Monthly Archive March 2019

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A Step-by-Step Guide on How to Register Your Property

Buying a home can often seem like a long, tedious process, but it all becomes worth the effort when you finally have a house to your name. However, there is one final step to complete before you can actually claim this property as your own. Registering your property is crucial because it gives you legal rights over it. Many homeowners delay the property registration process as they can pay their home loan and even move into the new house without having to register it. However, not doing so will leave you vulnerable to property disputes and prevent you from selling it later on as you will not be registered as the lawful property owner of the house.

According to section 17 of the Property Registration Act of 1908, a person will not be able to claim any legal right over a property unless it has been duly registered in their name. Registering the property is one of the most important things first-time home buyers need to know before investing since it may lead to legal hassles later on. As registering property can be expensive, many owners tend to put this off until later, claiming that they don’t have the required funds at present. But this will be a mistake in the long run because the amount payable as registration fees is calculated based on the current value of the property. By delaying the property registration process, you might have to pay a lot more later as the property appreciates. Getting your property registered in your name will also protect you from property disputes and allow you to sell it later on.

Property Registration Procedure

Registering your property is a very straightforward procedure as long as you do your research and have the required documents in place. Here are all the steps involved in the house registration process.

  1. Calculate Amount Payable as Stamp Duty

Stamp duty is a form of tax that is levied by the state government and is one of the most important elements of the property registration process. As the rate of stamp duty is decided by the state governments, it can vary between different states. It is either calculated as the current circle rate as specified by the state authorities or as a percentage of the total property value of the house, whichever of the two is higher. Typically the stamp duty in urban areas are higher than the stamp duty in rural parts of the state. Additionally, stamp duty for women is lower in an effort to encourage more women to become property owners.

2. Prepare the Sales Deed

A sales deed is one of the most important documents in the registration process. A legally valid sales deed needs to be typed on stamp paper which can purchased through a vendor or on an e-stamp paper which can be downloaded online. As it is a legal document, you will need to get a good lawyer to draft it on your behalf. Once the deed has been drafted and signed, the submission of documents to the sub-registrar should not exceed four months from this date of execution.

3.Collect Required Documents

When you meet your sub-registrar to register your property, there are certain documents they will need to check first. Having these documents ready can help the process go quickly and smoothly.

  • Government-approved ID and address proof
  • No Objection Certificate (NOC) for the property
  • Passport size photographs of the owner of the property and of two witnesses
  • Latest receipt for tax payment
  • Latest account statement from bank if still paying home loan on the property
  • Building plan that has been sanctioned by the concerned authorities
  • Title deeds of land owner
  • Cash or demand draft to pay stamp duty

You should also double check the documents with your lawyer to see if they are valid and if you need any additional documents as well. As legitimate property-related documents provided by your builder are very important to register your property.

4.Make an Appointment With the Sub-Registrar

Registration of property can only be done in the presence of the sub-registrar within which the jurisdiction of the property in question falls under. The property owner who has signed the sales deed documents needs to be present along with two witnesses.

5. Payment of Registration Fees

After the sub-registrar checks the documents and stamp duty paid for validity, you will be asked to pay the registration fees. If you have booked an appointment within four months of signing the sales deed, then the registration fee is 1.5% of the total value of the property . If you have exceeded four months, you can petition the sub-registrar to still consider your case, however, you will be asked to pay a hefty fine. Sometimes, this fan can even be 10 times more than the original registration fee.

6. Collecting Registered Documents

Once the sub-registrar approves the documents, they will give you back the registered original documents. They will keep a copy of the originals to maintain property ownership records. The registered documents will have the book and page number where the registration of property details are recorded.

A home is an investment of a lifetime, therefore, you need to protect your asset from fraud and disputes. Once you have registered your house under your name, no one can dispute your legal claim over it or prevent you from selling the property later. This is why first time homebuyers should ensure that the registration of property is completed as soon as they have received the handover.

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Public Limited Company Registration

What is Public Limited Registration ?

Public Limited Companies are companies whose shares are traded in stock market or issues fixed deposits. For Public Limited Company Registration, the company must have minimum 3 Directors, 7 Shareholders and Maximum 50 Directors and need Rs 5 Lakhs of Paid up Capital. A Public limited company have all the advantages of Private Limited Company and the ability to have any number of members, ease in transfer of shareholding and more transparency. Public Limited Registration is done through Legalraasta.

