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Agreements, Contracts and Agreement, Joint Venture Agreement

For an Indian company can partner with a Foreign Company, Joint Venture is the solution. This article will talk on the lines of eligibility criteria, power distribution, and taxations involved.

Indian joint ventures usually comprise two or more individuals or companies, one of whom may be nonresident, who come together to form an Indian private or public limited company, holding agreed portions of its share capital. A joint venture agreement primarily provides rules by which the shareholders of the joint venture company may transfer or dispose of their shares. It is also commonly referred to as a shareholder’s agreement.

Remember, In order to protect sensitive business information from being divulged to others, confidentiality and non-disclosure agreements are entered into, prior to commencing negotiations of Joint Venture. Which we Wazzeerians think is the best practices of negotiation.

Key Eligibility Criteria:

  1. In certain areas such as telecommunications, drugs & pharmaceuticals, hotel & tourism, or advertising foreign investment up to 50%, 51% and/or 74% in the Joint venture without RBI approval.
  2. For more than 74% of the total equity in a joint venture company or to establish a Wholly Owned Subsidiary (WOS), permission must be obtained either from the Foreign Investment Promotion Board (“FIPB”) or the Secretariat of Industrial Approvals (“SIA”). Foreign companies not wanting to tie up with an Indian partner may establish liaison, branch or project offices, or WOS.

Entity options to form a Joint Venture as:

  1. Companies limited by shares (public and private)
  2. Companies limited by guarantee (limited to the amount pledged)
  3. Companies having unlimited liability (liability of each member is unlimited)

Control in the joint venture company:

After passing the either of the following resolutions, the control and roles are decided. Note, your Joint Venture Agreement will state which one to be followed.

  1. Special Resolutions: Passed only by shareholders having 75% shares with voting rights in the company. Or,
  2. Ordinary Resolutions: Passed by shareholders having 50.01% shares with voting rights in the company.

A special resolution is inter alia required to amend the MOA and AOA of the company, to issue further shares through a rights issue, to give loans or guarantees to other companies, etc. 51% majority ensures control of the day to day working of the company. Therefore, much depends on the level of control the foreign investor seeks.

The articles of association, incorporating the key provisions in shareholders agreement, provide for control of the joint venture company. The exercise of control is done at two levels: 1. Board of directors 2. Shareholders

Tax considerations and subsidies:

India has double taxation avoidance agreements (“DTAAs”) with many countries. In many instances, companies route their investments into an Indian joint venture company through an offshore destination.

Joint venture companies do not per se get advantageous tax treatment. However, the Indian Income Tax Act gives certain benefits to industries set up as 100% export oriented units, or in export processing zones. In addition, infrastructure industries in the areas of power, telecommunications, ports, etc., get tax breaks and rebates. Persons investing in the bonds of such companies do not pay tax on the interest received.


To make the joint venture agreement valid in law:

The requirements prescribed by the Indian Contract Act and the Cos Act needs to be met. Some of the important criteria to be fulfilled are:

  1. Offer and acceptance,
  2. Consideration,
  3. The intention to form a company,
  4. Signature of the parties
  5. Constitution of the board of directors,
  6. Termination clause,
  7. The binding nature of the agreement,
  8. Share transfer provisions,
  9. Dilution clause,
  10. Dispute resolution clause

Parties have to pay stamp duty on the joint venture agreement and have to register either with the RBI or the SIA, depending on which authority gives clearance for the project. No registration is required under the Indian Registration Act unless the joint venture agreement deals with the transfer of immovable property rights.

Wazzeer is vouched by Entrepreneurs as the reliable Legal and Accounting Partner. We would be super excited to help you. Let’s Connect! 🙂

 

 

 

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Agreements, Contracts and Agreements, Franchise
Starting a Franchise in India is an old hat but that always work, Franchising, since the economic liberalization of 1991, many foreign companies with strong brand names have established a presence in India through franchising like Hertz, Radisson, Kentucky Fried Chicken (KFC), Domino’s Pizza, Thank God it’s Friday (TGIF), Pizza Hut etc., In fact, Indian companies with strong brand recognition are also using the franchising route like MRF, NIIT, Apollo Hospitals.

