Category: COMPANY LAWS

By now if you don’t know what a start-up is, it’s a crying shame, as the start-up culture in
India is in its prime of life. India has now 54 unicorn companies and is ranked world number
three beating our colonial master UK (currently number four) and is now only behind China
and the US (according to Hurun Global Unicorn Index 2021).
Indian entrepreneurs are surfing well on the rising wave of start-up culture as they are
supported by the government’s ‘Start-up India’ and ‘Make in India’ programs that have
encouraged comparatively simplified start-up compliances. However, with the rising
the complexity of technology and the worldwide nature of transactions, it’s more important than ever
for emerging businesses to have a solid legal base, the foundation of which is laid by certain
basic agreements, such as-
Founders’ agreement
It is basically a document that sets out the details of the position of founders of any business
entity, it contains a roadmap of roles, responsibilities, operational structure of the business
that needs to be adhered to, just like a preamble for the constitution. However, many a time
this agreement is not there or is drafted poorly by the start-ups which should be avoided at all
costs. As an entrepreneur, one should not meddle with these foundational documents by
giving excuses of ignorance or of cost-cutting.
Employment agreement/ Service Agreements
These agreements are kept to clarify the employment relationship between the employer and
the employee. It ensures that both the employer and the employees are informed of their
rights and responsibilities, as well as binding the parties to the company’s laws. Many start-
ups do not have such agreements or by-laws in place, which are rules that regulate how the
firm operates. As a result, they have trouble working properly. This has serious financial
consequences, and the aftermath makes it impossible for the company to survive.
Confidentiality Agreements or Non-Disclosure Agreements (NDAs)
NDA is a budget-friendly technique to protect unnecessary exploitation of one’s business
concept. These days more & more work is outsourced to project-based employees or to
freelancers who cannot be entrusted with full accountability. The startups expose to risks
like the theft of ideas and other confidential business information which might be used
against the business. Hence, to avoid such scenarios, NDAs need to be drafted and used by
start-ups while discussing critical business information with people outside the organization.
Intellectual Property Agreement
This is a specific further addition to the NDAs, as the whole basis of the start-up drive intends
to pursue advancement, improvement, and commercialization of new products or processes,
driven by innovation which is nothing but their Intellectual property. The initial step for any
Start-up is to assess and focus on the IP Rights engaged with its business-like- Trademarks,
Copyrights, Designs, or Patents assume a vital part in any industry. Now and then IP
Rights are the main resource accessible and mystery ingredient with a Start-up. New
businesses can use the ‘Plan for Start-ups Intellectual Property Protection (SIPP) under the
Start-up India drive. Thus, having complete ownership and utilization of your IP is of utter
importance.

User Agreement/ Privacy policy
These days almost every business holds an online presence through a mobile app or via
the website. Consequently, it is essential to have an agreement between the app/website owner
and the user/customer, who is going to avail of the respective goods and services. It includes
limitations on how the site can be used, disclaimers, liability limitations, disclosure on the
site’s privacy policy in dealing with customer information, copyright protection warnings. It
also mentions the jurisdiction of the adjudicating authority in case of any dispute, which is
generally the principal place of the website/business owner.
Apart from these agreements, a proper winding-up or exit strategy should be designed by the
business owner. Although, no entrepreneur creates a start-up only to shut it down many times these entrepreneurs hold unusually high expectations from their business model that
they don’t want to even consider the scenario as to what will happen if their start-up fails.
This delusional attitude must be done away with and the whole winding-up process ought to be
made explicitly clear to all the stakeholders well in advance, to avoid any future litigations
based on personal grudges.
Lately, it has been observed that due to a lack of legal awareness various start-ups do not pay
much heed to these basic agreements and often get entangled in complex situations, either
due to the absence or poor draft quality of these agreements. Having these agreements in a place with proper drafting can avoid many of the common pitfalls that a start-up may encounter and can ensure the long-term efficacy of the business.

BY

Atul Bhatt
LLB, 3rd year
Campus Law Centre
University of Delhi

Introduction
Due diligence is that the process by which legal, monetary, confidential, and other important information is studied, traded, and evaluated by the parties, and it’s done before finalizing the deal. It is also an investigation and risk calculation of a future business transaction. It’s a careful assessment of a business or persons or the performance of an act with certain care to make sure that the information is precise and proper and to get the information that will affect the results of the deal. This process is employed to analyze the pros and cons of the proposed merger and acquisition. Sometimes this process helps to get the hidden facts associated with the proposed mergers or in other words we will also say that it sometimes also helps discover the facts which are being hidden by either of the parties intentionally. Due diligence is additionally important to permit the investigating party to understand everything that it needs to know. In today’s world, it’s quite common that people tend to misrepresent the facts about their business and try to fraud another person for his or her own benefit therefore the process of due diligence helps to make sure the investigating party gets all the relevant facts about the targeted party.