Choose Public Limited because

  • More preference is given to public limited company in giving loan.
  • By following compliance public limited company can list its shares on stock exchange.
  • Shareholders can transfer their Shares with great ease.
  • Limits the liabilities of its partners.



Documents Required For Public Limited Registration

  • Copy of PAN Card of directors
  • Passport size photograph of directors
  • Copy of Aadhaar Card/ Voter identity card
  • Copy of Rent agreement (If rented property)
  • Electricity/ Water bill (Business Place)
  • Copy of Property papers (If owned property)
  • Landlord NOC (Format will be provided)

Frequently Asked Questions

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GST Law Guides

Goods and Services Taxes  (GST) in an indirect tax. It is levied on value addition achieved at each stage of supply of goods and services. It is a comprehensive, multi-stage and destination based tax.

To decipher GST, we need to first understand what the term “multi-stage” means.

Before you buy any good from the market it has to go through various stages starting from manufacture or production till final stage. The first stage is buying of raw materials leading to the second stage that is production or manufacturing of the good leading to storing and warehousing of the goods so produced and then they are finally sold to the consumers. Tax is levied on each of this stage.

Now let’s understand what is meant by value addition. Let’s consider the manufacturer wants to make a car. To start with the manufacturer will first purchase raw materials, virgin steel, petroleum-based products or other components from the supplier. Post this, he will start making the chassis and the body of the car. So the value of the raw materials or components is increased once it gets converted into the car. Then the car is sent to the warehouse for painting, labeling, internal assembly which further add values to the car. GST is levied on each of these value additions.

How is GST  levied?

Let’s understand the application of GST via a hypothetical example.

Assume that the manufacturer of a shirt pays Rs.100 to buy yarn and other raw materials. Assume that the rate of the tax is 10% and there is no profit or loss then he has to pay Rs 10 as tax, hence the cost of the shirt becomes Rs. 110.

The wholesaler buys the shirt from the manufacturer, adds values of Rs. 40. Now the cost of the shirt has increased by Rs.40 and he also pays a tax @ 10% on this and therefore the final cost of the shirt becomes Rs 165 (110+40=150, tax @of 10% =15).

The retailer buys the shirt from the wholesaler of Rs. 165 and adds a value of Rs.30. Now the cost of the shirt including tax becomes Rs. 214.5.(165+30+ tax @10%= 195 + 19.5 = 214.5).

Under this scenario, the customer pays Rs. 214.5 for a shirt that technically cost only Rs. 170 (100+40+30).

This is called the cascading effect of taxes meaning tax is paid over tax.

With the roll out of GST cascading effect of taxes will be mitigated. As per the new taxation regime credit will be available for the tax paid in the acquiring input. Hence, the individual who has paid taxes already can claim credit for the taxes which he has already paid.

In this shirt example, when the wholesaler buys the shirt from the manufacturer he has already paid a tax of Rs.10 because that was included in the cost. Further, when he adds value of Rs. 40 his cost price becomes Rs. 140 and then he pays a tax @ 10% i.e. Rs. 14 but since a tax of Rs. 10 has already been paid he can get the credit of Rs. 10 and his net tax liability will be Rs. 4.

Now the retailer will pay Rs.154 to buy the shirt (140+14). He adds value of worth Rs. 30 so now the cost of the shirt becomes Rs. 170( 100+40+30). The retailer will pay tax over this @ 10%, i.e, Rs 17 but he will pay only Rs. 3 to the government as he will get credit of Rs. 14.

Under the GST framework, the cost of the shirt to the consumer will finally be Rs. 187, i.e. Rs 170 as total cost and Rs. 17 as total tax. From Rs. 214.5 the cost of the shirt has come down to Rs. 187.

Hence, GST will reduce the burden of taxes from the consumer as he will not have to pay tax on tax. He will only liable to pay the net taxes after availing the tax credit for the taxes which have already been paid in the manufacturing process.

In a nutshell, it can be said that the GST framework will bring two-fold benefit, one it will reduce the cascading effect of the taxes and by allowing input tax credit, it will reduce the burden of taxes and hopefully the price of goods and services.