Yo bro, What’s franchising?
The Blacks Law Dictionary defines a franchise as a license from the owner of a trademark or trade name permitting another to sell a product or service under that name or mark. There are at least two parties involved: (a) the franchisor, who lends his trademark; and (b) the franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor’s.

Breaking down the Characteristic Features of business like this type:
(a) A franchise arrangement
(b) The franchisor should have developed a business system or format.
(c) The franchisee makes a substantial initial capital
(d) The franchisor trains the franchisee
(e) Once the franchisee’s business commences, the franchisor support available to the franchisee
(f) The franchisor also regularly supervises the franchisee’s business operations.
(g) Consideration is paid by the franchisee to the franchisor for the rights licensed

Enriching em with types of Franchising Agreements:
(a) Invention Licensing Agreement: Inventor (Franchisor) firstly patents the invention and license the patent and design rights and the manufacturing and marketing of the invention.
(b) Trademark Licensing Agreement: Franchisor (the owner) of a trademark can grant a license to another Franchisee to use the trademark on goods, which are associated with that trademark. This type of an agreement may be for the manufacture, preparation, marketing, presentation, and sale of goods.
(c) Character Merchandising Agreement: In such an agreement, the name of a famous entertainment or sports personality or probably a fictional or graphical character is licensed to be used on certain products.
(d) Dealer or Distributor or Marketing arrangements: Franchisee adopts the business operations model of the franchisor. Examples; in cases of dealerships with automobile companies, food and consumer goods, petrol pumps and gas stations.

What are the good to take stuffs in doing a business on franchise model?
Capitalizing and benefiting from the Franchisor brand name. Elimination of unnecessary expenses. Support from the franchisor while operating the business. Benefit from the franchisor’s advertising campaigns. Benefit from the franchisor’s negotiating and bulk purchasing power.

Alrighty, Any Trade-offs?
Imposition of controls and supervision by the franchisor. Heavy initial capital investment, in addition to consideration for using the franchisor’s brand. Franchisor’s policies that would be a directly applicable. 

Wazzeer is vouched by Entrepreneurs as the most reliable Legal and Accounting Partner. We would be super excited to see your startup kick starts seamlessly. Let’s Connect! ?
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Agreements, Legal, Uncategorized
When entrepreneurs decide on the key things to be taken care of while starting up a venture, he or she would find varied notions around the globe, but certainly, one thing that the founding members should figure out is to know how you can draw the salary?


Pvt Ltd Company


For a Co-founder to withdraw salary from his Private Limited Company, there are basically 3 situations:
1. you decide to act as the employee of the company, then the way you can be paid is a salary. Here you would, like any other employee, need to enter an employment contract with the company and receive remuneration. In addition to this remuneration, based on this Employment Contract, and a specific clause for bonuses, you may be paid a bonus at either regular intervals or on the achievement of certain goals.
2. You act as a consultant; Consultancy fees are paid for your expertise in management and your time.
3. Shares are a good way of driving remuneration in the form of dividends.


Partnership firm 

The partners (co-owners) share the profit or loss. Based on each partner’s individual share of the results, a standard deduction is made to calculate the surplus. The Partners can share the surplus as their salary, Rather, the partners do pay income tax on the money withdrawn. Profits and liabilities are split evenly between partners or, if partners have differing investment percentages, per what was agreed in the initial legal partnership agreement.


LLP

Options are similar to that of Pvt Ltd Company. Dependent upon their percentage of investment, partners will receive a salary.


Sole Proprietorship

As a sole proprietor, how much money you take out of your business is entirely up to you. You are still liable for taxes and, because the government does not distinguish between you and your business, you are also liable for all business losses, liabilities and debts. You can draw everything that you are making out he company, but you will be liable for taxations on the whole amount.


