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Internship Opportunity at CIP Legit

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Eligibility Criteria:

  • Must be enrolled in law college- in any year
  • Organised and well-spoken in English
  • Work-from-office and Work-from-home options available
  • Duration: minimum 1 month, extendable on merit
  • Immediate joining
  • Paid position; stipend may be discussed on selection

About the Internship: 

You will be learning

–         Working mechanism of the Trademark (TM) & Copyright (CR) Registry

–         Research and drafting for TM Opposition matters

–         Record updation and file maintenance for TM, CR, and Patent matters.

Mode of Internship: In-office internship & Online

How to Apply: Please send an email to tm@ciplegit.com in the format below:

Email Subject: Application for Legal Internship

Email Body: Please ensure your email contains the below:

  1.   A copy of your latest CV
  2.   A brief introduction about yourself
  3.   A small paragraph/ video on why you’re keen to intern in the field of IP
  4.   If you’ve written any articles- feel free to send in samples (optional)
  5.   Your contact number so that we may contact you.

Check our upcoming course on Capital Markets & Securities Law if you are looking to become a Corporate Lawyer. It includes internship recommendation as well as career guidance. 

Paid Internship Opportunity: Kay & Partners

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Internship Month: November 2023

Eligibility Criteria: 7th Sem and above of 5-year law course or 3rd Sem and above of 3-year law course

About the Internship: Drafting and research in Banking and Financial Law

Location: Noida

Mode of Internship: In-office internship

Application process: Drop in your CVs along with a cover letter specifying the month of internship at connect@kaynpartners.com

Preference shall be given to candidates currently residing in Delhi-NCR and who can join IMMEDIATELY.

Legal Internship: RR Legal Partners

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Number of Openings: 2

About the Internship

  1. Conducting research in fields such as CPC, CRPC, and corporate law
  2. Drafting suits, appeals, applications, and legal notices
  3. Working on analysis

Eligibility Criteria: 

  • are available for full-time (in-office) internship
  • can start the internship between 4th Oct’23 and 8th Nov’23
  • are available for a duration of 2 months
  • are from or open to relocate to Delhi and neighboring cities
  • have relevant skills and interests
  • Women wanting to start/restart their careers can also apply.

Location: Delhi

Mode of Internship: In-office

Application process: Apply through https://www.linkedin.com/jobs/view/3735172618/?eBP=JOB_SEARCH_ORGANIC&refId=36mfJ5GC7FeguOTFhifprw%3D%3D&trackingId=X03PxoOQbGH3AV9HiNGzOg%3D%3D

Virtual Internship at Dhruv Chawla Law Offices

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Internship at Dhruv Chawla Law Offices (DCLO), a full-service law chamber with expertise in the fields of Civil Litigation, Commercial Litigation, Arbitration, IPR, Environment Law, etc.

Eligibility Criteria: 

Candidates in their 4th year or above ( for BA.LLB(H)) and in their Final year ( for LLB )

Location:

South Delhi

Mode of Internship: 

Virtual

How to apply: 

Please email your updated resume at dclawoffices9408@gmail.com

IP Assignment Agreement and Key Clauses 

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Introduction

In today’s fast-paced and innovation-driven world, intellectual property (IP) is a valuable asset for individuals and businesses alike. IP assignment means when one party, often referred to as the “assignor” or “licensor,” transfers their rights and ownership of intellectual property to another party, known as the “assignee” or “licensee.

When it comes to transferring ownership of IP rights, an IP Assignment Agreement plays a crucial role. This agreement ensures that the transfer of intellectual property is properly documented and is legally binding. In this blog, we will explore the key terms in an Intellectual Property Assignment Agreement.

What is an IP Assignment Agreement?

IP assignment agreements are usually agreements between a business and its employees or any other party that transfers ownership of IP created by the personnel during their employment or engagement with the business. IP can include patents, trademarks, copyrights, and trade secrets, or other intangible creations. It is transferred to a company or another individual. This provides a clear record of the title of the intellectual property to whoever the rights of the IP are being transferred. This can also help the creator to keep their intellectual property safe from illegal use, distribution and more. 

The agreement ensures that the business retains ownership of any IP created by the employees, even after they leave the business. Even if an employee is not involved in creating IP, it’s advisable to have these agreements in place—you never know where the next great idea might come from, and in any case, it’s easier to get this agreement signed than it is to explain to an investor or acquirer why you didn’t. Without an IP assignment agreement, personnel may be able to claim personal ownership of the IP they created, which can be deadly to a business that relies on IP for its value. So, if it is such an important document, then what are the terms and clauses that are required to make it a foolproof contract?

To Learn Drafting of IP Assignment Agreement and other important agreements, sign up for our Contract Drafting & Negotiation course taught by Top Law Firm Partners. It starts on October 7, 2023. 

 

Terms and clauses that are important in an IP Assignment Agreement

Mainly the terms need to give information about who is involved in the transfer, what Intellectual Property is being transferred, how much the Intellectual Property Costs, and why the transfer is valid. To elaborate, an IP Assignment Agreement must have the following:- 

  1. Scope and Objective of the Agreement

The scope and objective clause lays down the foundation of the IP assignment agreement. These clauses need to specify the  purposes for which the assignee will use the IP. The assignor needs to know and specify the intent of the transfer of the IP. It is crucial to understand that the assignor can only transfer rights that are specified in the scope of the agreement.

