You must have gone through our earlier post on business structuring. This is an introductory checklist to help you get started with skills necessary to understand a transaction related to business structuring, investment, joint venture or M&A transaction.
Try to find answers to these questions when you are working on a transaction (irrespective of what work you are doing on it), and over time you’ll find your ability to grasp the details increase drastically.

Hint: Go through any communication between the parties and the ‘shareholders’ or ‘joint venture’ agreement. If you are drafting the agreement, make sure you ask this question.

You can try to answer these questions even with respect to a transaction you read about in a business newspaper or journal – but you may not have the information to all the questions. Nevertheless, it will help you in finding out points of inquiry. You can take a print out and write bullet points with a pen and paper in the blank spaces provided.

This is not an exhaustive checklist, and as you start improving your skills there will be many aspects you will want to have on your fingertips, but this is a great way to get started.

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  • What is the overall purpose of the transaction? What is the business activity sought to be conducted? Is it part of a broader transaction? (Hint: These objectives have to be extremely detailed in the objects clause of the ‘Articles of Association’ or a trust deed).
  • Are the parties to the transactions individuals or corporate entities? What is there nationality / place of incorporation
  • If one of them is a foreigner, do RBI guidelines or FDI regulations impact the transaction? Is foreign investment permitted in the sector?
  • Are there limits on the way in which money is to be repatriated to foreigners?
  • Are there sectoral regulations or a legislation imposing conditions on the conduct of such business activity in India?
  • Tax perspective – do you know how tax laws will impact various legs of the transaction? For example, think how income tax will apply to the revenues of the entity. How will the profit distribution or gains made by the parties involved be taxed? Are there other tax nuances (such as a transaction between related parties)?
  • How operations will be governed – who will be in charge of decision-making?
  • For which decisions is the approval of the other side necessary?

(Hint: Don’t try to memorize each item, but try to go through all the items and mentally classify them into broad categories)

  • How parties will take out revenues? Will dividends be distributed and upon what condition?
  • On what basis are the parties entering into the transaction? What representations have they made to one another?

(Hint: Unlike a transaction where you purchase a product off-the-market, an outsider cannot start or invest in a business on a ‘take-it-as-it-is’ basis – apart from its own fact-finding through a due diligence, it will also need to rely on certain representations of the parties. This is the ‘representations and warranties’ clause – you’ll have to take note of which representations are made.)

  • Which preconditions need to be satisfied before the obligations of the parties kick in? (Hint: Look at the conditions precedent clause. You will be frequently communicating with one side to ensure these are satisfied and preparing a ‘CP satisfaction’ list on the basis of this.)
  • What happens if the representations turn out to be untrue? What if a representation made to a foreigner is untrue? (Hint: you’ll have to research on the validity of indemnities to foreigners)
  • What are the mutual rights of parties with respect to inspection of accounts?

In case of a joint venture

  • What is the division of responsibilities between the parties and their (capital) contribution to the joint venture?
  • How will a deadlock in business decision-making be resolved?
  • How will disputes be resolved? If a dispute cannot be resolved, what options does a party have? How will its stake be valued? Is the method of dispute resolution or exit sufficiently clear for both parties or is it loosely drafted?
  • Who will own intellectual property rights to any new IP that is created by the venture?
  • Are there any milestones for the business? What if the business fails to achieve profitability or meet time-based milestones?


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