One Person Company

One Person Company is a separate Legal Entity and OPC will have a separate PAN. Hence the Director of OPC can get the salary from the company. This salary is taxed under Income Tax rules for a salaried individual.


We at Wazzeer have helped quite a number of startups in Contracts and Agreement drafting for the same purpose, why not we jump on a call to discuss the details?

Let’s connect!

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Agreements, Funding Compliance, Uncategorized
Every Venture wanting to Raise Funds has to invest a lot of time and effort to raise money to scale and keep the business going. All the effort and time invested can go for a toss, if you miss one important but under-estimated aspect. Every VC/Angel investor, before pumping in their money, will perform a due-diligence process. This process varies in tenure and complexity based on the industry, nature of the transaction, and also the stage of investment. Any deal is successfully closed, only after satisfactory-completion of due-diligence, failing which, the deal drops dead. Sometimes, they get a legal opinion, before proceeding. Here are a few points for startups to focus on when setting their house in order:

  • Incorporation (legalization): The most basic mistake that most entrepreneurs commit is their failure to legalize their entity and because of this has been the bane and downfall of many a startup. A legal entity adds professionalism to the startup as well as the confidence to the other transacting party.

  • Revenue registration/dues: The one thing that every person hates is Tax. Yes, that obligation to pay the government whenever due, no matter what. But it is prudent that startups get their revenue registrations in place first, as even non-filing/registration, attracts the long arm of the law.
  • Founders Agreement: Founders agreement is really important for any startup. No one remembers what they have typed in their mail the previous night, let alone verbal agreements that are the norm during the startup phase. Putting things in words is not a reflection of the lack of trust, it’s just prudence.

  • Legal issues: No matter how frivolous, real, or imaginary; all it requires to scare away potential investors is to utter lawsuit. Let your legal health do the talking, rather than trying to convince someone to put their money in a place, which is replete with legal landmines.
  • Organization: After you have incorporated your startup, you need start striving to put relevant processes, procedures, etc., in place from the moment you set up shop.
  • Accounting: Pull up your socks and start keeping account of all your income and expenditure. Maintain Income and Expenditure statement, P&L Accounts, other Financial statements.
  • Employee agreements: Every employee who works must be contracted with basic clauses to protect the interests of both the parties. Also, records of past employees to be maintained. Basic compliances like Labour law, PF etc., to be met.
  • Intellectual property: Ownership of Intellectual Property, including non-exclusive licenses, infringement, inappropriate use and potential action, have to be dealt and agreed upon.
  • Third-party agreements: The same rules apply for every third-party that transacts with the enterprise. Vendors, associates, affiliates, contractors, and other partners need to sign proper agreements, with non-disclosures, how the relationship is defined, responsibilities, and IP assignment.
  • Previous fundraising documents: If you have already raised funds, then future investors would like to know the details of fundraising, utilization, its impact, etc. Put these in order so they can understand them thoroughly. It is a summarization of an article from Your Story.


Wazzeer is vouched by Entrepreneurs as the reliable Legal and Accounting Partner. We would be glad to provide you with Funding Due-Diligence and Compliance part. Let’s Connect!
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Agreements, Export Import Registration, Uncategorized
Importer Exporter Code (IEC) is mandatory for anyone who is Importing in India or exporting out of India. IEC Code is a unique 10 digit code that would be issued Director General of Foreign Trade, Ministry of Commerce, Government of India. No person would be allowed to import or export anything without IEC Code Number.  This article will walk you quickly through the registration process for Import Export Code.