  1. Description of the Intellectual Property

A detailed description of the intellectual property being assigned is vital to identify the scope and nature of the IP rights involved. These points have to be in the description clause:

  1. Title and Ownership: The title and ownership of the IP being transferred need to be stated. 
  2. Detailed Description: This clause needs to give a comprehensive description of the IP, including any relevant technical specifications or documentation. 
  3. Registration Information: If the IP is registered with any regulatory or governmental authority, the clause has to mention the registration details. 
  1. Assignment of Rights

The main clause is the assignment clause which specifies the transfer or conveyance of the ownership of rights over the IP. In this clause, a clear outline of the scope of the ownership and procedure of transfer has to be laid out. The key points to cover in this clause include:

  1. Exclusive or Non-Exclusive Assignment: It must be clearly stated whether the assignment is exclusive (transferring all rights) or non-exclusive (transferring limited rights).
  2. Territory: Definition of the geographical territory in which the assignment applies. 
  3. Duration: The duration of the assignment must be specified, whether it is temporary or permanent. 
  4. Future Transfers: In case it is a temporary assignment, it must specify whether the assignee can transfer the IP to its hires, or legal representative or assign it to any other person. 
  1.     Consideration

Consideration refers to the compensation or payment exchanges between the parties. In an IP assignment agreement, the consideration may take various forms:

  1. Lump Sum Payment: A one-time payment made by the Assignee to the Assignor.
  2. Royalties: A percentage of revenue generated from the IP, payable over a defined period. 
  3. Equity Stake: In certain cases, the Assignor may receive shares or ownership in the Assignee’s business. 

 

  1. Warranties and Indemnities:

These terms protect both parties by setting forth the assurance and protections related to the intellectual property being assigned:

  1. Ownership Warranty: The assignor warrants that they are the sole owner of the intellectual property and have the right to transfer it or they may give the warranty to the assignee. 
  2. Infringement Warranty: The assignor warrants that the intellectual property does not infringe upon the rights of any third party. 
  3. Indemnification: The Assignor agrees to indemnify and hold harmless the Assignee from any claims or damages from the assignment. To protect the Assignee from any potential future damages or legal costs resulting from any misstatement in the Assignment Agreement, an indemnification clause is crucial.
  1. Confidentiality and Non-disclosure

To protect sensitive information related to intellectual property, it is essential that the assignment agreement has confidentiality and non-disclosure provisions. This section should have:

  1. Confidentiality Obligations: It must specify the obligation of both parties to keep all information related to the IP assignment confidential. 
  2. Non-Disclosure: Prohibit the parties from disclosing any confidential information to third parties without prior written consent. 
  1. Governing law and Jurisdiction

Determining the governing law and jurisdiction in the event of a dispute is crucial for effective enforcement. These terms should include:

  1. Choice of law: The term needs to specify the jurisdiction whose law will govern the interpretation and enforcement of the contract. 
  2. Jurisdiction: Determine the appropriate courts or arbitration bodies that will have jurisdiction over any disputes. 

Conclusion

An Intellectual Property Assignment Agreement is a critical legal document for transferring ownership of intellectual property rights. By including the aforementioned clauses one can make it a foolproof contract and protect their rights and make it enforceable whenever anything goes wrong. Further, before signing the agreement one must look out for all the important terms and clauses and make an informed decision. 

To Learn Drafting of IP Assignment Agreement and other important agreements, sign up for our Contract Drafting & Negotiation course taught by Top Law Firm Partners. It starts on October 7, 2023.

International Commercial Arbitration: An Overview

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Introduction

Overburdened legal systems and complex and specialised disputes require the mechanism of Alternative Dispute Resolution (“ADR”). Arbitration is one such mechanism in ADR. For this, India enacted the Arbitration and Conciliation Act, 1996 (“Act”) that strengthens the arbitration procedure and process in India.

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As per section 2 (1) (a) of the Act, “arbitration” means any arbitration whether or not administered by a permanent arbitral institution. In simple words, arbitration means a private procedure where parties submit their disputes to a single arbitrator or number of arbitrators through a mutual agreement between them. This route does not involve taking the matter to the court.

International Commercial Arbitration (“ICA”) is a form of alternative dispute resolution that has gained popularity in recent years as a means of resolving international commercial disputes. Unlike traditional litigation, which involves court proceedings, ICA is a private process in which a neutral third party, known as an arbitrator, facilitates the resolution of a dispute between the parties. ICA offers many advantages over traditional litigation. In this blog post, we will explore the basics of ICA, its advantages and challenges, and its increasing importance in resolving international commercial disputes.

The Fundamentals of ICA

Section 2 (1) (f) of the Act defines international commercial arbitration as an arbitration relating to disputes arising out of a legal relationship which must be considered commercial where at least one of them is a resident/national/body corporate residing or incorporated in a foreign nation; association or body of individuals having central control and management in a country outside India. Thus, under Indian law, an arbitration with its seat in India, involving a foreign party is regarded as an ICA. 

ICA involves a neutral third party, known as an arbitrator, who is appointed by the parties to the dispute. The arbitrator is responsible for facilitating the resolution of the dispute between the parties by hearing evidence and arguments from both sides and issuing a binding decision, known as an arbitral award.

ICA can be initiated either by agreement between the parties or by a clause in a contract that requires disputes to be resolved through arbitration. The parties can choose the rules governing the arbitration, the location of the arbitration, the language of the arbitration, and the qualifications and experience of the arbitrator.

ICA offers many advantages over traditional litigation, including speed, cost-effectiveness, flexibility, and confidentiality.

