Important Update | Dematerialization of Securities Mandatory from August 1, 2019

Dematerialization of Securities Mandatory from August 1, 2019

As per a recent amendment to the Companies Act, 2013, every private limited company may have to maintain its shares in dematerialised form, w.e.f. August 01, 2019.

While a specific timeline for dematerialisation has not yet been notified, it is important that every private limited company takes steps immediately to dematerialise their securities, before making any fresh offer for issue/buyback/transfer of any securities to any investors or existing shareholders.

LexStart’s Upcoming Events

LexStart upcoming events on Convertible Notes, investment term sheets & Key Compliances for Stakeholders

  1. July 26, 2019: Master Class on Convertible Notes (Webinar)

Timing: 4 p.m to 5.30 p.m.

Join LexStart for a detailed analysis of Convertible Notes as instruments for fundraising. This Master Class on Convertible Notes will answer the following questions:

  • What is a Convertible Note?
  • How is it different from CCDs and CCPS?
  • How does valuation work in a Convertible Note? How do the concepts of floor and cap work?
  • Is Convertible Note the right instrument for you?

Convertible Notes are a relatively new instrument in the Indian startup ecosystem and this Master Class will help both startups and investors understand how these instruments work. Convertible Notes are a cheaper and faster route of fundraising available to registered startups and this Master Class will help startups understand how to use them.

Click here to register 

 

 

  1. July 30, 2019: Term Sheets 101 (Webinar)

Timing: 4.30 p.m to 5.30 p.m.

Join LexStart for a detailed discussion on investment term sheets, which will help you:

  • Understand fundraising jargon typically used in investment term sheets and how to negotiate them
  • Learn more about different investor rights like pre-emptive rights, tag rights, drag rights and liquidation preference typically found in investment term sheets
  • Learn more about company/promoter obligations typically included in investment term sheets

 Click here to register 

 

 

  1. July 31, 2019: Corporate Governance – Key Compliances for Stakeholders (Webinar)

Timing: 4 p.m to 5 p.m.

Join LexStart for a detailed discussion on the key compliances that stakeholders in startups should be aware of. In this session, we will cover the following:

  • Thinking of taking a Board seat? Understand the Director obligations & liabilities
  • Running a startup? Understand important corporate compliances
  • Investing in a company, or fundraising from a VC? Understand the compliances involved

Click here to register 

Budget 2019

RELEVANT BUDGET HIGHLIGHTS

 

STARTUPS

  1. Tax Relief for Investors in Startups: Measures are proposed to carry forward and set off losses for startups & increase in period of exemption of capital gains from sale of residential house for investment in startups up to March 2021.
  2. Angel Tax Clarification: Startups and investors who file requisite declarations will not be subjected to any kind of scrutiny in respect of valuation of share premium. A mechanism of e-verification will be put in place and with this, the funds raised by startups will not require any angel tax scrutiny.
  3. Helping Skilled Entrepreneurs: 80 Livelihood business incubators and 20 technology business incubators to be set up in 2019-20 under ASPIRE to develop 75,000 skilled entrepreneurs in agro-rural industries.
  4. TV Channel: Finance Minister is to start a TV channel exclusively for start-ups.
  5. Social Enterprises Startups: Electronic funding platform for social enterprises is to give necessary impetus to the startups.

 

MSMEs

  1. Loan incentive to MSMEs: Government to provide INR 1 Crore loan to MSMEs.
  2. Incremental loans: In continuation to bolstering MSME sector growth, interest subvention of 2% has been announced for fresh or incremental loans.

 

TAX

  1. Angel Tax Relief for Cat II AIFs: Valuation of shares issued to Cat II AIFs shall also now be out of scrutiny of Income Tax evaluation (earlier it was only for Cat I AIF).
  2. TDS above 1 crore: The government proposes to levy TDS of 2% on cash withdrawal exceeding INR 1 Crore in a year from a bank account.
  3. Surcharge on Individuals: In view of rising income levels, a surcharge will be levied on individuals with taxable income of INR 2 to 5 Crore, and INR 5 Crore and above.
  4. Corporate Tax Rate: Lower rate of 25% corporate tax rate shall now be applicable to companies with a turnover of up to INR 400 Crore (increased from previous threshold of INR 250 Crore).

 

OTHERS

  1. PAN and AADHAR to be interchangeable: PAN and Aadhar to be interchangeable; now Aadhar can be quoted instead of PAN, wherever PAN is required. It is ok to not have a PAN.
  2. Labour Laws: Proposal to streamline multiple labour laws into a set of ‘four labour codes’.
  3. Rental Housing: Current archaic rental laws to be updated to assess relation between lessor and lessee in a fair manner.
  4. Annual Global Meet: The Government is contemplating organising an annual global meet to get all three sets of global players: Industrialists, corporate leaders, corporate sovereign and venture funds.
  5. Platform to Raise Capital: The Government proposes to work on a platform for listing social enterprises and voluntary organisations to raise capital as equity, debt or units like mutual fund.