The procedure of Acquiring Importer Exporter Code Firstly an Authorized Employee from the Company, in person, needs to go to the office and fill the application form or it can be sent through Post/Courier. On receiving the application, an acknowledgment will be generated in form of a receipt having File Number. This file number can be used at the time of any query regarding the application submitted. The application is then sent to IEC section where it is processed. IES is generated if the application is found to be complete as per the prescribed requirements). If not then a deficiency letter is generated stating the reason for deficiency and sent to the applicant. Replies are awaited in cases where deficiency letter is issued and after due compliance by the applicant, the IEC is allotted.  

Documents Required:
  • MoA, AoA and Certificate of Incorporation
  • List of Directors with residential address, Pin Code, Phone Number on letterhead
  • List of Directors of Company Letterhead
  • PAN card of Director
  • Covering Letter in Company Letterhead
  • Bank statement of the Company
  • 4 photographs of signing authority
  • Type of Exporter (Merchant/ Manufacturer/ Service/ Others/ Merchant cum Manufacturer)

Wazzeer is vouched by Entrepreneurs as the most reliable Legal and Accounting Partner. We would be super excited to see your startup kick starts seamlessly. Let’s Connect! 🙂 
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Agreements, Privacy Policy, Uncategorized
This blog talks about the Importance of Privacy Policy for any Startup and how Startups could safeguard their relationship with customers on the long run just with this contract in place.

Why is a privacy policy important, both legally and from a customer trust perspective?
Some industries are required by law to maintain a privacy policy. These industries include banks, medical professionals, and many others. Most of the privacy regulations to which these industries are subject to apply on and off the internet. If you are not within one of these regulated industries, your prospect marketing and customer retention may still benefit from a privacy policy if your target audience believes you should have one. The emerging trend on the internet, for example, is that any credible website will post some minimal standards for user privacy.


What are the legal risks in not having a privacy policy?
If you are in a regulated industry, you must have a privacy policy that covers all issues required under the regulations governing your industry. Failure to do so may result in fines or suspension of your business license. If you are not in a regulated industry, you are under no obligation to have a privacy policy. This means you have no legal exposure for having no policy. Conversely, a poorly written policy creates potential liability every time you violate your own published policy.


When do you need to have a privacy policy?
Assuming you are not in a regulated industry, you never “need” to have a privacy policy. Do some market research to measure what your competitors are doing. But don’t assume that your competitors have accurately gauged customer demand. You should also survey your existing customer base to measure its expectations. You should consider adopting a privacy policy only if you conclude that it will enhance your prospect marketing or customer retention.


What are the important components of a privacy policy? Do you have any tips on creating one? It is impossible to discuss components of a privacy policy because every industry has different needs. The best guidance on creating an effective privacy policy for your business is:
  1. Don’t steal your policies from someone else’s business. You may be liable for a copyright violation. You may also be stealing something that has no practical application to your business.
  2. Don’t assume that your competitor’s privacy policy meets your needs. You have no idea where your competitor obtained its policy or why it adopted particular text.
  3. Don’t write it yourself unless you know what you are doing. If you hire an expert to write it for you, make sure the expert has actual expertise in writing policies for your industry or something closely analogous.
  4. No privacy policy is better than a bad privacy policy.
While a privacy policy is required in certain industries, with others it isn’t so much a requirement as it is a necessity to stay on top of the market. As more and more companies are “going green” to help out with the environment, privacy policies are becoming a part of common business practice. Website users are concerned about their privacy, and by applying a privacy policy, you are ensuring that personal information is kept private. A privacy policy is one of the most important documents on any website. It details your company’s views and procedures on the information collected from visitors. Although a privacy policy is technically a legal document, great effort should be made to craft a document that is both accurate and easy to understand, obscuring hidden clauses in reams of text is not acceptable.

The main sections are as follows:

Introduction: This section can tell your visitor a little about your organization, and any special information or functions that your website has. If your website has special conditions for collecting information from children (under 16 etc), you should state them clearly in this section.

Information Collected: Visitors have a right to know what information you are collecting. It may be obvious that you are collecting personal details by asking them to complete a form, but you should make it clear. You should also include information logged by your servers, such as hostnames and IP addresses.