Why is GST considered so important?

GST is considered most important tax reform since 1947 because of the following reasons –

  1. Simplified Tax Structure- In the current framework multiple taxes are exposed but after GST all these taxes will be eliminated and only GST will be levied which is way more simpler and easier to understand. A simple taxation system will lead to ease in compliance and leave the manufacturers with more time.  
  2. A catalyst for exports- When the cost of production reduces in the domestic market, Indian goods and services will become more competitive in other in foreign markets and hence help in increasing the exports. 
  3. Competitive Prices – GST will subsume all other types of indirect taxes. A fall in prices will lead to increase in consumption which in turn will be beneficial to the companies.
  4. Increased revenues to government- A simpler tax structure will lead to ease of compliance and thus reducing the number of defaulters and in turn, there will be an increase in the revenue from the government.

How will GST help India and common man? 
The common man has no idea about the amount of taxes he pays on goods currently. When we get a bill after buying a product, it gives the VAT we have paid which is actually an understatement of the total taxes paid. Therefore, the consumers today pay around 20% tax for every product they buy.

After GST kicks in it will help the consumer in two ways. All the taxes will be collected at the point of consumption and there will no taxes on taxes.

Few products and services will become expensive like currently, the mobile bills are attached with a Service Tax of 15% but after the implementation phone bills will attract tax at 18%. Cosmetics such as shampoos, perfumes, and makeup items will be taxed at the rate of 28% as opposed to the current rate of 22%.

All necessities and a lot  products will go cheaper like the tax on smartphones will come down from 13.5% to 12%. Or next time you go for a movie you can spend more on popcorn as the entertainment tax levied by the state have been subsumed under GST and effective rate has been kept at 18%. Transport services will also get cheaper as the effective GST rate for cab rides will be 5% as against a present rate of 6%. Your monthly grocery bill will give you happiness as food grains are exempted from taxes under GST regime.

GST will be replacing about 20 central and state taxes such as factory gate duties, service, and local taxes.

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Laws regarding bankruptcy in India

What is bankruptcy?

A bankruptcy is a situation where an individual legally announces that he is not in a position to service his debt obligations. The status of being ‘bankrupt’ relieves debtors from the legal obligation of debt payment to creditors.

What is the law regarding bankruptcy in India?

The Indian parliament has recently passed the Insolvency and Bankruptcy code 2016. The new code has replaced existing bankruptcy laws and covers individuals, companies, limited liability partnerships and partnership firms. It has also amended the Companies Act, 2013 to become the overarching legislation to deal with corporate insolvency.

The new code has created a new class of insolvency professionals who will help sick companies and banks with a smooth takeover of the insolvent company and manage the liquidation process.

The code has introduced a new entity, the Insolvency and Bankruptcy Board of India, which will regulate insolvency professionals and information companies – those which will store all the credit information of corporates.

It has also established two authorities to deal with insolvency. The National Company Law Tribunal will adjudicate cases for companies and limited liability partnerships, while the Debt Recovery Tribunal will do the same for individual and partnership firms.

Steps to file for bankruptcy as an individual

1. Furnish your balance sheet:  Since a bankruptcy involves you legally announcing your inability to service your debt obligations, it has to be proven in a court. Court establishes its decisions on evidences and in this case evidence will be in the form of the assets and liabilities you hold.
 
2. Hire a legal advisor: Get an expert advisor on board. Your advisor will study your balance sheet and explore the possibility establishing your case in the court. The advisor will provide an insight on individual filing or joint filing in case you are married.
 
3. File a proceeding for bankrupt status:  You should ask your lawyer to file for a bankruptcy proceeding. Once you win the case, you will be deemed bankrupt and will be relieved from continuous hounding of creditors.

What are the advantages of filing for bankruptcy?

  • Filing for bankruptcy will preventing creditors from taking action to collect their debts, and from repossessing property such as cars, including calling you, suing you, or sending you letters.
  • You will be able to discharge your obligation to repay any of your dischargeable debts.
  • You will be able to go through the bankruptcy process without losing any of your property.

What are the disadvantages of filing for bankruptcy?

Financial distress caused by bankruptcy can disrupt your plans – both for the present and the future.

