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Demystifying Company Formation
Term Sheet Evaluation
Entrepreneurship Workshop
July 16, 2019
@IIT-Roorkee, TIDES Centre
In association with
Harshmit & Co. Chartered Accountants
&
ProBuds Strategy Consulting © 2 www.probuds.co
Part 1
Demystifying Company Formation
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The capacity and willingness to develop, organize and manage a business venture along with any of its risks in order to make a profit.
Source: http://www.businessdictionary.com/definition/entrepreneurship.html
Step forward to be...
ProBuds Strategy Consulting © 4 www.probuds.co
Shades of Entrepreneurship
Negatives Positives
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Minimum
Members Registration
Separate
Legal Status
Promoter
Liability
Statutory
Compliance
Funding
Opportunities
Winding
up
Proprietorship 1 No No Unlimited Low Low Fast
Partnership 2 Optional No Unlimited Low Low Fast
LLP 2 Yes Yes Limited Medium Low Slow
Pvt Ltd Co. 2* Yes Yes Limited High High Slow
* minimum 2 members are required to incorporate a Private Limited Company, whereas, OPC
(One Person Company) requires single member to incorporate
Business Entity - Entrepreneurship Setup Decision
ProBuds Strategy Consulting © 6 www.probuds.co
Constituents of Business Entity
Business Entity
Statutory
Requirements
Environment
Regulations
Customers
Vendors/
Consultants
Investors
Employees
Safety & Health
Board/
Shareholders
Global
Operations
ProBuds Strategy Consulting © 7 www.probuds.co
Company Formation
Regulated by MCA
ONE PERSON
COMPANY
PRIVATE LIMITED
COMPANY
PUBLIC LIMITED
COMPANY+
NON-PROFIT COMPANY
(SEC 8 Co.)
MEMBERS 1 Min 2 Min 7 Min 2 or 7*
DIRECTORS Min 1 - Max 15 Min 2 - Max 15 Min 2 or 15 Min 3 - Max 15
+ Also regulated by SEBI and other bodies * In case of Public Co.
ProBuds Strategy Consulting © 8 www.probuds.co
Know more about Company
MOA Memorandum of Articles
AOA Articles of Association
DIN Directors Identification Number
DSC Digital Signature Certificate SSSHA
Share Subscription & Shareholders Agreement
PAN Permanent Account Number
CIN Company Identification Number
ROC Registrar of Companies
ProBuds Strategy Consulting © 9 www.probuds.co
Steps to form a Company
Obtain DSC for the Directors
Obtain DIN for the Directors
Proposed name of company for approval to ROC
Confirm No. of Shareholders and Share Capital to form the Company
Mention Main Objects of the Company
Ascertain location to be used as Registered Office of the Company
ProBuds Strategy Consulting © 10 www.probuds.co
What defines a ‘StartUp’?
Where turnover does not exceed INR 100 Crs for
any of the financial years since incorporation/
registration
Upto a period of 10 years from the date of
incorporation/ registration
Driven by:
• unique idea with a high potential of employment
generation or wealth creation
• innovation, or technological disruption
• development, deployment, and commercialisation
of new products, processes, or services driven by
technology or IP
Cannot be called a Startup:
• if it already forms a part of another registered entity
• no element of uniqueness or innovation
demonstrated
Source: Startup definition as defined by DIPP; https://www.startupindia.gov.in/
ProBuds Strategy Consulting © 11 www.probuds.co
Funding Options
Own Capital Contribution
(Bootstrapping)
Angel Investment
Venture Capital Investment
Business Incubators & Accelerators
Bank Finance
Govt Supported Schemes
IPO / Acquisitions
Private Equity Investment
ProBuds Strategy Consulting © 12 www.probuds.co
Focus areas for Founders
Business Structuring
Tax Planning
Assist in preparing Business Plan
Building Business and Growth Strategy
Preparing requisite documentation
Building Legal Contracts & Agreements
Work related to Certification
ProBuds Strategy Consulting © 13 www.probuds.co
Part 2
Demystifying Termsheet Evaluation
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“Investors” met
“Founders”
So begins the fairy tale……
Setting the Context
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A term sheet is a non-binding agreement setting forth the basic terms and conditions under which an investment will be made.
It serves as a template to develop more detailed legally binding documents.
Once the parties involved reach an agreement on the details laid out in the term sheet, a binding agreement or contract that conforms to the term sheet details is then drawn up. Source : https://www.investopedia.com/terms/t/termsheet.asp
What is a Term Sheet?
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“Investors” Versus
“Founders”
Welcome to reality……
“People make their decisions based on what the facts mean to them, not on the facts themselves” ― Roy J. Lewicki
Why it Matters?
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1 - Who owns what and how much?
2 - How money will flow in?
3 - Who controls the company?
4 - Who manages the day-to-day affairs?
5 - How can company raise fresh funds?
6 - How can a stakeholder exit?
7 - Non-Disclosure and Other clauses?
What it contains?
ProBuds Strategy Consulting © 18 www.probuds.co
Ownership Type & Investment Plan
1 - Nature of Securities to be issued:- - Equity Shares - Compulsorily convertible preference shares. - Compulsorily convertible debentures. 2 - Rights & Obligations of the parties. 3 - Schedule of Disbursement of the investment amount
Control & Stake-management
Other clauses
1 - Voting rights of shareholders. 2 - Board rights/observer rights. 3 - Liquidation preference. 4 - Anti-dilution adjustment. 5 - Pre-emptive rights. 6 - Dividend. 7 - Promoter lock-in, vesting, transfer rights. 8 - Exit Rights
1 - Information/Inspection rights. 2 - Statutory Compliance 3 - Further rounds of funding. 4 - Company Valuation 5 - Non-disclosure 6 - Founders Obligations
The Legal Aspect
ProBuds Strategy Consulting © 19 www.probuds.co
1 - Quantum of Stake-Dilution
2 - Whether terms of investment are practical?
3 - Restrictions on further fund-raising
4 - Are the investors in for a long haul?
5 - Are terms clear and future-proof?
6 - Would the idea and culture co-exist?
7 - Is it a win-win for all parties?
Founders & Term Sheet Evaluation
ProBuds Strategy Consulting © 20 www.probuds.co
Founders ProBuds Strategy Consulting, is a Management Consulting company
co-founded by, Jasmeet Singh and Shubh Kirti, in October 2016. As
qualified Chartered Accountants, both have experience in providing
compliance management solutions, customized business intelligent
solutions, and implementing business process improvements, to many
corporates of all sizes.
Both co-founders have a combined industry experience of more than
20 years. Having worked as a Senior Management Team, the co-
founders together, have brought major learning and cultural changes in
the client organizations with their dedicated and qualitative services,
and expertise in use of technology, being their USP
Experience
ProBuds Strategy specializes in Compliance Management Solutions,
Startup Management, Business Process Improvements, Internal Financial
Reporting requirements, Business Outsourcing Management,
developing customized Business Intelligent Applications
Areas of specialization
Founded in 2015 to provide financial and operational support to
entrepreneurs in the MSME segment. The firm is committed to creating
value through delivery of business solutions with long term strategic
insight. With 16 years of diverse experience in providing strategic and
financial planning, Harshmit has earlier served as Head-Finance for auto
MSME and oversaw a rapid growth phase
Harshmit & Co. Chartered Accountants
About ProBuds
Contact Us
info@probuds.co.in
+91 98189 46669
+91 99719 83008
NCR-Delhi
For more details, visit:
www.probuds.co
Thanks
Harshmit & Co. Chartered Accountants
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