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Maintaining Statutory Register of the Company

Company is a legal entity made up of association of people. Companies can be natural, legal, or mixture. These are the organizations which can be commercial as well as industrial. Members of the company share a common goal and focus upon by uniting themselves. Company’s goal is an agenda for the employees of the company which is  achieved by the talent, effort, and skills in them.  

Statutory register is a form of register in which company’s data is maintained. Every company needs to have a statutory register which is kept in registered office or in Company’s house. Mostly these are the single bound book or loose-leaf binder which can be kept in any form, such as a computer record.  

According to Section 94, private companies may opt to keep certain information on the Central Companies House register instead of on their own statutory registers. In most of the companies, it is important to keep statutory registers. Since it is not only is it requirement of the Companies Act. But, also they should be kept up to date. Most probably the register of members, in particular, is the primary authority.

There are different types of Statutory Register

  • Register of members
  • Inspecting the register of members
  • Register of directors
  • Register of secretaries
  • Register of charges
  • Persons with significant control ("PSC") register
  • Other registers

Register of members

In every company record of the members (shareholders) is kept. This includes the names, addresses, numbers, Class of shares of the members. It also includes the date at which the person was registered or ceased as a member, the amount paid, or agreed to be considered as paid, on the shares.

Inspection of the Register

In Companies Act, 2006 there is an amendment about the inspection of the register. It remains open to any member of the company without payment. It can be with anyone else on payment of the prescribed fee.

Request for inspection or copies must contain the following information

  • Name and Address of the person making a request .This should also have the name of the organization they are acting. 
  • The purpose for which the information is to be used whether the information will be disclosed to any other person.
  • It must comply within 5 working days or apply to the court.

Register of directors

  • In every company, there must be the register of its director.
  • It must require contained particular of each person who is a director of the company.
  • The register must be inspected in company’s registration office or at a place specified in regulations.
  • The notice must be given to the registrar. The register must be open to the inspection. This should be available to every member without charge.
  • There is a provision of shadow director which is treated as an officer of the company.
  • A person found guilty in an offense under this section is liable on summary conviction to a fine not exceeding level 5 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 5 on the standard scale.
  • Inspection of the register can be refused and the court may by order compel an immediate inspection of it.

Register of Secretaries

Company register of secretaries is required under section 275.In many Private companies, There are many companies where there are company secretary.

Register of charges

In every limited company, there is a requirement to keep its registered office a register of charges and enter in it all charges specifically affecting property of the company and all floating charges.

  • It has been abolished as far as all charges created by the Companies Act, 2006.
  • This register must be kept with regard to all charges on the undertaking or any property of the company created before that date.
  • These are in case of short description of the property charged and the amount of the charge.
  • The names of the persons entitled to the charge.

Persons with significant control (PSC) register is the new register of people with significant control underemployment act 2015  .

Register of Debenture holders- Every company should keep this register .This is the register for holders and Register of any other security holders in accordance with Section 88(1) of the Companies Act, 2013. This register is allotted in every company used to maintain a separate register of debenture holders or security holders

Other registers are the registers, such as a register of allotments, register of transfers, These are not statutory registers and there is no obligation.


Benefits of Start-up India Scheme

Start-up India is the plan launched by honorable P.M. Shri Narendra Modi. This plan enables to create an ecosystem to promote and nourish entrepreneurship. The scheme is based on an action plan aiming at the promotion of financial bank for start-up ventures and to boost entrepreneurs.

Start-up is an entity registered in India. Start-up is the company which is not older than 5 years and its annual turnover should not exceed 25 Crore. It works towards innovation, development, deployment or commercialization of new products driven by technology or intellectual property. Such an entity is not formed by splitting up, or reconstruction, of a business already in existence.

Start-up's aim is to develop and commercialize which creates or add value for customers or workflow. Here are some features which have benefitted to entrepreneur

Features in Start-up India

Income tax provisions in Start-up India

This exemption is available for first three years. Start-up will be eligible for tax benefits only if the certificate has been obtained a certificate from the Inter-Ministerial Board.  

