Starting Up Legal Aspects for Consideration

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S TARTING U P – L EGAL A SPECTS FOR C ONSIDERATION

Legal Strategies :

Choice of Entity Funding Options Protecting your Intellectual Property Compliances Contracts Legal Strategies

Choice of Entity:

Choice of Entity Private Company Public Company LLP Partnership Proprietorship 1 Person Venture More persons jointly Partnership with Limited Liability Popular Vehicle Established Stage

Sole Proprietorship:

Sole Proprietorship Sole Proprietorship Concern 1 Person Venture Unlimited liability (Personal Assets may also be attached) Limited Funding Options Taxed at Individual Level

Partnership :

Partnership Relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all No Separate Legal Entity Unlimited Liability (Joint and Several) Rights and Obligations as per Partnership Deed Limited Funding Options

Limited Liability Partnership:

Limited Liability Partnership Separate legal entity Fusion of Partnership and Company Partner’s liability limited to partners’ contribution Financing options limited due to lack of clarity on FDI, non-availability of other forms of financing like private placement, IPOs

Private Limited Company:

Private Limited Company Minimum Capital Requirements – Rs. 1 lakh Minimum Member Requirements – 2 Members Minimum Compliance Requirements – Board and General Meetings, Reporting required in cases like changes in directors, capital, registered office etc. and Annual filings like Annual Return and Balance Sheet Wider Funding Options – Vehicle preferred by PEs/VCs

Comparison:

Comparison Criteria Partnership LLP Limited Company Number of Partners/ Shareholders Minimum 2 Persons 10- Banking 20- Non Banking Minimum 2 Persons - no maximum unlimited 2 - 50 – Private Company 7 - unlimited - Public Company Legal Entity No Separate Legal Entity Body Corporate Body Corporate Liability Unlimited – may extend to personal assets of Partner/s Limited to the extent of Partner’s contribution Limited to the extent of unpaid share capital Compliances No major requirement Annual Returns, Financials and other returns based on events Company Secretarial (Statutory Records, Board Meetings, General Meetings), Annual Accounts and Annual Returns to be filed Tax Income of Firm taxed in the hands of the Firm Similar to Partnership Corporate Taxation (around 30%) Management Managed by the Partners Managed by the Partners Separation of Ownership and Management – shareholders, Board of Directors Dissolution/Winding up Retirement/Dissolution of Partnership Procedure as per LLP Act Very procedural and long drawn

Incorporation of Private Company – Typical Process:

Incorporation of Private Company – Typical Process

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Funding Options

Funding Options:

Funding Options Proprietorship Partnership Public Company Private Company LLP Main reliance on bootstrapping Loans from Banks and Financial Institutions Equity, Debt, hybrids to indian and Foreign Investors Possibility of Public Issue upon reaching certain scale of business Equity, Debt and hybrid instruments Easy access to foreign investments Partners’ Contribution (Capital, Land, Building etc.) Loans Similar to partnership FDI Regulations are not yet in place

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IPR Protection

IPR Protection:

IPR Protection Trademarks Advisory Registration Searches Registration strategies Replies and registrations Copyrights Patents Industrial Designs Post Registration Renewals Oppositions Prevent unauthorized users Protection against Passing-off Licensing, assignment and royalty matters IPR Protection Oppositions Prevent unauthorized users and action against the unauthorized users Protection against Passing-off actions IPR Protection

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Compliances

Compliances:

Compliances Company Law Board and General Meetings Statutory Registers, Filings and Other Compliances Labour Law Dependent on Nature of Business and Number of Employees Shops and Establishments, Provident Fund, Gratuity

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Contracts

What is Contract?:

What is Contract? Offer Acceptance of Offer Consideration Agreement enforceable in the eyes of law Written Understanding between Parties

Why it assumes importance?:

Why it assumes importance? Outlines broad framework of understanding between Parties Clear-cut demarcation of roles, responsibilities and obligations Evaluation, Identification and Mitigation of Risk Reduce Ambiguities Recommended to have legal practitioners draft/review

Types of Contracts:

Types of Contracts Contracts IPR Human Resources Transactiona l Commercial Vendors Customers Distribution Franchise Service Agency Marketing Promoters/ Founders Employment Consultancy Non-Compete/ Non-Solicit Shareholders Investments Joint Ventures Asset Purchase Business Transfer Non-Disclosure Assignment Licensing

Contracts - Key Terms:

Contracts - Key Terms Typical terms include – Clear Description of Parties Scope of the Agreement Commencement of Obligations – from date of execution or specific date Milestones Term

Contracts - Key Terms:

Contracts - Key Terms Confidential Information Representations & Warranties Indemnity Limitation of Liability Assignment/Protection of Intellectual Property

Contracts - Key Terms:

Contracts - Key Terms Non-Compete, Non-Solicit Dispute Resolution Governing Law Amendment and Waiver Termination – with cause, without cause

Termination of Contract:

Termination of Contract Without cause - Expiry of term Completion of obligations Parties wish to move on With cause – Breach of Contract Obligations /consequences of Termination

Remedies for Breach:

Remedies for Breach Compensation for loss or damage caused by breach Civil remedies Suit for specific performance or damages Injunctions – Temporary or permanent Suit for recovery/compensation

Indemnity & Limitation of Liability:

Indemnity & Limitation of Liability Loss, damages and expenses arising from negligence of one Party Liability limited to direct losses, claims and expenses (as against indirect losses like loss of business, profits etc.) Limiting Liability to a mutually agreed amount/percentage (2x the value of the Contract)

Dispute resolution:

Dispute resolution Negotiation and amicable settlement Escalation to Dispute Resolution committee/ senior management Arbitration (sole/panel of 3 arbitrators) Litigation

Dispute resolution:

Dispute resolution Arbitration Mutually appointed arbitrators Informal, flexible as compared to formal process of courts Time and Cost-effective Litigation Formal process by Courts Fraught with delays

Jurisdiction of courts :

Jurisdiction of courts As per mutual agreement Place of Business /Parties Where cause of action arises? Neutral Venue Jurisdiction recommended to be specified in the contract

Governing Law :

Governing Law Typically place of Business/Parties As per Mutual Agreement Neutral Venue Governing Law recommended to be specified in the contract

Binding Nature :

Binding Nature MoU (Memorandum of Understanding), Term Sheets - not binding unless expressly mentioned Subject to Definitive Agreement to be executed between parties – which shall be of binding nature

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QUESTIONS?

Contact Us:

Contact Us U NIVERSAL L EGAL Sharanya G Ranga Partner in charge Mumbai sharanya@universal-legal.com India Locations * Bangalore *Chennai *New Delhi *Mumbai *Chandigarh U.S Locations *Los Angeles *New Jersey *Atlanta *Silicon Valley * Fairfax

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