 

Benefits of International Commercial Arbitration

1. Speed: 

One of the main benefits of ICA is that it is often faster than traditional litigation. Court proceedings can take a long time to resolve, which can be a significant drain on resources. In contrast, ICA typically takes only a few months to complete. This is because the parties involved can set their own timeline for the arbitration, and there are fewer procedural requirements than in court proceedings.

2. Cost-Effectiveness: 

ICA can be more cost-effective than traditional litigation. Court proceedings can be expensive, with high legal fees and court costs. In contrast, ICA typically involves lower fees and costs, since there are fewer procedural requirements and the parties can choose an arbitrator who charges reasonable rates.

3. Flexibility & Neutrality: 

ICA offers parties more flexibility and neutrality in terms of the dispute resolution process. For example, parties can choose the rules governing the arbitration, such as the International Chamber of Commerce (ICC) Rules, the UNCITRAL Rules, or the rules of a particular arbitration institution. They can also choose the location and language of the arbitration, as well as the qualifications and experience of the arbitrator.

4. Confidentiality: 

ICA is a private process, which means that the parties can keep their dispute and any settlement agreement confidential. This can be important for protecting their business interests and reputation. This is also supported by Article 30 of the London Court of International Arbitration.

5. Enforceability: 

ICA awards are generally enforceable in most countries around the world, thanks to the New York Convention of 1958, which has been ratified by more than 150 countries. This means that the parties can rely on the arbitral award to resolve their dispute without having to go through lengthy and expensive court proceedings.

Challenges of International Commercial Arbitration

Despite the many advantages of ICA, there are some challenges associated with this form of dispute resolution.

  • Enforcement of Awards

One of the biggest challenges of ICA is the enforcement of arbitral awards. Although the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards provides a mechanism for the recognition and enforcement of arbitral awards in many countries but still some countries that do not enforce foreign arbitral awards or may impose additional procedural or substantive requirements. The difficulty of enforcing arbitral awards can make ICA less attractive to parties, particularly those in countries with weaker legal systems.

  • Choice of Arbitrators

The selection of arbitrators is a key aspect of ICA, and parties may have different preferences as to the qualifications, nationality, and expertise of the arbitrator(s). In some cases, parties may have difficulty agreeing on an arbitrator, which can delay the proceedings and increase costs. In other cases, parties may be concerned about the potential bias of the arbitrator, particularly if one of the parties is from a country with a different legal and cultural background.

  • Lack of Precedent

Unlike court judgments, arbitral awards are not binding precedents, and arbitrators are not required to follow previous decisions. This lack of precedent can create uncertainty and inconsistency in the interpretation and application of the law, particularly in areas where there is limited guidance from national courts or international conventions.

  • Confidentiality

While confidentiality is often cited as a benefit of ICA, it can also create challenges. Confidentiality can limit the ability of parties to obtain information and evidence, which can affect the quality of the decision-making process. Moreover, the confidentiality of the proceedings can make it difficult for third parties, such as regulators or the public, to monitor and evaluate the effectiveness and fairness of the arbitration process. 

  • Costs

While ICA is generally considered to be more cost-effective than litigation, it can still be expensive, particularly if the dispute involves complex legal or technical issues or requires extensive discovery or expert testimony. The cost of ICA can also be affected by the location and qualifications of the arbitrator, the complexity of the dispute, and the length of the proceedings.

How International Commercial Arbitration Works?

The process of ICA typically begins with the parties involved agreeing to submit their dispute to arbitration. This can be done through a clause in a contract or through a separate agreement. Once the parties have agreed to arbitration, they will usually select an arbitrator or a panel of arbitrators to hear the case.

The arbitrator(s) will then hold a hearing where both parties can present evidence and arguments in support of their position. The arbitrator(s) will then issue an award, which is binding on both parties. This award may include damages or other remedies, depending on the nature of the dispute.

Role of Courts in International Commercial Arbitration

Involvement of court in the Arbitration can be in the following ways: 

  • Enforcement of the arbitral award: 

If a party fails to comply with the award voluntarily, the other party may seek to have the award recognized and enforced by a court. The procedure for recognition and enforcement of an arbitral award varies by country, but it generally involves filing an application with the court and providing evidence of the award and the circumstances of the case.

  • Setting aside of the arbitral award: 

In some cases, a party may challenge the validity or legality of the award, such as if there was a serious procedural irregularity or if the award is contrary to public policy. The procedure for setting aside an arbitral award also varies by country, but it generally involves filing a petition with the court and providing evidence to support the challenge.

Overall, while ICA is designed to avoid court involvement, courts may still play a role in certain aspects of the process.

Latest Developments  in International Commercial Arbitration in 2023

One recent development in international commercial arbitration is the increasing use of technology and online platforms to conduct hearings and manage cases. The COVID-19 pandemic has accelerated this trend, as parties and arbitrators have had to adapt to remote work and social distancing requirements. This has led to the development of new tools and platforms to facilitate virtual hearings and case management.

Another development is the increasing importance of diversity and inclusion in arbitrator appointments. Many institutions and organisations have launched initiatives to promote greater diversity among arbitrators, including gender, ethnic, and geographic diversity. This is seen as a way to enhance the legitimacy and effectiveness of the arbitration process.