Self-certify compliance

Start-up is allowed to self-certify the compliances with labor and environmental laws.In labor law, no inspections will be conducted for a period of 3 years.  Inspection can be on receipt of a credible and verifiable complaint of violation. In environmental laws, will follow white category.

Start-up India Intellectual Property Protection scheme(SIPP)

This scheme provides fast-tracking of patent applications. A panel of facilitators to assist in the filing of IP applications. The government will bear the cost of such facilitation and rebate on the filing of patents.

Mobile application and web support

The scheme also provides on-the-go accessibility for Start-up's registration, tracking the status of registration, filing for compliances, Start-up collaboration with various Start-up ecosystem partners and for applying for various schemes under the Action Plan.

How tax benefits can be availed in Start-ups

Addition in value: Value added in the product and customer.

Solution to the problem: Start should be available to solve certain problems of the society. Points should be clearly mentioned.

Working with Business Model: Start-up should be according to the particular business model about Business model otherwise, incubators may be rejected.

Recommendation letter –This application is needed from certain authorities. Authorities can any incubators established the post-graduate college in India, incubator which is funded from Central or state government.

Step to get Recommendation letter

  • Easy task: You can Directly reach out to the incubators via email or phone and to tell case correctly.
  • Startup application filling: After you are connected, the incubators will send you the application form which you need to fill out properly along with the necessary documents.
  • Visit the incubators: possibility that incubators may call you for the meeting, and you may have to visit it personally.
  • Business should be working: Business model is, it should be working model. Proposed business will not be considered by incubators.
  • Fees: The incubators may charge you Rs.5000. If your application has been taken up by an expert panel, then the cost will further increase by Rs.5,000/-. This will not be more than Rs.10,000/- in any case.

Start-up is the fast-growing business that aims to meet a marketplace need by developing an innovative product or service. Start-up India has given an opportunity to many young youths to bring their business idea into the application. This scheme is a success and has given many benefits to entrepreneur and other people. 


How to Choose the Right Business Entity

One of the first steps before starting a business is choosing the right business entity. Among other things, it makes sure that the entrepreneur is able to reduce the level of taxes, works on checking liability exposure and can be self-sustainable as far as financing in the later stage is concerned. A right business entity also ensures that the owners have a mechanism wherein the business continues to flourish in case of death of one or more owners.

While finalizing a business, one should keep the following factors in mind:

The degree at which the personal assets of the owners are at risk from liabilities arising from the business.

The best ways ensure tax advantages and avoid multi-layered taxation

The ability to lure investors

Cost of operating the business, which should be minimal

Also the ability to ensure, if the need arises, that the ownership interests are easily transferred to key employees

Apart from keeping these essential factors in mind, one must also note that whatever choices are made regarding the entity are going to fluctuate during the due course of time. The nature of business remains the same but there are various factors like the market and government policies which impact the business in the longer run.

The number of owners defines the entity type of the business. While a single owner can operate as a sole proprietor, a corporation, or a limited liability company but the moment there are more than one owner involved, in legal terms, it cannot be called sole proprietorship. However, it can be a corporation, limited liability company, general partnership, limited partnership. In certain situations it can even be a limited liability partnership.

Lets’ now discuss in detail the entities

Sole Proprietorship

If a business owned by a single individual it is termed as sole. It does not require any legal distinction from the owner, and also, in most cases does not need any governmental filing except a fictitious business name statement, if the owner is doing business in any name other than a personal name. It is the most common form of business as it is simple to start and is free from huge operating expenses that are needed when a person thinks of starting other legal entities such as corporations and limited liability companies. Since there is no legal distinction between the owner and the business, a sole proprietor is always liable for all the debts and obligations of the business. Also upon the death of the owner, the business ceases to exist. The physical assets of the business such as equipment, accounts receivable, and real property remain intact but even those, apart from the business, become tough to sale. One of the major boosts for a sole proprietorship business is that it does not have to go through multiple layers of taxation. As mentioned already, there is no distinction between the owner and the business so all the income of the business can be only taxed once – in the category of personal tax return.