Various aspects of Due Diligence
The various aspects for Due Diligence are as follow:
1. Financial Aspect – Under this aspect, the most focus remains on the accounts book of the companies, their financial history, or any pending debt of the parties of the proposed merger.

2. Legal Aspect – Under this aspect, the most focus remains on the contracts of the corporate, the agreements of which the corporate is a component of or any pending litigation against any of the parties of the proposed merger.

3. Commercial – Under this aspect, the most focus remains on the market strategy followed by the parties, market dynamics, Goodwill of the corporate which eventually helps the parties to the merger to make a decision the exposure of the proposed merger in the future.

4. Human resource – Under this aspect, the most focus remains on the utilization policy, which also checks the work environment, the dedication of the workers towards their employers. They also make sure is there any lawsuits filed by the workers against their employer and also the working environment is additionally vital because it directly affects the performance of the workers.

5. Tax – Under this aspect the most focus remains on the very fact that the parties have paid all their taxes on time, which eventually helps to make sure that there’s not any corruption happening within the company by evading the taxes.

Case Laws
1. Google and Nest
Google acquired nest labs in 2014 to enter into the market of smart homes. While google worked efficiently on the software but couldn’t cope up with the hardware and merchandise innovation. This led to internal fighting and politics within the Nest which affected the merchandise innovation of the corporate and ultimately both the founders had to later quit the corporate.

2. HP and Autonomy
In 2011, HP acquired Autonomy, a European data analytics company. But, later it had been acknowledged that Autonomy had cooked their books which resulted in the increase of their prices during acquisition. HP couldn’t gain anything from the acquisition and ultimately had to write down down the acquisition as a $9 Billion Loss.

Conclusion

Due Diligence is a very important part of the merger and acquisitions process. An M&A transaction typically requires a buyer and its counsel, advisors, and accountants to undertake a big amount of due diligence.

By

Vaidik Sharma

C-41

B.A.LLB 5th Year

Bharati Vidyapeeth, New Law College, Pune

Introduction

A company is an artificial person which means it does have a legal entity, but it does not have any physical existence. That is why a natural person is needed to manage its day to day affairs. Only a natural person can be a director i.e., an individual. The first directors are appointed by the subscribers of the memorandum. If no first directors are appointed then the people who are subscribers become the first directors. The first directors hold the office until the first Annual General Meeting (AGM) is not conducted. Directors owe commitments to the company, directors are appointed by the company’s board to run the achieve company’s endeavors for the upsides of the investors.

Number of Directors in different types of companies

Every company must have directors. The least number of directors that every company should have is mentioned in Section 149 of The Companies Act, 2013.

• Public Company: 3 or more
• Private Company: 2 or more
• One Person Company: At least 1

Though a company cannot have more than 15 directors. This number can be increased if they pass a special resolution for the same.

Different Duties of Director

The position of the director in any company might be difficult to explain. Directors sometimes play the role of trustees, sometimes as agents and sometimes also as managing partners of the company.

• Directors as Agents

The directors are the agents of a company according to law. The company being an artificial person can act just through the directors. Concerning, the connection between the directors and the company is just similar to the common connection of principle and agent. The connection between the directors and the company falls under the ambit of the general principle of agency. At the point when a director signs in the interest of the company, it is the company that is held liable and not the director. Additionally, they are also required to disclose if they have any personal interest in the said transaction.

• Directors as Trustees

Directors are also trustees of all the assets of the company. A trustee can make contracts in regard to the trust property in his name however the directors do not have the authority to do so. They can make such agreements under the common seal of the company. They are only quasi trustees because they are not trustees for the debt of the company or its creditors or shareholders. The directors while working as a trustee should also act in good faith.

• Directors as Managing Partner

In a company, the administration is in the possession of plural directors. Along these lines, the directors are partners (the term partner used in the sense of the Partnership Act. Though a director cannot act without prior approval of the Board of Directors. That is why unlike a partnership firm a single partner cannot act as a managing partner in a company.

Conclusion

The Directors should always stay vigilant to avoid threats against them or the company. They should try to attend each board meeting and should be fully aware of the company’s business. Only participation in the meeting is not anymore enough, it also must be ensured all questions or expressed dissents are properly recorded within the minutes of the meeting, this is often extremely important and maybe pertinent evidence to avoid the legal hassles at a later date. Proper training for directors on Corporate Governance is important and can equip them to figure within the best interest of the organization.

By

Vaidik Sharma
B.A.LLB 5th Year
Bharati Vidyapeeth, New Law College, Pune

• Introduction

Before we discuss the above-mentioned topic at length it’s imperative on our parts to understand ‘CSR’ and ‘PM Cares’ in all lucidity.