  • All your assets are liquidated in case of bankruptcy. The amount obtained is simply drained out in settling creditors’ claims.
  • Once you file a suit for bankrupt status, the message is loud and clear that you are a defaulter. You lose credibility in the eyes of creditors
  • Filing for bankruptcy is a costly affair

How to avoid bankruptcy?

Get advice from a financial advisor: Financial advisor can help you manage your situation better. An advisor can not only identify hidden sources of fund but can also help in disposing of some liabilities.
Negotiate with your creditor: If you feel that buying little time might improve your situation a bit, negotiate with your creditor. Under normal circumstances, a creditor would not like you to file for bankruptcy and if you are able to convince him regarding your future cash flows, he will definitely listen to you.

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What to do when you are unable to pay Home loan EMIs

Buying a home is one of the most expensive investments you are likely to make in your lifetime. With property rates reaching new heights every year, home loans have been designed to meet your need of owning a house. Once the bank gives you a home loan, they expect you to start paying your EMIs every month until the end of the loan tenure. However what happens if you are unable to pay the EMIs? This guide will tell you what to do if you stop paying your EMIs.
 

Skipping your EMIs

The first thing you need to know is that a bank will not foreclose the loan if you defaulted on one or two EMI payments. Loan foreclosure is the last action a bank wants to exercise. But if you continue to fail to pay your EMIs for three consecutive months, the bank will send you due reminders of the same. Lack of response from your side will prompt the bank to send you a legal notice and you may be termed as loan defaulter.

What happens if you are declared as a loan defaulter?

Once you become a loan defaulter, the bank will start the process of seizing your property. They may auction your property and recover their due amount. The bank usually gives six months of time before auctioning off your house. Within these six months, you can approach the Bank anytime and settle the things out. 

What to do once you are declared as a loan defaulter?

Ask for a moratorium period – If you want to take any action you need to take before this auction. You should meet the bank officer and explain your situation, as to why you are unable to pay the EMIs as of now. Whether due to a health issue or you lost a job, if you feel you can persuade the bank that you will get on track in next 3-4 months, the bank may offer you with a moratorium period for some months.

Loan restructuring – If the reason for your financial woes is the rise in interest rates and you are finding difficulty in managing your EMIs, you can request the bank to restructure your home loan. The bank can increase the tenure of your loan and your EMI would go down.

Loan refinancing – If your bank is not ready to structure your loan and you find some other bank offering loan at a rate which is manageable in your financial arrangement, then you can consider refinancing your loan. However, do calculate your exact expenses in terms of processing charges and other levies.

Liquidating your investments – The final step that you can resort to if the above-mentioned options do not work out is that you liquidate your existing investments such as deposits or mutual funds to pay the EMIs. You can use this amount to make part payment for the loan which will reduce the EMI in future.

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Common legal bloopers a start-up should avoid

In recent years, we have witnessed a tremendous upsurge in start-ups business.This resurgence in entrepreneurial spirit could be attributed  to various favourable latitudes and easy-business ecosystem, which many countries are vigorously accommodating in their economic and social spheres. India in particular has really become a magnet for start-up hubs, attracting massive investments, evolving technology and burgeoning market. However, in the  excitement of launching a business, the necessary evils of legal considerations and compliances are often kept at bay. This could add up to a huge mistake that any entrepreneur can make.

Therefore it is very crucial for any entrepreneur or a would-be entrepreneur to keep following legal considerations in mind to avoid any blunders:-
 

Error in choosing the right corporate entity for your start-up

Some of the most basic questions a start-up faces are “Should i be an entity?” and of what type? Perhaps a corporation, LLC or proprietorship etc. What is best suited for my business? These common questions have serious consequences and an error in deciding on your business entity can lead to disaster for your start-up. A corporate structure ensures your “separateness”, which protects you from unlimited personal liability. Different structures offer different opportunities and restrictions. For example if you do not want losses for your start-up, go for a limited company.

Therefore it is imperative to consult a good corporate lawyer early on to make things easier in long run, especially if you wish to attract investors since this will ensure your start-up has all correct legal paperwork in order.
 

Not having a corporation or LLC members agreement

How do you decide who should act as a CEO, what should be the contribution of each member or how to split equity? There are so many questions that founders do not think about. Your long term business plans would seldom be consistent, if there is no instrument to determine your organisation’s operating terms.
 