When it comes to corporations, it is always treated as a separate entity from its owners for all legal and taxation purposes. Normally it comprises of shareholders, directors and officers. It is the prerogative of the shareholders to elect the board of the directors, who then are responsible for setting the agenda and taking major decisions for the company. The board of directors also appoint officers who oversee the day to day affairs of the company. Also it is obvious that the corporation is a separate entity hence all the debts and obligations of the business are not directly related to the owners. Apart from these, there are various other benefits of a corporation.

  1. Shares of the company may be sold to investors in order to raise capital.
  2. Internal revenue code also ensures that the Corporation can have pension plans, medical payment plans, group life and accident plans, and various other benefits.
  3. The corporation if for eternity as long as it abides by the set of corporate. Hence even if an owner, shareholder or a member of the board of director dies, it won’t cease operations.

A limited liability company, or LLC as it is popularly known as, is formed by one or more owners, called members. A LLP company ensures limited liability protection to its members.In LLP, limited protection of the personal assets of the members is ensured much like shareholders incorporation.

Partnership in business

When the business has more than one owner, there are basically two types of entities possible - a general partnership or a limited partnership.

General partnership in simple terms is an association of two or more persons carrying on a business venture as co-owners for profit. After a sole proprietorship, general partnership is thought to be the easiest entity. Under most state laws, a formal written partnership agreement is not needed in case of general partnership for the partnership but it is expected that the partners keep the rights and duties ready before they embark upon the business journey. If they partners do not have a written agreement, it will be a little difficult to do the business and share the profit and losses of the business.

In a general partnership, each partner has a personal liability and the business is pretty much limited when it comes to luring the investors, also it is difficult to resale such businesses. The biggest advantage of a general partnership is that there is no provision of taxing it. In fact, the losses and profits are shared by the partners according the written document which was formed at the beginning of the forging of the partnership. Since there are less no of partners in most cases and no shareholders or board of directors, the team can always sit together and finalise or change a plan on how to make profit or take the company forward.

When it comes to limited partnership, it requires a written partnership agreement. Also a certificate of limited partnership needs to be filed in the state where the partnership is formed. Hence a limited generally costs more than a general partnership. Under normal circumstances, only licensed professionals are allowed to form limited liability partnership and it is the prerogative of the state to decide on licensing.

So how do you decide on which is the best form of partnership. Before deciding on the business, here are the questions you need to answer.

Who are going to own the business

What are the plans on distributing the profit among the owners?

Is the business expected to generate profit at the start or will it incur losses?

In those cases where the owner is a single individual and is not willing to add ownership interest, then he should not be concerned about the management structure and he can opt for any business entity. Hence the decision will be taken on the basis on the kind of taxation the owner wants to have for his company.

6 Business Licenses that every Startup should know about

When it comes to the knowhow of licences needed by start-ups, the process in India is not much friendly and hence a lot of young entrepreneurs often tend to function in a clumsy manner.  This leads to a situation where the start-ups operate without these licenses.  But there are many new business start-ups which are always willing to operate in a legit manner with all the licences. So here are the licences which are mandatory for start-ups

PAN Card:

This is a must for all businesses, irrespective of whether it is registered in the name of a proprietor or entity. The Permanent Account Number is to be for all sorts of payments. PAN is needed while starting a bank account or during the, payment of any sort or service tax.


All business houses those pay salary, commission or interest to its employees are required to have a TAN. TAN is quoted on tax deducted at source. TAN, which stands for Tax Deduction and Collection Account Number, is a 10-digit alphanumeric code. Another point to be noted here is that TAN gets approved only when the company has a PAN to its name.