MCA FILING DEADLINE EXTENDED

The Central Government vide its notification dated November 02, 2018 had directed that every *“Specified Company” shall file MSME Form I with details of all outstanding dues to Micro or Small Enterprises suppliers existing on the date of notification of this order (i.e. January 22, 2019) within 30 days from date of publication of this notification i.e. on or before February 21, 2019.
However, as per the recent circular published by MCA on February 21, 2019 the due date of filing MSME Form I for the Specified Companies has been extended and the Companies now have to file the specified form within 30 days from the date of publication of MSME Form I on MCA 21 Portal. As of now, the specified form has not been published yet.
*Specified Companies include the following:
All companies, who get supplies of goods or services from micro and small enterprises and whose payments to micro and small enterprise suppliers exceed forty five (45) days from the date of acceptance or the date of deemed acceptance of the goods or services as per the provisions of section 9 of the Micro, Small and Medium Enterprises Development Act, 2006.

LexGyaan Startup Series

 

Series 1 – Co-Founders’ Agreement and other legalities when starting up

Have an idea? Thinking of Starting Up? Or just testing the waters? You might be reaching out to consultants, developers, manufacturers etc. to improve upon your idea. Have you ensured that your idea is protected and you are not losing ownership of your idea or your brand for that matter? Further, as your founding team comes together, it is important to put down expectations on contribution and ownership in a Co-Founder’s Agreement. You then need to decide what kind of entity you want to house your team in. Its also important you take certain precautions. What if the idea materializes into something big? You don’t want to regret not having your developer bound by obligations to hand over the cool product that you conceptualized! This workshop helps you navigate each of these crucial decisions.

This workshop will cover the key issues an entrepreneur needs to tackle at the very outset, including:

– Co-Founders’ Agreement

– NDAs

– Hiring a web developer

– Deciding on incorporating an entity for the business,

– When to quit your current job

– Protecting your idea and your brand through trademark

Coming up:
Series 2: Starting Up
Once you have decided to proceed with you startup idea? What next? Just setting up an entity is not enough. There is hiring to do, NDAs to be signed, IP to be protected, and so on. In this second workshop in the LexStart Startup series, we will be discussing:
– Legal Cheat Sheet – Basic compliances required under the law

– Startup India – How to register? What are the benefits?

–  Hiring: HR agreements, policies and processes,

– Terms of Service and Privacy Policy

– Protecting your intellectual property

Series 3: Legalities of Structuring Incentive Plan for Employees and Advisors

 

ESOPs, Advisor Equity, Mentor Stock, these are the terms you hear a lot these days. But do you understand how each one of these work?In our third workshop of the LexStart Startup Series, we will be discussing legalities of Structuring Incentive Plan for Employees, Advisors and Mentors, including:

– What exactly do each of these terms mean – ESOP, Advisory Equity, Mentor Stock

– How do they work and answer questions like – Does the employee have to pay money? Can they get shares upfront? What happens if they leave the company?

– Most commonly used structures, mechanisms and terms

– Tax consequences

Series 4: Fundraising for your Startup
In the last and most important workshop of the LexStart series, we will be discussing the various nuances of the fundraising process, including:

 
– Overview of process of fundraise
 
– Structures for fundraise – Convertible Note, Loan, Equity, CCPS!
 
– Term sheet and the various terms of investment – how to effectively handle negotiations with investors

– Due diligence – what does it mean and what does the process entail

– Share purchase agreement, share subscription agreement, Shareholders’ agreement – understanding the various documents

– What all do you need to do to get money in bank!

Disclosure of Significant Beneficial Ownership

As per Section 90 of the Companies Act, 2013 and notified Companies (Significant Beneficial Owners) Rules 2013, every Reporting Company having shareholder that is a company or partnership firm or trust (“the Member“) has to mandatorily procure a declaration in Form BEN-1 from the ultimate beneficial owner (“the Individual Shareholder”) of all Members holding more than 10% of shareholding/control in the Reporting Company on or before September 10, 2018.

The Form BEN-1 received from the Individual Shareholder is required to be filed in E-form BEN-2 within 30 days of receipt of declaration from the Individual Shareholder.

What do you have to do?

If the abovementioned Rules are applicable to your Company, request you to approach your Individual Shareholder for providing us the below mentioned details to enable us to assist you with the filing of E-form BEN-2:

  • Self-attested scanned copy of identity proof for resident individual i.e. PAN;
  •  Self-attested scanned copy of identity proof for non-resident individual i.e. Passport;
  •  Residential address;
  •  Nationality;
  • Occupation;
  • Percentage of voting rights in the company; and
  •   Date of acquisition of shares (if available).
How can LexStart Help?

  • Prepare and file Form BEN-1 i.e. Declaration by Individual Shareholder;
  • Prepare and file E-form BEN-2 i.e. Return to the Registrar; and
  • Prepare and maintain Register of Beneficial Owner.   

₹ 9,499 /-
ONWARDS

 

Penalty for non-compliance by Individual Shareholder?