Under Section 135 there are certain characteristics given which if a company qualifies is liable to maintain a CSR fund which makes it mandatory to divert 2% of their average net profit towards CSR activities within three preceding years. The Act prescribes that every company having a net worth of Rs. 500 crore or more, or turnover of Rs. 1,000 crore or more, or a net profit of Rs. 5 crores or more during any financial year will be required to maintain a CSR Fund.[1]

PM Cares fund later on May 26, 2020, was brought in Schedule VII, through a retrospective amendment, based on the argument that PM Cares was set up by the central government.

• Critical evaluation

In a democratic structure like India, it becomes imperative at times that a holistic system of transparency is adopted and religiously followed by every entity and individual working within the domains of the country. However, the system seems evidently opaque by the inclusion of PM Care Fund in the same, is damaging the whole foundation with which CSR Fund was established, mainly of the two reasons:

• Not in the ambit of RTI: The first and the foremost argument that swims to the surface is how PM Cares fund has been kept out of the ambit Public Authority, and it’s for this reason that it automatically gets out of the purview of RTI. The biggest misery behind that is, if this so happens then no transparency can be assured as to what amount and kind of funds are being allocated by any entity at large.
• No Redressal forum: The second fallacy remains intact, is that with the given situation in hand, all alternatives have been pushed out of the table. As the first step of redressal has only been shut down. This implies that with no RTI available the authenticity of the transfer made by any entity cannot be questioned. This construes, that one has no forum to approach regarding the transfer made by any firm from it’s CSR Fund towards PM Cares.

• Conclusion

Though CSR has been proved to be pivotal in aspects of social and economic development of the downtrodden, however yet it is not free from the clutches of corruption and malpractices, like that of inclusion of the PM care Fund and the efforts of removing the transparency. It’s because of this reason that CSR is still seen with a critical lens.

BY

AVANTIKA SHUKLA

BA-LLB 3th Year

BVDU NEW LAW COLLEGE, PUNE

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[1]  https://economictimes.indiatimes.com/news/company/corporate-trends/companies-may-face-penal-action-for-not-meeting-csr-rules-nirmala-sitharaman/articleshow/70459453.cms

The most awaiting amendment took place in the definition of micro, small and medium enterprises after the announcement made by the Finance Minister Smt. Nirmala Sitaraman on 13^th May 2020.The government announced a package of 20 Lakh Crores to support the business comes under the MSME sector.

It is become the Hot Topic of discussion that what is MSME, which business activities comes under MSME,how to get registration under MSME, what are the benefits that a business can reap out the registration under MSME, Constitution of Business, and Major Announcement made by Finance Minister for MSME . So in present blog we have made an attempt here to address precisely the activities comes under MSME, and activities not included under MSME.

What is MSME

It is known as MICRO (in Hindi it is ‘Suksham’), Small (In Hindi it is termed as “Laghu”) & Medium (In Hindi it is termed as “Madhyam”) Enterprises.

A separate Ministry is there which is looking after the matter related to MSMEs. Further, an Act namely Micro Small & Medium Enterprises Act, 2006 is also there to the benefit of MSMEs.

Before the announcement of amendment the Micro Small or medium Enterprises Development Act 2006 was provided for classification of enterprises engaged in manufacturing or production of goods as well as enterprises engaged in providing or rendering of services as micro, small and medium based on investment in plant and machinery and equipment respectively.

Now after the amendment as announced, there are two broad changes in the definition of MSMEs, the separate investment limits as manufacturing unit and service unit are done away with and In addition to the Limits of Investment, Turnover Limits are to be seen in order to test the eligibility

Existing MSME Classification
Criteria  :  Investment in Plant & Machinery or Equipment
Classification	Micro	SmallB	Medium
Mfg. Enterprises	Investment <Rs. 25 Lac	Investment <Rs. 5 Cr	Investment < Rs. 10 Cr.
Service Enterprises	Investment <Rs. 10 Lac	Investment < Rs. 2 Cr	Investment <Rs. 5 Cr.
Revised MSME Classification
Composite Criteria  :  Investment And Annual Turnover
Classification	Micro	Small	Medium
Manufacturing & Service Enterprises	Investment <Rs. 1 Cr And Turnover <Rs, 5 Cr	Investment <Rs. 10 Cr And Turnover <Rs, 50 Cr	Investment <Rs. 20 Cr And Turnover <Rs, 100 Cr

Activities Covered under MSME Act 2006 eligible for registration.