Latest International Trends in Commercial Arbitration in 2023

  • Arbitration Emerging from the Russia Ukraine conflict: The legal and financial repercussions of the conflict have had a substantial impact on enterprises across a variety of industries globally, and more arbitrations involving Russia under investment treaties and commercial agreements are anticipated. Strategic and innovative preparation will be essential to increasing the likelihood that enforcement will be successful.
  • The construction arbitration problem and the global supply chain issue: Major global projects will continue to experience challenges as a result of significant supply chain disruption. The rise in legal disputes is anticipated involving the application of important contractual terms, such as those relating to price increases, currency fluctuations, and nominated supplier agreements, as well as claims by parties of frustration, force majeure, and/or change in circumstances.
  • As a result of the market turbulence, LNG disputes are growing as buyers and sellers attempt to navigate the severe market fluctuations and supply issues facing the industry, as well as the effects of sanctions and other political issues. An increase in petrol pricing disputes and other contractual disputes is expected as a result of the wider energy market volatility.
  • Cybersecurity and data protection issues are becoming increasingly significant in international arbitration.
  • International arbitration in the field of life sciences: The number of disputes involving the life sciences that are referred to arbitration is increasing. This is partly due to the expansion of the life sciences industry as a whole, and partly because the industry has realised that many of the features of international arbitration are suitable for resolving sectoral disputes.

Conclusion

Global convergence and harmonisation in international commercial arbitration are particularly evident in the area of judicial control of a foreign arbitral award. In most countries, the possibility to bring before a court an action for annulment of an arbitral award rendered abroad is excluded.

Arbitration trend and practice in India is changing with India’s growth in order to be able to attract foreign investment.  It is clear that there still are some ambiguities in Indian arbitration law, which require judicial explanation and practically which need some major changes to solve the cross border issues through the arbitration. In conclusion, international commercial arbitration offers an efficient and effective means of resolving disputes in the global economy. While it presents some challenges, recent developments such as the use of technology, diversity initiatives, and expedited procedures demonstrate that the arbitration process is evolving and adapting to meet the needs of parties and practitioners.  

References:

“Advantages and Disadvantages of International Commercial Arbitration” by Lexology – https://www.lexology.com/library/detail.aspx?g=312747c9-9f0c-4e8a-b674-c24edf7be1c9

“Enforcement of International Arbitral Awards: A Review of Key Issues and Recent Developments” by the International Bar Association (IBA) – https://www.ibanet.org/Article/NewDetail.aspx?ArticleUid=DDC0DCA8-287B-476C-A816-AD03ACB4D204

“The Pros and Cons of International Commercial Arbitration” by LexisNexis – https://www.lexisnexis.com/community/insights/newsletters/document-strategy-newsletter/2015/the-pros-and-cons-of-international-commercial-arbitration.aspx

“International Commercial Arbitration: An Overview” by the International Chamber of Commerce (ICC) – https://iccwbo.org/dispute-resolution-services/arbitration/international-commercial-arbitration/

https://www.lexology.com/library/detail.aspx?g=98901e69-aade-461d-9cb6-086a86715069

Women’s Reservation Bill, 2023: All you need to Know!

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The Parliament of India has recently passed the historic women’s reservation bill unanimously. The Constitution (One Hundred and Twenty-Eighth Amendment) Bill 2023 or the Nari Shakti Vandan Adhiniyam aims to increase women’s participation in the political sphere.

The Women’s Reservation Bill is the first legislation to be cleared by both Houses in the new Parliament building. The voting proceedings were presided over by Chairman Jagdeep Dhankhar.

After decades of discussion on low representation of women in the Parliament which is just about 15%, this led to the introduction of this bill in Parliament.

This is not the first time that a bill seeking reservation of seats for women in Parliament has been introduced; previous attempts were made in the years 1996,1998, 1999, and 2010. However, these bills never saw the light of the day.

Let’s look at the highlights of the new Bill:

  1. The Constitution (One Hundred and Twenty-Eighth Amendment) Bill 2023 seeks to reserve one-third of all seats for women in the Lok Sabha and the state legislative assemblies. The allocation of reserved seats would be determined by such authority as decided by Parliament.
  2. Out of 33%, one-third shall be reserved for women from scheduled castes and scheduled tribes in the Lok Sabha and the state legislative assemblies.
  3. Seat for women would also be reserved in the legislative assembly of Delhi:
  4. -One third of the seats reserved for scheduled castes in Delhi’s legislative assembly would be reserved for women.
    -One third of seats filled by direct elections in Delhi’s legislative assembly would be reserved for women.
  5. Rotation of seats for women in Lok Sabha, legislative assembly of states and Delhi will take place after each subsequent delimitation exercise as Parliament by law decides.
  6. Reservation of seats for women would cease to exist 15 years after the commencement of this amendment act.

The key thing to note here is that the reservation of seats will be implemented after delimitation is undertaken after taking into account relevant figures as per the new Census of India after commencement of the amendment act.

Conclusion:

India already has the reservation of women in municipalities and panchayat provided by Article 243D and Article 243T in the constitution. The passing of this new Women’s Reservation bill marks a solid step in strengthening the role of women in the political arena. However, the implementation of the bill is said to not take place until the completion of the census and redrawing of electoral constituencies or delimitation exercise is completed. Nevertheless, the bill may prove to be a right step in the long run.

Advantages of an LLP structure over a Private Limited Company

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This blog post is written by Mr. Gagan Kelhanka, a law graduate from at KC Law College and worked as in-house counsel at Xoxoday. He pursued Companies Act, 2013 & SEBI Law Course from Bettering Results (BR). 

OVERVIEW 

One of the most commonly and reasonably expected dilemmas of any new budding entrepreneur intending to start up a business venture in India is often the choice of form of entity structure that best suits their individual needs. Due to the plethora of alternatives available under the Indian legal regime, it can unsurprisingly be a daunting and thoughtfully challenging task, but equally important nonetheless. This particular decision has a significant impact on the profitability and sustainability of a business, in terms of different material aspects such as liability, control, cost, risk, etc. Therefore, it is absolutely vital that this decision be made diligently after taking all relevant considerations into account. 