Service Tax:

It is an indirect tax government imposes on services provided by a company. This system of taxing came into being under the Finance Act, 1994. Any organisation that provides taxable service of more than 9 lakhs has to abide by this act. However, the company can only collect service tax from the customers once its revenue has crossed a turnover of 10 lakhs. The service provider pays the tax to the government at the rate of 14.5 percent. Thus service providing companies need to file return twice a year. After the introduction of the GST, which is expected to do away with a lot of indirect taxing measures, it might not be a practice. But that is something which is futuristic, as of now the service providing companies in India have to collect and deposit service taxes


Value Added Tax is commonly referred to as Sales Tax. Much like the service tax, this too is an indirect way of tax collection; it is levied at various stages of production of services and goods. The VAT is applied on imported goods as well but it does not exceed the limit that is applied on the local products. To understand it simply at every stage where some sort of value is added to the product, there is an addition of tax. It is the consumer who has to bear it all at the final stage. This form of taxation requires a lot of transparency. Any company having revenue of more than 5 lakhs is liable to pay VAT and register for it.

It is far easier to understand Central Sales Tax (CST). This is levied on goods when they cross one state and enter another. It is not much different from taxes levied by government across the globe. It helps generate a large chunk of tax revenue for the government. Even this tax is computed on imported goods and those which are manufactured within the confines of the Indian state. VAT and CST are collected and submitted on a monthly basis and return too is filed monthly.

Professional Tax:

Within 30 days of employing an individual, every company must endeavour to obtain a registration for collection professional tax. The owner of the business must deduct professional tax from the income of the employee as specified by the state the company operates in. This tax goes to the state authorities or the municipal corporation. In this case also the return must be filed every month.

Shops & Establishments Act

Having discussed in detail about the taxation and other licenses a start-up requires, it is time now to delve into another important aspect which is the right of the employees in the newly formed company. The act sees for the conditions of work, lists and rights of the employees among other things. It also outlines the obligation for the employers. It is a central act and applies on every shop, company, business houses etc across the country. A start-up is register for this within 30 days of it commemoration whether or not it has hired employees by then.

How to Protect Your Business

However the type and size of business, it is valued by its owner(s) and as the business grows, the bigger the value gets and hence higher the protection needed. The owner must understand the vulnerability that comes along with the success of a business, such as with success comes competition, risks, legal obligations, reputation sustenance, vigilant, etc. 

An owner must be prepared to face the difficulties that come in building a successful business. There are no strict rules to be followed, however, certain aspects of protecting ones business remain constant in all cases. 

Protection against legal threats 

  • Physical assets are one of the most important assets of a business as they are worth a lot of money. For example, they not only include the office space but also the things that fill up the office. All physical assets belonging to the business must be insured to avoid any loss in case of any natural disaster or theft.
  • A legal attorney who is well versed with local laws and policies must be hired to handle any legal actions that may arise at any time of the business operation. A legal attorney will also help in foreseeing any potential legal threat and help in implementing the task at hand accordingly.
  • In case of sole proprietorships, it is important that the owner separate its personal assets from that of the business. Any attack on the business finances will directly impact the personal finances in case the separation is not clearly defined and limited. 

Organize your Finances 

  • Finances of a business must be documented and organized time to time to avoid any threats not only from the outside but also from the conflicts that may rise among the stakeholders of the business.
  • Hiring an accountant is a good start to protecting finances.
  • Finances in sole proprietorships must be specially monitored as the finances of the business may be linked with the personal finances. It is preferred and suggested to keep both the finances separate to avoid loss on the other when one is under attack. 

Protection against technological threats 

  • Technology has reached such heights that it is difficult to run a business without a strong technological support. This may include software that is needed in every domain of running a business. For example, a good software system is needed not only for business documentations but also strong software is needed to run a security check in the office space. Considering the high level cyber attacks and crimes in todays’ times,protection of such technology is needed to protect the business.
  • Protection of intellectual property is highly critical to avoid risking any legal action and theft from any seekers. Trademarks and copyrights are also a major part of technological assets and if these are not protected, they can land a business in a lawsuit against their favor. There are experts available to help protect a business trademark, copyrights, and intellectual property.
  • An IT expert must be hired to ensure any technology used and applied in a business is highly protected from hackers and cyber criminals. 