The Micro Small or medium Enterprises Development Act 2006 provides for classification of enterprises engaged in, manufacturing or production of goods as well’ as enterprises engaged in providing or rendering of services as micro, small and medium. The following table dissipates the activities covered under MSME with 2-digit NIC code (National Industrial Code)

NIC Code (2 Digit)	Activity	NIC Code (2 Digit)	Activity
01	Crop and Animal Production, hunting and related service activities	49	Land transport and transport via pipelines
05	Mining and quarrying	50	Water Transport
06	Extraction of Crude, Petorl and Natural Gas	51	Air Transport
07	Mining of Metal Ores	52	Warehousing and support activities for transportation
08	Other mining and quarrying	53	Postal and Courier activities
09	Mining support service activities	55	Accommodation
10	Manufacture of Food products	56	Food and beverages service activities
11	Manufacture of beverages	58	Publishing activities
12	Manufacture of tobacco products	59	Motion Picture, Vedeo and Television programme production, sound recording and music publishing activities
13	Manufacturing of textiles	60	Broadcasting and programming activities
14	Manufacturing of wearing apperals	61	Telecommunication
15	Manufacture of lether and related products	62	Computer programming, consultancy and related activities
16	Manufacture of wood and products of wood and cork except furniture, manufacture of articles, of straw and plaiting materials	63	Information Service activities
17	Manufacture of paper and paper products	64	Financial service activities, except insurance and
18	Printing and reproduction of recorded media	65	Insurance, Reinsurance and Pension funding except compulsory social security
19	Manufacture of coke and refined petroleum products	66	Other financial activities
20	Manufacture of chemicals and chemical products	68	Real Estate Activities
21	Manufacture of pharmaceuticals, medicinal, chemical and botanical products	69	Legal and accounting activities
22	Manufacture of rubber and plastic products	70.	Activates of head offices, management consultancy activities.
23	Manufacture of of other non-metallic mineral products	71.	Architecture and engineering activities, technical testing and analysis
24	Manufacure of basic metals	72.	Scientific Research and development
25	Manufacture of fabricated metal products, except machinery and equipments	73	Advertising ank Market Research
26	Manufacture of computer, electronic and optical products	74	Other professional scientific and technical activities
27	Manufacture of electrical equipments	75	Veterinary activities
28	Manufacture of machinery and equipments n.e.c.	77	Rental and leasing activities
29	Manufacture of motor vehicles, trailers and semi trailers	78.	Employment activities
30	Manufacture of other transport equipment	79.	Travel agency, tour operator and other reservation service activities
31	Manufacture of furniture	80	Security and Investigation activities
32	Other Manufacturing	81	Services to building and landscape activities
33	Repair and installation of machinery and equipments	82	Office administrative, office support, and other business support activities
35	Electricity, gas, steam and air conducing supply	84	Public administration and defence, compulsory social security
36	Water collection treatment and supply	85	Education
37	Sewerage	86	Human Health activities
38	Waste Collection treatment and disposal activities Materials recovery	87.	Residential Care activities
39	Remediation activities and other waste management services	88.	Social work activities without accommodation
41	Construction of building	90	Creative, arts and entertainment activities.
42	Civil Engineering	91.	Libraries, archives, Museums and other cultural activities
43	Specialized construction activities	92.	Gambling and betting activities
		93.	Sports activities and amusement and recreation activities
		94.	Activities of membership organization
		95.	Repairs of computers and personal and household goods
		96.	Other personal service activities.

Activities (NIC codes) not covered under MSMED Act, 2006 for registration.

As per the Government of India’s clarification vide notification for SME section the activities in following Table would not be included in the manufacture or production of goods or providing or rendering of services in accordance with provisions of the Micro, Small and Medium Enterprise Development Act 2006.

NIC Code (2 Digit)	Activity
02	Forestry and logging
03	Fishing and aquaculture
45	Wholesale and retail trade and repair of motor vehicle and motorcycles
46	Wholesale trade except of motor vehicles and motor cycles 47
47	Retail Trade Except of Motor Vehicles and motor cycles
97	Activities of households as employees for domestic personnel
98	Undifferentiated goods and services producing activities of private households for own Use
99	Activities of extraterritorial organization and bodies

The NIC 2-digit activity 01- crop, animal production, hunting and related activities would also not be included as per provisions of the Act except for the sub-classes of activities at 5-digit level given in following Table

NIC Code (2 Digit)	Activity
01462	Production of eggs
01463	Operation of poultry hatcheries
01492	Bee- keeping and production of honey and beeswax
01493	Raising of silk worms, production of silk worm cocoons
01612	Operation of agricultural irrigation equipment
01620	Support activities for animal production
01631	Preparation of crops of primary markets i.e. cleaning, trimming, grading disinfecting
01632	Cotton ginning, cleaning and bailing
01633	Preparation of tobacco leaves
01639	Other post-harvest crop activities, n.e.c
01640	Seed processing for propagation