This article is intended to provide the readers with some clarity on two of the most popular business structures found in the country for more than a decade now, i.e., Limited Liability Partnerships (“LLP”) and Private Limited Companies (“PLC”), and why the former is usually a better option than the latter. 

Check out our upcoming Live Course on the Companies Act, 2013 & SEBI Laws by India’s leading Corporate Lawyers!

WHAT ARE THESE STRUCTURES? 

LLPs 

A LLP is a relatively new and unique form of business entity structure that combines the flexibility of a traditional partnership firm and the core benefits of a PLC, thus making it an attractive and popular choice among willing entrepreneurs for a considerable period of time now. Its inception dates back to 2008 with the passing of the Limited Liability Partnership Act (“LLP Act”) which was brought into force by the legislature to be the governing statute for LLPs. A LLP firm is registered by the Ministry of Corporate Affairs (“MCA”) as per the provisions of LLP Act. 

The basic features of a LLP are as following: 

➢ A minimum of two partners are required for the formation of a LLP. There is no such limit for the maximum number of partners. 

➢ There is no minimum amount of capital requirement for the creation of a LLP. This implies partners enjoy the flexibility of determining how much capital they are willing to infuse in the business and also that they can contribute in terms other than money such as manpower, fixed assets, technical knowhow, goodwill, etc. 

➢ As the name suggests, the liability of the partners in a LLP is limited to the extent of their contributions to the firm, which means that they are not liable beyond that in the event of losses or repayment of debts and their personal assets or property are safe from attachment in such a case. 

➢ Unlike a traditional partnership, the partners in a LLP enjoy immunity from any responsibility in relation to acts done by their fellow partners. They can be held accountable only for their own individual conduct.

➢ There is no distinction between the ownership and management in the LLP structure. This is to say that partners are owners themselves who manage the affairs of the business. An LLP also has designated partners who are responsible for managing its affairs; there may be sleeping partners as well. 

➢ The functioning of LLPs is governed as per the LLP Agreement, which needs to be filed with the MCA within 30 days of their incorporation. 

➢ The name of a LLP should contain ‘LLP’ mandatorily. 

➢ It is a suitable form of structure for small-to-medium sized businesses which do not require significant funding from external sources. 

 

PLCs 

A PLC is a form of business entity that is privately formed and held by its members/promoters that come together in furtherance of shared commercial aspirations. It varies from a public limited company as it is not permitted to invite subscription to its securities by the general public. Registration of a PLC is carried out by the Registrar of Companies (“RoC”), the statutory authority acting for the MCA, as per the provisions of the Companies Act, 2013 (“CA 2013”) along with ‘Companies (Incorporation) Rules, 2014’. 

The basic features of a PLC are as following: 

➢ A minimum of two members are requisite in order to incorporate a PLC who need to subscribe to the Memorandum of Association (“MoA”) to be filed with the Registrar of Companies. The membership can be extended to a maximum cap of 200 members. 

➢ Similar to the membership needs, at least two directors are required for the formation of a PLC whereas the maximum threshold is 15. Directors are vested with managerial powers who are responsible for the day-to-day affairs and functioning of the company. 

➢ There is no amount fixed as the minimum capital requirement for the registration of a PLC. 

➢ The liability of members in a PLC is limited to the extent of their shareholding if the company is limited by shares or to the extent of the guarantee provided by them if the company is limited by guarantee. 

➢ The internal management of a PLC is conducted as per its Articles of Association (“AoA”), which serves as the constitutional document of the company and lays the groundwork for material procedures and policies to be in place. AoA needs to be filed with the MoA and any other required documents at the time of incorporation. 

➢ The name of a PLC should contain ‘Private Limited’ mandatorily. 

➢ This form of business entity structure is ideal for ventures that are intended to operate on a relatively larger scale, expecting a sizable turnover and have a requirement of significant funding from external routes such as private equity, venture capital, angel investors, etc.

BENEFITS OF LLP STRUCTURE OVER PLC 

  1. Registration and Management – It is considerably easier and cheaper to start as well as run a LLP business as compared to its PLC counterpart, as the mandatory requirements and costs involved are significantly lesser in quantum in case of a LLP. This makes choosing a LLP entity over a PLC one highly advantageous for the willing entrepreneurs, as they are able to save precious money at the nascent stages of their venture which can be utilised for key growth objectives in the future. In addition, they do not need to worry too much about the hassles of constant regulatory compliances, preserving valuable time and energy that can be invested in more essentially integral aspects driving business growth and expansion.
  2. Control – Another important merit of a LLP over a PLC is the control factor. Within a PLC setup, there is a much greater need of heavy funding from external sources such as private equity & venture capital firms, angel investors, etc., and control is often diluted to the hands of these resultantly mighty stakeholders, as they seek sizable chunks of shareholding in the company to protect their interests. This can end up with them having an influential say in the decision making process of the business, thus making life hard and unfair for the laborious founders who, in most cases, put in years of hard work, struggle as well as planning in order to convert an idea into a worthy profit making business venture. This misfortune is entirely impossible altogether in a LLP, where the founders are the very people who manage the complete functioning and decision making of the business, as partners in the firm. They are in full and sole control.
  3. Taxation – The taxation structure applicable in the case of a LLP is also simpler and more economic as compared to a PLC, resulting in further savings. PLCs need to first and foremost pay tax on its income at the rate of 25%, its obligations increase by another 7% as surcharge once the income exceeds INR 1 Crore and then 12% once it exceeds INR 10 Crores added to other taxes such as a Dividend Distribution Tax, Education Cess, Wealth Tax and a Minimum Alternate Tax (“MAT”), upon fulfilment of requisite criteria. Whereas a LLP is treated at par with a traditional partnership firm when it comes to the taxation aspect and majorly is required to pay only a fixed amount of 30% out of its taxable income, with the benefit of deductions in the form of remuneration, salary, bonus, commission or interest payable to its partners. It may be subject to a MAT which is lesser than normal obligations and is only applicable in the alternate scenario and a surcharge of 12% if the taxable income inclusive of capital gains exceeds INR 1 Crore, which is not very common.
  4. Compliances – LLPs enjoy greater leeway when it comes to statutory compliances than PLCs. For instance, a LLP is only required to get their accounts audited if its annual turnover exceeds INR 40 Lakhs or its capital contribution exceeds INR 25 Lakhs in any financial year, whereas a PLC needs to get the statutory audit done irrespective of its turnover. PLCs are also mandated to hold at least four board meetings and a general meeting of members every financial year, whereas no such obligations are imposed on partners of a LLP.