Jeopardizing your intellectual property rights

Intellectual property is a start-up’s most valuable asset. Whether it is a trademark, patent or copyright, they all require legal protection. In the midst of various things that go into building a business, intellectual properties are often not in priority or are considered as too expensive proposition for a start-up to act on. If you don’t protect your intellectual property, you are exposing your business to others. Therefore, it is essential to register your intellectual property as soon as possible.
 

Not having adequate employment agreement

It is important to have a contract with everyone who is working in your start-up and their classification. Whether they are an employee or independent contractors, it is common for employers to provide computers, email and interest access. There should be a well-drafted work-place policies that govern how these systems can be used or restrict employees from sharing confidential information.
 

Not adhering to securities law

Once a start-up is incorporated, they normally issue stocks or equity to investors, friends or families etc. These are governed by securities law. Which are very complicated. Issuing stocks which do not comply with specific disclosures or filing requirements lead to serious legal repercussions.
 

Mixing your personal expenses with business expenses

When setting-up a start-up, there are chances where your personal and business expenses become indistinguishable. This can lead to confusion when taxes are being filed or deductions being disallowed by revenue authorities. The company therefore, should ensure there is a financial account early on itself and there should be a separate record of expenses.
 

Lack of proper documentation

Every activity or transaction in your start-up must be properly recorded. Documentation of employees and interactions involving your company is very important. These considerations have serious influence on due diligence procedures which can make or break an investment deals.
 

Not insuring important tax considerations

Adhering to a sound tax-planning is very crucial for your business, as it can save lot of money and protect you from incurring liabilities. It is important to take stock of your profit and loss statement regularly and pay taxes on time and in prescribed instalments. Your start-up must have a tax consultant to insure all regulations are being followed. This would give you more time to focus on your company.

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All you need to know about your Investor Term Sheet

Investment plays a critical role in backing up as well as making a business stand firmly in the initial stage and pitching your new business or start-up is the most critical exercise you will ever perform, if you wish to secure funding for your business. Amidst the big hullabaloo of pitching your start-up or new business to investors for months, you will finally secure: A Term Sheet (hopefully more than one) from an investor interested in funding you. This guide will try to explain you what exactly is a Term sheet and its implications on your business.

What is a Term Sheet?

A Term Sheet is perhaps one of the most important documents a founder will ever encounter. It outlines the “Terms and conditions” for an investment. These terms will define things like the agreed upon valuation of the company, price per share for the investment, the economic rights of the new shares and so forth. In addition to these a term sheet may specify some of the options, rights and responsibilities of each party.
Generally, a term sheet itself is not binding. It acts as a blue print for the formal legal documents that will be drafted by a lawyer. However, you do agree to confidentiality to not to enter into negotiations with any other investors at the same time.

What are the important clauses in a Term Sheet?

A Term Sheet can take many forms, from a single page or up to 7 or 8. And if you are first time entrepreneur, you may come across very confusing terms and conditions. A typical Term Sheet contains following important clauses: –

Valuation – 

This is the single most important term in a Term Sheet. The company’s Valuation along with amount of money invested determines the percentage of the company the new investors will own. This has direct Impact on who owns what and how much cash each shareholder shall receive when the company sells.

The valuation of the company is based on pre-money and post-money valuation. A pre-money valuation stipulates the company’s valuation before the investment and post-money valuation is simply pre-money valuation plus new investment.

There is lot of ambiguity regarding valuation. Sometimes a poor valuation can ruin the deal even if other terms were in your favour. But this is not necessarily true, because a great valuation may not guarantee success, if there are unfavourable terms on the term sheet.

Option Pool – 

A Term sheet may stipulate the creation of reserve of stock for existing and future employees. Option pool is used as the way of compensating services to the company through stocks.

Many founders calculate the option pool stock after post-money and force the investors to share in the dilution. But the standard for most term sheet should be to calculate it pre-money.

Types of Stocks – 

There are usually two types of stocks that are negotiated in the term sheet. Common stock and preferred stock. Common stocks are held by founders and preferred stocks are given to the investors. Preferred stocks come with rights, preferences and privileges, owing to the financial interest that holder this stock has in company.