Protection against reputation threats 

  • Running a business successfully requires that it makes its presence felt in the market at almost all times. Offline marketing that includes display of brand on its products or service material and online marketing that includes its presence on social media platforms are one of the most common and beneficial marketing techniques. Hence, the representation of the business on such platforms must be protected. Simply by using the right language favoring in the progress of business is protecting the business.
  • A social media manager or public/business relations’ manager understands the operations of such platforms to help maintain the reputation of the business. Hiring of such an expert will help the business from being attacked by any reputational threats that are sometimes the most probable causes of the downfall of a business. 

Protecting a business can be a task but the efforts will make the success of a business only smoother. If the above major aspects are taken care of, the business is well protected and any hassle on its way of progress can be dealt with ease.

Register a Startup Company with INC 29

Before one begins any new business, it is first and foremost that the business must be registered as a Company in the legal records of Indian government. 

Considering the standard lengthy procedure of registering a Company, any owner may feel the anger and frustration. 

Earlier, it took days only for the registration process at the corporate office. Now the government is working towards simplifying the registration procedure and reducing the time taken for the registration procedure. 

A standard procedure includes four major steps: 

  1. Application for Director Identification Number (DIN) or Designated Partner Identification Number (DPIN)
  2. Register Digital Signature Certificate (DSC)
  3. Account in Ministry of Corporate Affairs (MCA) Portal
  4. Incorporate a LLP 

After the registration of the Company, other formalities such as VAT registration and professional tax, provident fund for employees, medical insurance, etc., are to be completed. For a Private Limited Company, work can begin once the Company receives the Certificate of Registration. 

The standard step-by-step procedure can now be avoided, thanks to the new ‘fast track’ procedure using the Integrated Incorporation form that is the Inc-29 form introduced by the government. 

Inc-29 form does not need DIN for the second director anymore and filing of name application separately is not required. Directors with DIN are not required to attach any identity or address proof with this form. On using Inc-29 form, there is no requirement to fill the incorporation form, address proof of the Company and appointment of the director form. The Registrar of Companies also gives the applicant 15 days to resubmit the application incase of any errors in the application and only two resubmissions are allowed so its advised to take the help of an expert while using the Inc-29 form. 

Considering the above highlights, Inc-29 form integrates the major steps and simplifies the registering procedure of a start-up Company as follows. 

  1. Obtain the Digital Signature Certificate (DSC) 
  • In order to ensure security and authenticity of the documents submitted, the government requires digital signatures.
  • A licensed Certifying Authority (CA) issues digital signatures.
  • If you already have a digital signature, you do not need to apply for another.
  • DSC can be acquired from government-listed agencies such as TCS, IDBRT, MTNL, SAFESCRYPT, etc. 
  1. Fill Inc-29 form 
  • If DIN is available, all that the applicant needs to do is fill in the information.
  • If DIN is not available, it can be obtained by attaching the following documents:
    • Personal and professional portfolio
    • PAN card number
    • Passport number
    • Email address of the Director
    • Identity and address proof of the Director 
  1. Fill the name of the Company 
  • Inc-29 allows only one name to be filled in the name of the Company field, as compared to the standard procedure that allows six names.
  • An applicant can check the name availability on the Ministry of Corporate Affairs and propose only one name for the Company.
  • If the Registrar does not accept the proposed name then the whole application may be rejected. 
  1. Incorporation of Company 

Along with the Inc-29 form there are supporting documents required, such as: 

  • Memorandum of Association
  • Articles of Association
  • Declaration by the Directors and shareholders
  • Address proof of the proposed Company
  • Utility bill copies in the name of the Company

No objection certificate from the trademark applicant or owner in case the proposed Company name is a filed or registered trademark

Start(up) Making Money

Having a job is not good enough in today’s world. Making a name, a brand and of course making lots of money is far more evidently important. It is not just become a way of life but a competition amongst the capable and the ones striving.