CONCLUSIVE REMARKS 

Although no structure out of the two is a “one-size fits all” and the choice of any one depends entirely upon the needs of any particular case, a LLP is certainly likelier to be considered as the wiser alternative as it combines the benefits of a traditional partnership firm and a PLC in such a manner that is most ideal for the majority of entrepreneurs, as it facilitates preservation of invaluable time, money, energy and resources that can be pivotal to the long-term survival and growth of any business. In consideration of all relevant factors, the author strongly opines in favour of LLP and advocates for its election over a PLC structure to any willing entrepreneur intending to start a small-to-medium sized business with minimum regulatory burdens, considerable saving of material resources and maximum growth within a relatively shorter span of time.

Equity issuance and various equity instruments

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This blog post is written by Ms. Ritu Sajnani, Senior Legal Counsel, Coinswitch, Ex-AZB & Partners and Cyril Amarchand Mangaldas.

Securities and their Issuance – Equity

Companies registered under the Companies Act, 2013 (“CA 2013”) have the choice to periodically meet their capital requirements by issuing a variety of instruments to their investors. “Securities” is the technical name for financial instruments that businesses offer to investors. Although the issuance of securities signifies an investor’s interest in the company, they are primarily a collection of rights and obligations that become due and payable to the investor either at the time of the issuance of the securities, upon the occurrence of certain events or the winding up of the company. 

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The capital table of the corporation may or may not change when the securities are offered to investors. The capital table is a structure that shows how much money has been invested in a company overall, broken down into the percentage of shares that each shareholder owns.

Investment into companies is generally in the form of an equity investment or debt investment. Equity instruments provide the investor with direct upside from the operations of the investee company, along with substantial control rights. On the other hand, debt investments provide investors downside protection, guaranteed returns and security against the sums advanced.

Let us give a brief background about Equity instruments.

I. Preference Shares:

The meaning of preference shares can be understood from the explanation in Section 43 of the CA 2013. A preference share is issued concerning the issued share capital of the issuer company limited by shares which carry or would carry a preferential right for payment of dividends and in the case of winding up of a company or repayment of capital.   

Prerequisites for issue 

The governing rules on the issuance of preference shares are the Companies (Share Capital and Debentures) Rules, 2014 (“Share Capital and Debenture Rules”).  A company may issue preference shares if it meets certain preconditions, as below:

  1. Issuance of preference shares must be authorised by the Articles of Association (“AoA”) and Memorandum of Association (“MoA”) of the issuer company. If the AoA and MoA do not authorise the issue of preference shares, the issuer company must amend both constitutive documents.
  2. Issuance of preference shares must be authorised by passing a special resolution in the general meeting of the issuer company. 
  1. The issuer company at the time of such issue of preference shares shall not have subsisting default in:a) Redemption of preference shares; or
    b) Payment of any dividend due on any preference shares. 
  1. A statement containing material facts concerning the special business to be transacted at the general meeting shall be annexed to the notice for such meeting.  According to the issuance of preferences shares, the statement that is annexed to the notice as mentioned above must set out the complete material facts concerned with the said issue as included below:a) size of the issue and number of preference shares to be issued and nominal value of each share;
    b) nature of such shares i.e. cumulative or non – cumulative, participating or non – participating, convertible or non – convertible;
    c) objectives of the issue;
    d) manner of issue of shares;
    e) price at which such shares are proposed to be issued;
    f) basis on which the price has been arrived at;
    g) terms of issue, including terms and rate of dividend on each share, etc.
    h) terms of redemption, including the tenure of redemption, redemption of shares at a premium and if the preference shares are convertible, the terms of conversion;
    i) manner and modes of redemption;
    j) current shareholding pattern of the issuer company; and
    k) expected dilution in equity share capital upon conversion of preference shares. 

(A) Issuance of preference shares for listed companies

This is guided by SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 and SEBI (Issue and Listing of Non-convertible Redeemable Preference Shares) Regulations, 2013. 

(B) Process of issuance of preference shares

Section 62(1)(c) of the Companies Act read with Rule 13 of the Share Capital and Debenture Rules provides for the issue of preference shares.