  • Fine up to INR 1,00,000/- and a continuing penalty of INR 1,000/- per day.
  • The defaulter may be charged with fraud under Section 447 of Companies Act, 2013.
  • National Company Law Tribunal (“NCLT”) may impose restrictions on transfer of shares.
  • NCLT may suspension all rights attached to shares example voting rights, dividend etc.

If you need any information or clarification, please do not hesitate to contact us.

Your Brand | Your Strongest Asset

Your brand is the image that differentiates you from your competitors. It identifies your product, your service, your company! It may be represented by a sign, a symbol, a design, a word, a colour, or a combination thereof. It conveys a sense of quality, credibility, customer satisfaction. It plays a crucial role in your marketing strategy and is at the core of your business competitiveness. It generates customer loyalty and has a value. It may become your strongest asset

1.1      Branding Strategies And Business Success

Branding aims at building a distinctive and attractive presence in the market that helps gain and retain loyal customers. Effective branding involves creating an image in the consumers’ minds about the quality of a product or a service, mainly through advertising campaigns centred on the brand. It also requires ensuring the legal protection of the brand against competitors in the relevant markets. Branding strategies are at the core of sustained market competitiveness and business success.

1.2      Brand Creation, Management And Commercialization

Creating a brand implies choosing the signs that will distinguish your products or services from those of your competitors and getting them legally protected. The legal expression of your brand is a trademark. A trademark confers on you the exclusive right to prevent third parties from using the signs that distinguish your brand in the course of trade for identical or similar goods or services. You can register your trademark in India by filing an application at the Trademarks Registry (TMR) within the Office of the Controller General for Patents, Designs and Trademarks (CGPDTM). The registration of your trademark in India will be valid for a period of 10 years from the date of the trademark registration and can be renewed time and again for similar duration of 10 years. Managing your brand implies regularly renewing your trademarks and enforcing your rights against infringers and counterfeiters. The assignment and licensing of trademark rights may play a significant role in brand commercialization through partnership, merger and franchising initiatives.

1.3      Choosing Your Trademark – Best Practices

Creating a brand implies choosing the sign (trademark) that will distinguish your products or services form those of your competitors. In principle, any sign capable of distinguishing your goods or services from those of other undertakings in the market can constitute a trademark. Thus, your trademark may be constituted by a sign, a symbol, a design, a word, a colour, or a combination thereof. However, when choosing your trademark, there are certain requirements or limitations that you need to consider.

The trademark must be distinctive. In other words, it should consist of a sign or a symbol that serves to identify your products or services and distinguishes them from those of other companies/startups. For example, the symbol of Mercedes Benz or a BMW will distinguish the quality of the cars from any other cars in the automobile industry.

  • The trademark should not be descriptive of the specific goods or services that you wish to commercialize. Generic terms used to identify those goods or services, or terms that describe their characteristics, would not be accepted. For example, ALANKAR cannot be an ideal trademark for jewellery since directly or indirectly it is describing the source of the goods or service.
  • The trademark should be capable of being represented. Most trademark offices require graphical representation, even though some also accept other means of representation for special types of marks (e.g., MP3 audio recordings for sound marks). The Indian Trademarks Registry requires that your trademark be graphically represented.
  • The trademark should not be functional, which means that the sign that constitutes your trademark should not consist exclusively of a characteristic that results from the nature of the goods themselves or that is necessary to obtain a technical result. This is especially relevant in the case of three-dimensional marks. For example, A1 or Best.
  • The trademark should not be deceptive. A sign conveying a false origin or false characteristics of a product would be refused for protection on grounds of being deceptive.
  • Most countries would refuse protection as a trademark for signs that are contrary to public order or morality.
  • State flags, State emblems and names and emblems of intergovernmental organizations are excluded from protection as trade marks in most countries around the world.

1.4      Conclusion

Finally, most importantly, you must make sure that the sign you wish to use as your trademark is still available in the market and is not the same as or similar to a well-known mark or a trademark already registered by someone else for the same goods or services. Therefore, it is very important that you make an exhaustive search for the availability of your trademark in those markets where you would like to get it protected.

Also Read – Applying for a Trademark? Here is how you can get a proprietor code.

Reference to annual filing of forms with Registrar of Companies (“ROC”) for the Financial Year 2017-18

This is with reference to annual filing of forms with Registrar of Companies (“ROC”) for the Financial Year 2017-18.

Every company registered under the Companies Act has to meet the below timelines:

Delayed filings will result in penalty of
₹ 100 /day

Ensure your portfolio companies complete their filings on time!

Special offer for you from LexStart

Prepare & File Annual Returns + All AGM Documentation*
₹ 8,000 /-
ONWARDS

*Includes assistance with drafting & filing of

  • Notice of board and sharehonders’ meeting
  • Directors’ Report
  • Extract of Annual Return
  • Form AOC-4 – Balance Sheet
  • Form MGT-7 – Annual Return

If you need any information or clarification, please do not hesitate to contact us. You can reach out to [email protected] with any specific queries that you may have.