaison office of foreign entity in India
- Incorporation of subsidiary companies, especially of foreign parent entities (because these entities do not opt for a simplistic memorandum and articles which can work for domestic companies being incorporated by first-time promoters)
- Compliance with KYC and ultimate beneficial holding requirements
- Drafting and amendment of MOA and AOA
- Requirements for foreign companies to operate in India
- Directors and their fiduciary duties and liabilities
- Resolutions and meetings to take corporate action
- Delegation of functions by the board
- Layering and structuring of group companies
- Corporate restructuring (within the same company, i.e. amongst different classes of shareholders and debenture-holders or within the same group of companies)
- Buyback of shares
- Related-party transactions
If you are working for a listed company, then the range of compliance multiplies. In particular, you will be ensuring compliance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and SEBI (Prohibition of Insider Trading Regulations), 2015 on a daily basis. Compliance with many other regulations will be event-based, such as in case of acquisitions, buy-back, administration of ESOPs, delisting, etc.
M&A and Investment Lawyers
Investment lawyers work for Private equity funds, Venture Capital funds, Foreign Venture Capital Funds, High Net worth Individuals, Angel Investors and Strategic Investors.
Following is the scope of work for Investment Lawyer:
- Drafting work
- Draft documents like NDAs, Share Purchase Agreement, Shareholders Agreement, Share Subscription Agreement, Disclosure Agreement, Co-founders Agreement, Business Transfer Agreement, Asset Purchase Agreement and Scheme of Amalgamation.
- Structuring work
- Create a corporate structure for the transaction (involving entities in multiple countries)
- Undertake effective structuring of the deal which is does not violate applicable regulations
- Strategic Advice:
- Advise investors on exit opportunities during different stages of fundraising, an IPO or during an open offer.
- Advise investors on exercise of rights such as ROFO/ROFR, Tag Along.
- Advice on regulations for issue price, conversion formula and exit price.
- Negotiation
- Negotiating with the legal representatives of the other parties on various issues like Representations and Warranties, Protective Rights and consideration price to protect the client’s interest.
- Filing
- Filing of appropriate forms before Registrar of Companies for special resolutions, change in share capital, filing of Amended Articles, etc.
- Due-Diligence
- Due diligence on the affairs of the target company. One of the sections of due diligence is a ‘corporate’ section, to complete which you require a very comprehensive understanding of the Companies Act.
Apart from Companies Act, they also need to have latest updates and knowledge on RBI Master Directions, ODI Regulations, FPI Regulations, AIF Regulations, Foreign Portfolio Investor Regulations, Foreign Venture Capital Investor Regulations, 2000.
Company (Compromise, Arrangements and Amalgamation) Rules, 2017 and Company Act provisions involving Amalgamations (S.230-240), alteration of MOA, AOA, filing of documents and forms before various authorities as their scope of work revolves around the companies.
Banking and Finance Lawyers
Banks advance loans to the customers and companies and needs to safeguard its interests with regards to recovery. As a banking and finance lawyer, you will be involved in drafting and vetting of loan agreements, mortgage deed, deed of hypothecation, declarations and security trustee agreements. You need to understand powers of the board and shareholders, different kinds of form-filings before ROC and consents to be required by parties with which you have existing contracts.
Company law has a lot of provisions that deal with raising debt capital, inter-corporate loans and other types of loan transactions involving directors, companies, promoters or various stakeholders. These provisions and case law related to them must be staple knowledge of a lawyer working in their sector.
You may also be involved in structuring intra-group loans – where you need to be mindful of Companies Act restrictions on the number of layers the transaction has.
You will need to know the difference in compliance requirements for private companies, public companies and listed companies. For listed companies, knowledge of stock-exchange regulation requirements is important.
There may be KYC and tax-related aspects which you need to know, but those can be applied only once you are aware of the basics of company law.
Capital Markets and Securities Lawyers
Capital markets and securities lawyers are required to know company law inside-out, for the following types of work:
- Compliance
Capital markets lawyers assist with statutory and regulatory compliances for the issuer company, investors, merchant bankers, brokers, AIFs, mutual funds, venture capital funds and underwriters. These lawyers need to have a grip of SEBI regulations, such as:
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- SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 – required on a day-to-day basis.
- SEBI (Substantial Acquisition of Shares and Takeovers Regulations), 2011 – required in an acquisition scenario or if an acquirer acquires 5% or more shareholding, or crosses 26% shareholding.
- SEBI (Prohibition of Insider Trading Regulations), 2015 – required on a daily basis.
- SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 – For public issue of capital or qualified institutional placements from time to time
- SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market)Regulations, 2003
This is where compliance for a listed company deviates from the Companies Act. There are other regulations as well, but those mentioned above will be encountered most frequently.
- Advice
From time to time, capital markets lawyers provide advisory services as legal counsel to issuers, merchant bankers and investors on Initial Public Offering, Follow-on Public Offering, Right issues and Offer for Sale. Questions on dividends, minority rights, etc. are frequently dealt with. Advice on regulations for issue price and exit price will frequently be necessary.
- Due Diligence
Capital markets lawyers are required to perform comprehensive due diligence on the company’s affairs before the company undertakes an IPO, a follow-on public offer or a qualified institutions placement. Performance of due diligence requires a very solid grip on company law.
- Drafting issue documents and amending Articles of Association for listing.
Drafting of issue documents and amendment of articles of association for listing is undertaken by capital markets lawyers, such as Articles of Association & Memorandum of listed companies, prospectus and Red Herring Prospectus.
Dispute resolution lawyers
As a lawyer working in the dispute resolution team, you will be primarily visiting the following forums:
- Debt Recovery Tribunal
- National Company Law Tribunal
- Arbitrations
While there are certain special legislations applicable to these situations, such as SARFAESI Act, 2002, Recovery of Debts Due to Banks and Financial Institutions Act, 1993 Arbitration and Conciliation Act, 1996, your ability to take charge of the entire process will be based on how sound your understanding is of the following concepts:
- Minority shareholders’ rights
- Shareholder disputes
- Procedures for decision making – preparation of agenda, meetings, voting processes and recording of resolutions
- Powers of the board of directors to sell company property or create security over it
- Personal liability of the promoters in case of guarantees provided to lending banks
- Form filings in case of creation of security
- Terms of the Articles of Association
- Bank’s powers to regulate the affairs of the company
Insolvency lawyers
Some law firms deal with insolvency and bankruptcy code matters within their dispute resolution practice or their banking and finance practice, but there are others who have carved this as a separate niche area.
Insolvency work is very hard to perform unless you have a solid grounding in company law. Insolvency lawyers, when they represent a creditor, must file applications and represent their clients before National Company Law Tribunal. They should have an in-depth knowledge of the IBC along with Companies Act and rules like Company (Share Capital and Debenture) Rules, 2014 and with regards to the right of the shareholders, rights, duties and liabilities of directors, mergers, delisting norms, and board resolutions and voting rights.
If you are involved in advising the company on taking strategic decisions, you will need to know the following:
- Priority of payments (also called waterfall) in case of insolvency
- Difference in rights of debtors, debenture holders, equity and preference shareholders and how to restructure them
- Litigation processes before the National Company Law Tribunal
- Processes for meetings and corporate decision-making
- Restructuring and other methods outside of the Insolvency and Bankruptcy Code (to evaluate feasibility of alternatives when a company is faced with bankruptcy)
White Collar Crime Litigation
Some litigation firms are now specializing in white collar crimes. There are several regulatory statutes which prescribe criminal penalties for directors, such as Income Tax Act, Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, Legal Metrology Act, Food and Safety Standards Act, Prevention of Money Laundering Act, environmental legislations, etc.
Even under Companies Act, Section 447 of the Companies Act and Companies (Arrests in Connection with Investigation by Serious Fraud Office) Rules, 2017 are relevant.
Typically, a lawyer will be engaged by a company (and its directors) which is accused of having violated one of the statutory provisions that stipulates criminal punishment. The first aspect will be to obtain bail for the director, and the next will be to ensure that an adequate defense is put up. Lawyers’ inputs may be taken by the PR and media team as well as they try to manage the reputational mess that ensues from such situations. Whether the allegation is in respect of Companies Act or any other legislation, an understanding of corporate procedures, governance standards and decision-making is important to put up a sound defense.
How to start building your skill-set in company law
If you want to work in a corporate law firm or even as a dispute resolution practitioner who handles corporate disputes, knowledge and expertise of Companies Act is critical. The knowledge has to be directional and not disorganized or merely based on rote learning. You will need to learn how and where each aspect of Companies Act will be relevant if you are working in any of the practice areas highlighted above. Law school syllabi and even CS course syllabi are not adequate for this – you will know the difference when you take a look at the syllabus of the Lawsikho Diploma in Companies Act, Corporate Governance and SEBI Regulations or the Lawsikho Certificate Course in Companies Act.
Very well explained