Branding self through a product or a service is the most common idea these days. Ultimately making this idea a “company” is become a trend of sorts.

Rising of such companies has formed a new sector in the market, very famously known as the startup sector. Lot of ideas has given life to a lot of companies. However, similar ideas across cities/states/regions have given rise to a lot of competition amongst the same lateral companies.

In the beauty domain, amongst the many others, there are 7 startups that top the list of on demand beauty services such as Vanity Cube, Belita, StayGlad, MyGlamm, etc. In the FMCG domain, startups such as BigBasket, GreenCart, Local Banya, Grofers, etc. are in tight competition to achieve a position over the other. There are hundreds of companies like these that leave no stone unturned to merely gain the attention of the investors to survive such stiff competition.

The moneymaking method is riskier but more straightforward than a regular job. You are the boss, the founder and hence your decisions account for your success or failure. You, the customers and the investors play the protagonists in this setting. However, the way of making money in such a situation is solely based on your decisions and actions.

There is a way you can assert making money. They are:

  1. Find an idea (or product) that is popular but not yet perfect
  2. Buy one and study it in detail
  3. Figure out how to improve it
  4. Make a prototype
  5. Show the prototype totens of trusted people. This way you will limit your audience before the final product is out and also receive enough feedback to improve your product
  6. Remake it until people are willing to pre-order (for example on Kickstarter)
  7. Find a co-founder who can build it with you
  8. Split the equity – give your co-founder 50%, but use a vesting agreement so that their share becomes worth more the longer they work on the company
  9. Find an investor – this can be any person who has a lot of money (such as an angel investor) 
  10. Give the investor 10% of your company
  11. Make the product
  12. Sell your product to the public (to thousands of people)
  13. Get more money (this time from VCs)
  14. List your company on stock exchange (this is after you’ve either raised a lot of money or have a lot of revenue, or better yet you’ve earned your profit)
  15. Sell a lot of shares when you list on stock exchange
  16. Then just wait out the cooling off period (about six months) and you will have your money

Now, if making money were as simple as this, each one of us would be rich. So before you bank on this method alone, make sure your product or service has a USP that no other product or service does and in case of any unexpected market results, you are prepared with a back up plan to get back and get better.

To start a business in India, visit www.registrationwala.com


Few words of Wisdom for startups
  1. Structure of the business:

Deciding on what should be the structure of the business is not an easy task for stratups because in the initial days of startups there is hardly any person in the team who have sound knowledge of laws applicable. Moreover, their low budget does not allow them to take opinion from the top lawyers and consultant.

Deciding on structure requires careful analysis of the different laws. Generally, people think if they are partners then they should register the partnership firm or LLP registration under the respective act. Similarly, if you want to incorporate a company so it’s not like that you should know the provision of the company act only rather you have to adopt the holistic view. You have to understand the industries first and list out the various regulations which are applicable to those particular industries. Startups should not take decision solely on the basis of companies act advantage or what LLP registration offers. You have to structure the company or other forms from a tax point of views as well.

Some of the following questions will broaden your horizon of thinking:

  • What is optimal structure for venture capital funds?
  • What are the RBI regulations to open a branch office?
  • In case of industrial production what are the approval required to begin the production?

Business is not just started by simply registering private limited company or LLP registration. There are some other steps as well which have to take prior setting up a business or after setting up a business.

  1. Registration required after registration of your business:

Before kick starts your operations, you have to take the various business registrations depending upon the business model, which includes shops & establishment license, factories act registration for manufacturing unit, labour and tax registration (income tax, VAT, service tax, central sales tax as applicable).

  1. Contract and Agreement:

Though as a startups’ owner you can’t not be an expert in the contract drafting or agreement but still you should have some basic knowledge be it LLP agreement, shareholder agreement, Joint venture agreement, a trust deed, memorandum of association or articles of association etc.