II. Equity Shares:

Section 43 of the CA 2013 lays down the scope and criteria governing the issuance of equity shares which is typical with voting rights or with differential rights as to dividend, voting or otherwise following such rules as may be prescribed. Equity share capital is issued in different ways as elucidated below:

a) Rights Issue

The issuance of equity shares through rights issues has been provided under Section 62(1)(a) of the CA 2013. This entails that people who are already equity shareholders in the issuer company are offered to purchase additional shares in proportion to their paid-up capital. 

b) Private Placement

The issuance of shares through private placement has been envisaged under section 42 of the CA 2013. The applicable rule for the private placement of shares is Rule 14 of Companies (Prospectus and Allotment of Securities) Rules, 2014 (“Prospectus and Allotment Rules”). Offer of shares can be made to a select group of persons by a company not exceeding 200 (two hundred) persons. 

c) Bonus Issue of Shares 

Bonus shares have been specified under Section 63 of the CA 2013. Bonus Shares are shares given to the existing shareholders in proportion to the number of shares they hold. They are additional shares given to the current shareholders. It is the further issue of shares by a company to its existing shareholders without any receipt of any consideration. Rule 14 of the Share Capital and Debenture Rules provides relevant information on the issuance of bonus shares. 

III. Mutual Funds:

A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities such as stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund’s assets and attempt to produce capital gains or income for the fund’s investors. A mutual fund’s portfolio is structured and maintained to match the investment objectives stated in its prospectus.

Mutual Funds in India are governed by the SEBI (Mutual Funds) Regulations, 1996.

IV. Exchange Traded Funds:

An exchange-traded fund (“ETF”) is a collection of securities-such as stocks-that tracks an underlying index. The best-known example is the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 Index. ETFs can contain many types of investments, including stocks, commodities, bonds, or a mixture of investment types. An ETF is a marketable security, meaning, it has an associated price that allows it to be easily bought and sold.

ETFs are regulated under SEBI (Mutual Funds) Regulations, 1996. However, specific diversification norms for index funds and ETFs were circulated in January 2019.

V. Compulsory Convertible Debentures:

These are “deferred equity instruments” since after the maturity period has passed, they must be converted into equity shares. Due to their conversion from a debt (debenture) to an equity share, they are hybrid instruments and have features of both.

A corporation may issue Compulsory Convertible Debentures under Section 71(1) of the CA 2013. The Hon’ble Supreme Court stated that given the nature of these securities, “any instrument which is compulsorily convertible into shares is eventually recognised as equity and not as a loan or debt.”  On the other hand, under the RBI Guidelines, they are not treated as the Company’s share capital but rather as equity for all financial statements and records.

VI. Compulsory Convertible Preference Shares

They are the most popular option and most favoured by investors for two primary reasons.

  • Preference shareholders receive the dividend first, and the set dividend amount provides them with more advantage
  • In the event of a liquidation, the preferred shareholders have first claim to the venture’s assets under the waterfall process (Section 53 of the Insolvency and Bankruptcy Code, 2016).

Additionally, preference shares are converted to equity shares if the business is successful, enhancing the opportunity for capital development and profit retention for investors. The primary benefit of these shares is their conversion, which is based on the company’s success.

Mergers and Acquisitions in India

by

This blog post is written by Mr. Badarinath CH, 4th year law student at Karnataka State Law University. 

Introduction:

“When the wind of change blows, some build walls while the others build windmills” is the statement which is suitable for India as it has become a hub for rampant economic growth while the developed are still trying to cope up with the Pandemic. There has been a lot of growth in the economic activities and one of the most prominent and trending is Mergers and Acquisitions as the Country saw nearly 70% increase in the M&A activities this year and reached an all-time high of $171 billion.

Mergers and acquisitions (“M&A”) are one of the most effective ways to accelerate the execution of high-growth business plans. Companies in all industries such as telecommunications, pharmaceuticals, automotive, food and beverage are growing at lightning speed, especially due to M&A strategies. M&A refers to transactions between two companies that combine in different ways. Although the terms “merger” and “acquisition” are used interchangeably, they have different legal meanings.

Mergers & It’s Types:

Mergers are like marriages in corporate law where there is an integration of two or more enterprises joining forces to create a new organization by entering into a legal agreement. Merger has become a tool to expand one’s operation. The various objectives of a merger are to increase the long-term profitability of the merging entity, increase market share, reduce operating costs, expand to new locations, and connect everyday items.

Mergers are of the following types:

  • Horizontal Mergers

Horizontal mergers occur when two merging companies manufacture similar products in the same industry. A horizontal merger occurs when two companies competing in the same market merge or merge. This type of merger can have a very large impact on the market or no impact at all.

  • Vertical Mergers

A vertical merger occurs when two companies, each involved in a different stage of production of the same commodity, join forces. Vertical mergers can be anti-competitive because they make it difficult for competitors to access key product components or distribution channels. Such mergers have a significant impact on other manufacturers and distributors in the same sector.

  • Congeneric Mergers

Congeneric Merger occurs when two merged companies operate in the same general industry but do not have a mutual buyer or supplier relationship. This is a merger of two companies with no related products or markets. In other words, there is no common business relationship. The reason for such mergers is usually to spread risk.

  • Conglomerate Merger

It is a merger between two companies in independent industries. The main reasons for Conglomerate mergers are to increase the value of outstanding shares by leveraging financial resources, increasing debt capacity, increasing leverage and his earnings per share, and lowering average cost of capital. Mergers with independent companies also help companies enter different businesses without incurring the high start-up costs normally associated with a new company.

