Are you a foreign entity, i.e. a company incorporated outside India including a firm or a group of individuals, looking to explore the business environment in India? If yes, then consider having a representative office in India. It will help you get an insider’s perspective of the local market and help you plan your investment strategies accordingly. With India being the fastest growing economy of the world, we believe this is the right time for you to enter the Indian market. Therefore, this post discusses the ways by which you can represent yourself in India which are as follows – a liaison office or a branch office or a project office in India. This post aims at giving you a clear idea about the roles and responsibilities of your representative offices so that you can grow your business presence in India and at the same time avoid any legal complications.
The establishment of your liaison/branch or project office will be regulated by subsection 6 of Section 6 of Foreign Exchange Management Act, 1999 (the “FEMA”) read and any notifications under Foreign Exchange Management Regulations,2000, which are amended from time to time. In July, 2014 the Reserve Bank of India (the “RBI”) published a master circular consolidating the existing guidelines on the “establishment of liaison/branch/project office in India. You will also need to register your representative office under Section 592 of the Indian Companies Act,1956.As some of these terms may not be familiar, we will review the meaning of liaison/project/branch office.
What is a liaison office?
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In this post, we will talk about angel investors and venture capitalists and what they look for. Both are sources of investment for your company. But there are some key differences in their approach, which as an entrepreneur you should know about before you chalk out your financial strategy.
Angel investors are usually affluent individuals with a net worth of $1 million or more, or who has an income of $200,000 per year (or $300,000 for a married couple) with the expectation that this income will continue into the future. Venture capitalists are usually private firms or companies that use other people’s money. They raise that money by offering investors a chance to take part in a fund that is then used to buy shares in a private company. Angels usually support entrepreneurship and invest in the entrepreneur as a person. Venture capitalists are more process involved; they mainly evaluate deals and make offers. Some venture capitalists also invest as angel investors. This often happens when they see a deal that is too early for, or otherwise not a good fit, with their venture fund’s goals, and decide to invest their own money into the company.
These are the key differences between an angel and a venture capitalist:
Investment: Angels typically invest between $25,000 and $100,000 of their own money. While there are deals that are more than $100K and less than $25K, this is the area most angels fall into. Venture capitalists invest an average of $7 million in a company.
Continue reading “ANGELS AND VENTURE CAPITALISTS”
In this post, we will discuss the procedure to incorporate your company in India. Once you have decided to set up your business you have to decide what would be the best structure for your start-up keeping in mind the nature of your business, your requirements and the long-term vision you have for your start-up. A company is incorporated and registered under The Companies Act, 1956 (hereinafter the “Act”). The Act provides for private and public companies.
According to Section 3(1)(iii) of the Act,
- A private company is a company limited by shares;
- The maximum number of shareholders in a private company is 50;
- No invitation can be made to the public for subscription of shares or debentures;
- A private company cannot make or accept deposits from the public;
- There are restrictions on the transfer of shares;
- The minimum number of shareholders is two;
- The minimum paid up capital at the time of incorporation of a private company is Rupees one lakh. There is no upper limit on the paid up capital and it can be increased any time, on payment of additional stamp duty and registration fee;
- A private company has “Pvt. Ltd.” at the end of its name after registration.
According to Section 3(1)(iv) of the Act, Continue reading “Incorporating your company in India”
In this post, we will attempt to understand what dilution is, how it works and what anti-dilution measures can be taken. As an entrepreneur, understanding the concept of dilution is very important in helping you raise capital for your business.
What is dilution?
Dilution is a reduction in the percentage ownership of a given shareholder in a company caused by the issuance of new shares. Dilution is good if the company manages to profit out of issuing new shares, but if the company fails to make a profit, then the dilution will reduce the value of your holdings. Dilution can be likened to the act of dividing the proverbial pie into ever smaller pieces.
How does dilution work?
Here is a simple explanation of how dilution works:
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In this post, we will look at the procedure to incorporate your business as a Limited Liability Partnership (LLP) in India, and the advantages of choosing to incorporate your business as a LLP. As an entrepreneur, the first thing you must do is decide what would be the best legal structure for your business. In many common law countries like India, a LLP can be a useful structure for a small and medium sized business presence in a location. This is because it can be easier to set up and manage than a corporation and provides some of the same liability protection (see the discussion of LLP advantages below.)
A Limited Liability Partnership can be thought of a combination of a company and a partnership that provides the benefits of limited liability and allows its members the flexibility of organising their internal structure as a partnership based on mutual agreement. The concept of Limited Liability companies (LLP) is relatively new in India. The Limited Liability Partnership Act was enacted in 2008 (the “LLP Act 2008“).