Liquidation Preference – 

Liquidation preference clause is added for the protection of the investors. Investor would want your business to succeed so that their stake in the company is worth more than they invested. But what if your company is not performing well? A liquidation preference gives them some security of not losing all money. It determines the amount of money returned to investors against the original purchase price at the time of the liquidation of the company.

The Term Sheet defines what exactly constitutes a liquidation event. Perhaps it is mergers or acquisition or selling off your company’s assets. It does not mean winding-up or closing down of the company.

Participation Rights – 

Participation stipulates who gets a share of the remaining proceeds in liquidation event. The participating right offers following benefits to the preferred stock holders:

Full Participation – This means that a preferred stock holder gets not only their share of preference but also on the left over proceeds alongside the common stockholders.

Capped Participation – The preferred stock holders gets share of the leftovers up to a certain limit.
Non Participation – The preferred stock holders get no shares further share in the leftover proceeds, after the preference is paid.

Dividends – 

Dividends, expressed as percentage provide monetary amount to the shareholders by the company. All term sheet includes a dividend clause which lays down the dividends to be paid by the company.

Anti-Dilution – 

Anti-dilution is one of the most important clause of a term sheet. It protects investors from getting totally diluted in the event of a ‘down round’ i.e. when numbers of shares alter or lowers the price of the share.  

Pre-emptive rights – 

Pre-emptive rights are given to existing investors to give them preference to participate in the future round of the funding. This ensures that investors maintain the right to maintain their ownership by buying the proportionate numbers of shares of any future issue of the shares.

Board of control – 

This clause stipulates that a good mix of investors and promoters will form the part of the Board team. A third party may also be included to give an unbiased and fair decision. A Board observer may also be included at the insistence of the investors.

Vesting period of founders – 

Vesting means an ownership on the shares of the company. This clause is generally included to protect the investors in the event where founders exit. This ensures that founders do not invest too much, too soon. The average vesting period is of four years with one-year cliff period.

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What are the eligibility Criteria for Start-up India Initiative

The Indian Start-up ecosystem has clearly taken the nation by storm. Backed by factors like massive funding, consolidation activities, driven workforce and a massive domestic market, the fever of entrepreneurial spirit has mushroomed across various cities with such ferocious speed that the country is now being recognized as the biggest start-up hub in the world.

Recognizing the potential and talent of this young entrepreneurial rage, Government has also launched various schemes and plans to promote it. One such move is the Start-up India initiative. Launched on 16th January 2016, the scheme aims to promote Start-ups in India. The government has also published a notification on the eligibility of a Start-up for this scheme. The following eligibility criteria are –
 

Private company, Partnership or LLP

It must be an entity registered or incorporated as Private Limited Company under Indian Companies Act, 2013 or a Limited Liability Partnership under Indian Limited Liability Partnership Act, 2008 or a Partnership firm, registered under the Indian Partnership Act, 1932.
 

5 years must not have elapsed since creation

All Start-ups which have been incorporated or registered within past five years from the effective date of this are eligible to participate in this scheme.
 

Not formed by splitting or restructuring

If a Start-up was formed by splitting an organization into two or more organizations, it would not be eligible under this scheme. Similarly, an organization formed by reconstructing an organization shall also be ineligible.
 

Annual Turnover not over 25 crores

Annual Turnover of a start-up must not have exceeded rupees twenty-five crores in any of the past years since its incorporation or registration. Turnover means the aggregate value of the amount realized from the supply of goods or provision of services during a particular financial year.
 

Approval from DIPP that your business is innovative

Every Start-up has to obtain approval from the Inter-Ministerial Board set up by the Department of Industrial Policy and Promotion (DIPP). To obtain approval, you will have to submit an application to corroborate the innovative nature of your business along with supporting documents. Such as:

  • Recommendation from an incubator established in Post-Graduate College in India
  • Recommendation from an incubator funded by the Government of India in relation to a scheme to promote innovation
  • Recommendation from an incubator recognized by Government of India
  • Letter of at least 20% Equity Funding from an Incubation Fund or Angel Fund or Private Equity Fund or Accelerator or Angel Network, registered with Securities Exchange Board of India (SEBI). Such fund must not be listed in the negative list of funds as may be issued by DIPP in future.
  • Letter of funding from Central Government or State Government as a part of any scheme to promote innovation

The patent, filed and published in the Journal of Indian Patent Office, in areas affiliated with the nature of the business being promoted.