Method of Collection: This details the methods you use to collect the information. Is it all automated? Do the forms visitors fill in collect other information, such as the original referrer? All of these questions will help you build a detailed description of how you collect information.

Storage of Information: How is the information stored? If you store information in a database and are located in the UK you may need to register with the government regarding the data protection act. If your servers are in the EU you will need to ask permission to transmit data outside the union, even if it stays within your company. Visitors have a right to know that you will make every effort to store their personal information in a safe and secure environment.

Contact details: It is important to be as transparent as possible, and allow users to contact you if they have a query. You should feature both an email address (or online form), as well as a real world address where a user can write to.
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Agreements, Contracts and Agreement, Contracts and Agreements, Contracts and Agreements, Legal
Let us first understand what does a contract mean? A contract is written agreement, concerning vital fields like employment, sales, or tenancy, that is intended to be enforceable by law. We believe that the value of contract is not realised when things are hunky-dory, but the moment things go bad it is the contract that protects your interests. Hence it is important to draft a Contract/Agreement professionally so that it protects the interests of all the parties concerned. To draft a legally valid contract which protects the interests of all parties we need to first understand what are the essential elements of a Valid Contract.

1. Offer and Acceptance. In order to create a valid contract, there must be a ‘lawful offer’ by one party and ‘lawful acceptance’ of the same by the other party. Any contract has to have an offer from one party which has to be accepted by other party

2. Intention to Create Legal Relationship. This is stated in the definition of the contract. If the parties do not wish to create a Legal Relationship, there is no necessity of a contract and hence, it is not considered as a contract at all.

3. Lawful Consideration. Consideration is something which is paid by the offering party to the offered party. It may be time, money, knowledge, service etc. Without a Lawful consideration one cannot fight a case in the court.

4. Capacity of parties. The parties to an agreement must be competent to contract. If either of the parties does not have the capacity to contract, the contract is not valid. According the following persons are incompetent to contract. (a) Miners, (b) Persons of unsound mind, and (c) persons disqualified by law to which they are subject.
5. Free Consent. ‘Consent’ means the parties must have agreed upon the same thing in the same sense.
Consent is said to be free when it is not caused by-
  • Coercion
  • Undue influence
  • Fraud
  • Misrepresentation
  • Mistake
An agreement should be made by the free consent of the parties.

6. Lawful Object.
Object has nothing to do with consideration. It means the purpose or design of the contract. Thus, when one hires a house for use as an office for an e-Commerce company, the object of the contract is to run an e-Commerce Company.

The Object is said to be unlawful if- (a) it is forbidden by law; (b) it is of such nature that if permitted it would defeat the provision of any law; (c) it is fraudulent; (d) it involves an injury to the person or property of any other; (e) the court regards it as immoral or opposed to public policy.

7. Certainty of Meaning. Agreement the meaning of which is not Certain or capable of being made certain are void. A poorly drafted agreement which is ambiguous in nature is not legally valid.

8. Possibility of Performance. If the act is impossible in itself, physically or legally, if cannot be enforced at law. For example, Mr. A agrees with B to discover treasure by magic. Such Agreements is not enforceable. Hence all agreements need to be physically and legally enforceable.

9. Not Declared to be void or Illegal.?The agreement though satisfying all the conditions for a valid contract must not have been expressly declared void by any law in force in the country. For example an agreement to form a cartel to curb competition is illegal in India.

10. Legal Formalities. An oral Contract is a perfectly valid contract, except in those cases where writing, registration etc. is required by some statute. In India writing is required in cases of sale, mortgage, lease and gift of immovable property, negotiable instruments; memorandum and articles of association of a company, etc. Registration is required in cases of documents coming within the scope of section 17 of the Registration Act.

