Demystifying Company Formation Term Sheet Evaluationtides.iitr.ac.in/wp-content/EWTIDES.pdf · Company Formation Regulated by MCA ONE PERSON COMPANY (SEC 8 Co.) PRIVATE LIMITED COMPANY

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


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...


Shades of Entrepreneurship

Negatives Positives


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


Constituents of Business Entity

Business Entity

Statutory

Requirements

Environment

Regulations

Customers

Vendors/

Consultants

Investors

Employees

Safety & Health

Board/

Shareholders

Global

Operations


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.


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


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


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/


Funding Options

Own Capital Contribution

(Bootstrapping)

Angel Investment

Venture Capital Investment

Business Incubators & Accelerators

Bank Finance

Govt Supported Schemes

IPO / Acquisitions

Private Equity Investment


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


Part 2

Demystifying Termsheet Evaluation


“Investors” met

“Founders”

So begins the fairy tale……

Setting the Context


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?

https://www.investopedia.com/terms/t/termsheet.asp


“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?


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?


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


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


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


About ProBuds

Contact Us

[email protected]

+91 98189 46669

+91 99719 83008

NCR-Delhi

For more details, visit:

www.probuds.co

Thanks


Documents

Demystifying Company Formation Term Sheet Evaluationtides.iitr.ac.in/wp-content/EWTIDES.pdf · Company Formation Regulated by MCA ONE PERSON COMPANY (SEC 8 Co.) PRIVATE LIMITED COMPANY