The Concept of Acquisition

An acquisition usually refers to a large trading company buying a smaller company. Acquisition, in its broader sense, refers to the acquisition of corporate property by one company by purchasing another company directly. It is the acquisition by a company of control of the share capital of another existing company. Acquisitions come in two basic forms-

  1. Stock Purchase: here, the acquirer pays the shareholders of the target company cash and/or shares in exchange for shares in the target company. Here, the target company’s shareholders receive the reward, not the target company.
  2. Asset Purchase: In an asset purchase, the acquirer purchases the target’s asset and pays the target directly.

Merits of Mergers & Acquisition

  • Access to Talent

Industries such as engineering, construction, software development and programming face labour shortages. Therefore, it is difficult for companies to find new skilled and talented employees to fill vacancies. This is a huge advantage for mergers and acquisitions as it introduces new talent to the company that may not otherwise be accessible.

  • Improved Economy of Scale

New large companies or companies that acquire another company generally have a greater need for materials and consumables. Also, if a company has high requirements, it means that the company has high purchasing power. High purchasing power enables companies to negotiate large orders, and when companies can negotiate large orders, it leads to cost efficiency. can be enlarged.

  • More Financial Resources

When two companies merge or when one company acquires another company, the two companies combine their financial resources, especially since the marketing budget is larger, so the company needs more financial resources. Thus, making it easier to reach its customers.

  • Reduce Competition

Mergers and Acquisitions reduce competition. This has a negative impact on customers. However, from a business perspective, reducing competition can be a huge benefit. Less competition means less pressure to lower prices and compete. This allows the enterprises to charge higher prices and benefit from higher profit margins.

  • Tax Benefits

Mergers and acquisitions have several tax Benefits. First of all, companies with cash on hand may try to consolidate rather than pay dividends. Dividends are taxable but increases in shareholder value is not. Even if shareholders sell their shares at a higher price, they will still have to pay capital gains, which are usually at a lower rate than income tax.

Demerits of Mergers & Acquisition

  • Employee Distress

Mergers and acquisitions are tough on employees. This is because the new company will try to take advantage of synergies, which tends to lead to massive layoffs. This can cause stress as employees fear that their work will be jeopardized. At the same time, there are many unknowns that can cause stress.

  • Financial Burden

One of the main drawbacks of mergers and acquisitions is that they often generate large amounts of debt. Acquiring companies usually have to borrow heavily to invest.

Alternatively, a company that acquires or merges may have a large amount of debt. Second, the merged company may incur significant debt as a result of the transaction.

  • Clash of Cultures

When two companies merge and acquire, so do their corporate cultures. For example, a company may be very strict and disciplined and require workers to work overtime. However, other companies are very flexible and allow employees to work the hours they choose.

Additionally, there may be different employee benefits that vary from company to company.

  • Time & Cost Consuming

Mergers and acquisitions involve a significant amount of legal and accounting work that can cost companies millions of dollars. Any failure to complete the merger or acquisition could result in significant losses. At the same time, even if it does pass, it’s a huge premium to the real price.

Recent M&A Deals in India:

  1. Acquisition of NDTV by Adani Group: Adani Group’s media arm, led by Gautam Adani, has acquired a 29.18% stake in New Delhi Television Ltd (NDTV). The Ports-to- Energy conglomerate acquired a stake in NDTV by buying the company backed by TV channel founders Radhika Roy and Prannoy Roy. NDTV made a public offer to acquire an additional 26% stake from public shareholders. The conglomerate acquired the media house indirectly and through Vishvapradhan Commercial Pvt Ltd (VCPL), a wholly owned subsidiary of AMG Media Network Ltd (AMNL), owned by Adani Enterprises Ltd (AEL). NDTV promoters, who tried to resist the offer, eventually resigned from the board, ergo paving for the most talked corporate takeover of the media company.

  2. Merger creating a Financial Behemoth: The Merger between HDFC Ltd and HDFC Bank which is billed as the largest merger in the Indian Corporate History at over $40 Billion. Mortgage lender Housing Development Finance Corporation merged with its subsidiary HDFC Bank to create a financial giant. The Board of Directors of HDFC Bank has approved the merger of HDFC Investments and HDFC Holdings with HDFC and the merger of HDFC into his HDFC Bank.
  3. Air India’s return to its Home: The National airline, formerly acquired by the Tata Group upon nationalization, officially became Tata’s in January this year after acquiring the debt-ridden airline last October after winning a bid of Rs 18,000, up Rs 2.9 billion handed over to the group from bids of other conglomerates. Since then, Tata Sons Air India merged with his Vistara and Air Asia and has become a significant player in the Indian aviation industry.

Statutes Regulating M&A

There are certain Promulgations that regulate the Mergers and Acquisition deals such as Section 230-240 of the Companies, Act 2013. Further the Competition Act, 2002 where it regulates the Mergers & Acquisitions by mandating the entities to not cross the threshold limit which is decided by the turnover and the asset of the entities. The duties regarding payment of stamp duties are regulated under The Indian Stamp Act, 1899 and regarding Cross-border merger which involves the Merger or Acquisition between Indian and foreign Companies, the Foreign Exchange Management Act, 1999 despite these statutes the Central Bank of India i.e., RBI, SEBI and CCI are other bodies that are watchdog of these transactions.

Conclusion:

The M&A has become an emerging sector in the modern Corporate Market, which is expected to become the catalyst for India’s market growth. Even though these deals have its own hindrance as abovementioned, a good M&A can boost the economy of an industry as well as the market in ways it never can. It is evident that the M & A market is booming but still there are instances where there has been involvement of hostile takeover which is trending in the recent times due to many takeovers both in India and Oversees, thus there is need of protecting the target companies from such hostile takeovers.