What are the minimum requirements for a LLP? Continue reading “LLP Incorporation in India”
In this post, we shall discuss how a deemed trust operates, its legislative history, and the amounts protected by them. One of the important concepts of the Canadian tax collection system is the collection of payroll deductions and HST by taxpayers as agents of Her Majesty. The amounts collected are sometimes misappropriated by taxpayers with cash flow problems, which has a huge impact on public finance. The Crown relies on the voluntary filings of taxpayers. The Income Tax Act (the “ITA”) entitles employees to apply the amounts deducted at source against their annual tax liability irrespective of whether or not these amounts were remitted to the Crown. In case these credits exceed the employees’ annual tax liability, the Crown will lose revenues from these failures to remit. The Crown will also have to pay a refund, which will result in a double loss. Therefore, to protect these amounts from being diverted to the tax debtor’s other creditors, the Parliament introduced a deemed trust mechanism.
How does a deemed trust operate?
According to section 227(4.1) of the ITA and section 222 of the Excise Tax Act (the “ETA”), on the failure of the taxpayer to remit payroll deductions and HST, all of the property of the employer shall be deemed to be held in trust for Her Majesty, not withstanding an security interest or any laws of Canada. The proceeds must be paid to the Receiver General.
Continue reading “The Deemed Trust Mechanism”
In this post, we want to explain to you (in case you were a little unsure,) what a board of directors is, how directors are appointed, and what some of their duties and responsibilities are. A board of directors of a company is one or more people appointed by the shareholders to manage the business affairs of the company. A well-chosen board of directors can be a great asset to your organisation, allowing you to focus your time and energy on developing ideas, products, services ( and money!), the board can strategise on taking the business to the next level and making sure the overall management of the company is appropriate. And so, all good owners, officers, senior managers, directors, and shareholders will be well served to understand the broad (Canadian) legal aspects of the creation and functioning of a board.
What are Directors and what do they do?
Corporations in Canada can be incorporated federally under the Canadian Business Corporations Act (the “CBCA”) or provincially under the corresponding provincial legislation. Your company is required by law to have a board of directors. Section 2 of the CBCA defines director as:
Continue reading “The board of directors of your corporation”
In this post, we shall discuss what a bring-down certificate is and what it entails. A bring-down is a provision requiring the representations and warranties that were made at the time of signing of an agreement to be made again on the closing date (or at another specified date). A bring-down condition is generally satisfied by the delivery of a certificate signed by an officer of a company certifying that the representations and warranties are true and correct as of the date of the certificate, subject to the conditions set out in the agreement. The bring-down certificate is delivered at the time of closing of a transaction. In transactions of a financial nature, this certificate may be delivered at the time funding is required.
Buyers often request as a condition to closing, a bring-down certificate from the seller in which the seller confirms that all the representations and warranties are still accurate as of the closing and that no obligations have been breached. The continued accuracy of the seller’s representations and warranties is made a condition of closing. Essentially, the certificate “brings down” the representations and warranties to closing. Since representations and warranties are usually intended to reflect the situation that exits on the day the agreement is signed, a bring down certificate is requested by the buyer to cover the period between the date the agreement is signed and the closing date. If a breach or non-compliance is discovered prior to closing, the buyer has the right not to proceed. The buyer shall also have the right to ask for damages.
For a transaction where the operative agreement (such as a merger agreement or purchase agreement) has to be signed before the closing, the certificate is signed by an officer of a company and delivered at the time of closing.
Continue reading “What is a Bring-Down Certificate?”
In this post, we will briefly discuss Promissory Notes and Warrants and their characteristics. Promissory Notes are a type of negotiable instrument. Negotiable instruments are legal documents guaranteeing the payment of money. A Warrant is a right to buy stock in a company at a future date at a pre-determined price.
A small business can protect itself from the many risks involved in giving loans to clients by making use of a Promissory Note. Anytime you extend credit to a client, you get the client to sign a Promissory Note guaranteeing payment.
What is a Promissory Note?
In Canada, Promissory Notes are governed by the Bills of Exchange Act (the BEA), which provides that they are unconditional promises in writing, made by one or more persons to another, engaging to pay a certain sum of money subject to certain requirements as to the promise. Section 176 of the BEA defines a Promissory Note as follows:
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In this post, we will briefly discuss and compare two Canadian procedures used to acquire a corporation (the “Target“) : a take-over bid and a plan of arrangement. A “Take-over Bid” is an offer to buy a company’s shares in order to gain control of the company’s business. A “Plan of Arrangement” is a court-sanctioned procedure that allows a companies to combine or effect one or more fundamental changes. We will look at the advantages and disadvantages of both these procedures. Both procedures are governed by the corporate legislation under which the Target is incorporated (federally or provincially.)
What is a take-over bid?
A Take-over Bid is a direct offer that is (as generally defined in securities law*) made to security holders of more than 20% of the outstanding securities of the Target. The bidder (“Acquirer“) may offer securities or cash or combination of both as consideration. A Take-over Bid can often be a hostile takeover, i.e. where the management of the target company is unwilling to agree to the takeover but the Acquirer continues to pursue it by directly approaching the shareholders.
Continue reading “Two ways to do Mergers and Acquisitions”