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Decoding a co-founder agreement

A Co-founder Agreement is an agreement between Co-Founders laying down the ownership, initial investments and responsibilities of each Co-Founder. This agreement acts as a safeguard in the event of any dispute, as it can provide protection to show what the co-founder agreed too.

Equity and salaries of each founder

Under this clause, equity ownership, profit or loss sharing and the salary of each founder is to be clearly stipulated. It is advised to include how change in salaries will be addressed as well.

IPR 

When you are working on building a product/company, business plan, you are  creating intellectual property (IP) for the company. This clause states that every IP developed belongs to the company and not the individuals creating it.

The direction of the company

This clause contains information about how the firm is going to run, how are the operations set to happen and in what direction,how things will proceed when you decide to expand the firm and hire new people under you, what happens in case of  an acquisition or closure.


Roles and responsibilities

Each founder is in the business for a specific set of roles and responsibilities. Those have to be stated under this section. Ensure that you clearly define the duties of each founder so that there is not duplication of work or any confusion of “who is to handle what” at a later stage. This clause should be so clear that, each founder knows exactly what he has to handle and what jobs do not fall under his umbrella of work.

Co-Founder details

This section talks about the founders, their family background, education details and work experience. It is mainly used for evaluation purpose by outsiders to check if the founders are actually capable enough of handling the business.

Equity breakdown and initial capital contributions

This section talks about the breakdown of assets – who owns what. It also talks about how much capital has each founder invested in the business. This section is and will always remain as proofs of investment by each founder. It should also cover important aspects like what percent of the equity is vested etc.

Management and approval rights

Under this section, the founders negotiate and agree upon decision making rights and approval rights. Who is going to approve budgets? Who is going to sign the cheques? Who is going to take decisions on everyday decisions? All these questions are answered in this section. Usually it is always better to have all the founders approvals and signs on all big decisions and the active partner can be responsible for all the day to day petty decisions.

Non-compete and confidentiality clauses

This clause includes all the confidentiality statements, which are private only between the founders and need not be disclosed to anyone except them.


Resignation, dissolution and removal of directors

This is the final requirement which talks about how everything is going to be distributed amongst the founders, in case of liquidation or closure of the company. It also talks about on what terms will one founder have the right to terminate another founder. Questions like what happens when one founder leaves need to be addressed.  Does the company or the existing founders have the right to buy back that founder’s shares and at what price?

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Guidelines on naming your company

The most basic and an important step in setting up your company is choosing an appropriate name for it. The naming should be in accordance with the Companies Act, 2013 or Limited Liability Partnership Act, 2008. There are three elements to the name of your company.

Name

The Companies Act or the LLP Act suggests that a unique and acceptable name be given to the set up. The name should not resemble any existing entity or LLP or trademark in the same industry. However, the same name for a company in a different industry may be allowed. Hence, the founders must ensure the sanctity of the names.

Object

The object part of the name is that which tells what is your company about and its business. It defines the company’s activity. Although two companies may share the same name, if their objects are different, the name will be allowed to be registered. However, it is important for the object part to be absolutely clear.

Constitution

This part of the company name defines the type of entity it is. Private Limited Companies are represented by Private Limited Company or Pvt. Ltd Company; One Person Companies are represented by OPC or One Person Company; Limited Companies are represented by LTD Company or Limited Company; and Limited Liability Partnerships are represented by LLP or Limited Liability Partnership.

Naming Guidelines

The Companies Act has laid down certain guidelines when it comes to naming a company.

  • Don’t use the Plural Version of any of the words in an already existing company name.
  • Do not try joining words or separating words.
  • Changing the tense or number of a word from the name is also not acceptable if the company works in the same industry
  • The use of different phonetic spellings or spelling variations does not make a name unique.
  • Do not add internet-related designations such as .com, .net, .edu, .gov, .org, .in to make the name unique.
  • Addition of common names or titles or the name of a place cannot be added to make the name sound unique. However, names with places may also be allowed if no objection from the existing company by way of Board resolution is submitted.
  • Different combination of the same words is not allowed. Example, Contractors and Dealers cannot be made Dealers and Contractors.