Some people think it is wastage of money to spend the huge amount on the drafting of the agreement, so they just pick a simple draft of any agreement from Google and just replace the parties name to give a final touch. But, in the actual scenario, it is not the case. Executing documents in this way will definitely lead to fail to address some of the issues which must be addressed in the documents itself. Therefore, don’t adopt “Jugaad” technique while drafting legal documents; it is advisable to take expert advice from the legal professionals of the respective field who can guide you while structuring your agreement so that you should not miss out the important clauses. Properly executed documents are the soul of every deal.

These are some of the key issues which must keep in mind while running your business, though expertise level can’t be expected but knowing these facts will definitely help the startups’ owner.

How to approach Investor to raise funds

A fund raising exercise is not an easy task, especially by startups. Therefore, we make a systematic plan to cover every legal aspect to raise investment from the potential investor. We presented the whole exercise into the 4 steps. Steps could be vary as per the size of the startups or nature of business but basic structure will remain the same as provided in the following points:

  1. Approach Investor:

The first step in raising funds is to find and approach the potential investor. Your search can be begun with the help of the investment banker because investment bankers have a huge network of potential investors and they help the fast-growing startups with the investor.

At this stage, it is very important for the startups to have a concrete business plan to present before the investor. Once the investor is impressed by your business plan, then you have to proceed with the transaction, for this, you should execute the term sheet and non-disclosure agreement (NDA) with the potential investor to ensure that his business plan should not be shared with anybody.

  1. Documentation stage:

Documentation stage is very important from a business point of view especially when you are entering into an investment deal. Followings are few of the important documents which should know to make the valid and secure to protect the business interest:

  1. Term Sheet:

The Term sheet is a document which addresses the legal or commercial issues in the form of a bullet point. Nature of the term sheet is not binding but if the parties then few clauses can be legally enforceable.

Term sheet outlines some material term and conditions, which eventually become the basis of preparing the final legal agreement such as share purchase agreement and shareholder agreement.

  1. Letter of Intent:

As such the nature is a concern; letter of Intent is same as the term sheet. Usually, letter of intent is used in merger and acquisition while term sheet is used in Venture capital or Private equity deals.

  1. Due Diligence:

Due diligence is a most crucial stage not only from the startups point of few but from the potential investor point of view as well. Usually in the deal of merger or acquisition, all the liabilities of the old business become the liability of the new investor’s company. These liabilities could be any form like pending tax claims, product liability and so on and if these defects in the form of liabilities not detected before the finalising the deal, then there could have serious repercussion. Therefore, to minimise these risk, a due diligence exercise is carried out.

A due diligence is like a detailed checking of company’s documents to find out any irregularities and non-compliance of laws. Due diligence can be of different types, legal due diligence, financial due diligence, environmental due diligence, labour due diligence, factory due diligence, technology due diligence, tax due diligence and so on. Depending on the transaction, some of these due diligences may be carried out.

  1. Execution of final Investment agreement:

Whenever the investment transaction is conducted, there are two components involved – subscription to the shares of the company or share purchase agreement. Subscription to new shares brings fresh capital in the company whereas purchasing shares from the existing shareholder does not infuse fresh funds in the company; it just provides an exit opportunity to the existing shareholder.

Normally in case of startups, there may be no purchase of shares because investor wants existing shareholder should remain in the company.

The most common investment documents are a share purchase agreement, shareholder agreement or a share subscription agreement, which are as follows:

  1. Share purchase agreement: A share purchasing agreement is executed between the existing shareholders and investor.
  2. Share subscription agreement: The shares subscription agreement is a document containing the terms for an investor to subscribe the shares of the company.
  3. Shareholders agreement: The shareholder agreement contains the term regarding the corporate governance, and some other rights for the protection of the investment and exit-related clause.

After execution of the documents, the money flows in the company and investor becomes the shareholder of the company.

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