Now that we have understood the essentials of a Contract, can you draft your own contract? This article like many other Do-it-Yourself templates available on internet to draft a contract is aimed at giving you some knowledge on the legalities involved in drafting a Legal contract. But facts of the every case is unique and we recommend a consultation with a trustworthy Lawyer is required. Only such a lawyer can give you proper advice on proper drafting of a legally valid contract which protects the rights of all the concerned parties. 


Wazzeer
 is vouched by Entrepreneurs as the most reliable Legal and Accounting Partner. We would be super excited to help you. Let’s Connect! 🙂

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Agreements, Co-Founder agreement, Uncategorized
This post will stress the importance of having this conversation (or more likely, conversations) early on, explain why co-founder agreement is a valuable tool to maintain a healthy co-founder relationship, and highlight some of the key topics to cover.

1. Roles and responsibilities. You are going to want to make sure you have a clear understanding around roles and responsibilities up front. Yes, it is critical that a co-founding team collaborate and to create an open and shared culture amongst themselves but that shouldn’t necessarily mean everyone is in charge of everything. I have seen too many startups make the mistake of thinking that every decision has to be made collectively and every founder has control over every decision. That will inevitably create confusion and frustration. I’m not saying you shouldn’t create an environment in which major decisions are discussed and driven be a consensus. What I’m saying that you should strive to establish some clear lines of primary responsibility and enable a functional management system that enables each of the co-founders to have clear responsibilities and reporting obligations. Doing so will go a long way in helping you minimize growing pains. Remember, not every co-founder should be a co-CEO.

2. Equity ownership and vesting:  You’ll need to allocate the ownership of your new enterprise amongst the founding team. While this is a subjective matter and can sometimes be very delicate, it is imperative that you nail down how you will split up the equity between the founding team up front to make sure there are no misunderstandings or hurt feelings once things get off the ground. Remember that you typically will have 90 percent to play with, as you most likely want to set aside at least a 10 percent option pool for future rank and file hires. Also, remember there is no rule that says all of the co-founders will have equal ownership of the new enterprise — and that’s where it gets a little tough. You may have to tell your co-founders they are not your co-equal. But it’s always better to have that conversation on day one and not to move forward with a new enterprise and then get stuck on who owns what.  Also, to stay on the theme of planning ahead, you need to implement market vesting terms for all of the founder’s equity (in case there is a split). ?What that means is that each of the founders must earn their equity by contributing to building value in the enterprise. The most common vesting terms are those that occur monthly or quarterly over three or four years. You do have some room to play with the parameters of the founders vesting schedule, including the amounts that are fully vested up front but you should stay within market parameters. Remember that you’re not doing this just because investors expect it. You are doing it because you will create very significant enterprise risk if one of the members of the founding team picks up and leaves for the beach and you are forced to use dilutive equity to bring on replacement talent, not to mention you don’t want to create any incentives for a free ride. So, be smart. Get the equity ownership conversation nailed early and implement appropriate vesting terms up front.

3. IP assignment: ?When you and your co-founders begin to iterate on an idea and develop a business plan or begin to build a product or a platform, you are creating intellectual property (IP). IP comes in many forms but make sure that whatever IP is being developed for your new enterprise belongs to the entity and not the individuals behind the development of the IP. This concept extends to not only your co-founders but all of your employees, consultants, and contractors. Unfortunately, I have seen too many founders work, iterate and develop an idea or a technology but separate before the IP that has been developed has been assigned from them into the entity, meaning your new enterprise may not have rights to various things that it will need to evolve its business or otherwise raise capital. Getting IP assigned into the entity is simple and there are many forms available online that get this basic assignment accomplished. Do it on day one and don’t wait too long. Co-founding a business isn’t too dissimilar from marriage. You can start with all the right intentions and never imagine separating. But it does happen. Plan ahead. Otherwise, you will jeopardize the viability of your new enterprise.

Wazzeer is vouched by Entrepreneurs as the most reliable Legal and Accounting Partner. We would be super excited to help you. Let’s Connect! 🙂
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