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Maximizing Profits and Harmony: The Power of a Shareholders' Agreement

Introduction

In today's business landscape, establishing a solid foundation for collaboration and growth is crucial for any company. One way to achieve this is through a shareholders' agreement. This article explores the significance of a shareholders' agreement in maximizing profits and fostering harmony among shareholders.

Understanding Shareholders' Agreements

A shareholders' agreement is a legally binding document that outlines the rights, obligations, and responsibilities of the shareholders within a company. It serves as a framework for governing shareholder interactions and provides a roadmap for decision-making and conflict resolution.

Key Elements of a Shareholders' Agreement

Ownership and Voting Rights

The agreement specifies the ownership structure and the allocation of voting rights among the shareholders. It clarifies the distribution of shares, the percentage of ownership, and the decision-making power of each shareholder.

Decision-Making Processes

Shareholders' agreements define the decision-making processes within a company. They outline how major decisions are made, who has the authority to make them, and what thresholds need to be met for approval.

Share Transfer and Exit Strategies

Shareholders' agreements address the transfer of shares and provide guidelines for shareholders who wish to sell their stake. They outline the procedure for transferring ownership, the rights of first refusal, and mechanisms for valuing shares.

Dispute Resolution Mechanisms

In the event of a disagreement or dispute among shareholders, the agreement includes mechanisms for resolution. It may outline mediation, arbitration, or other means of resolving conflicts to maintain harmony and prevent costly litigation.

Benefits of Having a Shareholders' Agreement

Clear Roles and Responsibilities

A shareholders' agreement clearly defines the roles and responsibilities of each shareholder, minimizing ambiguity and promoting accountability. It ensures that everyone understands their obligations and contributes to the success of the company.

Protection of Shareholder Interests

The agreement safeguards the interests of shareholders by setting out provisions for protecting their investments. It may include restrictions on share dilution, preemptive rights, and clauses to prevent unfair treatment of minority shareholders.

Preserving Harmony and Minimizing Disputes

By establishing clear guidelines for decision-making and dispute resolution, shareholders' agreements foster harmony among shareholders. They provide a framework for addressing conflicts and preventing them from escalating, preserving relationships and the company's reputation.

Maximizing Profits and Growth

A well-drafted shareholders' agreement aligns the interests of shareholders toward maximizing profits and driving growth. It can include provisions for profit distribution, reinvestment strategies, and mechanisms to ensure the company remains focused on its long-term objectives.

How to Create an Effective Shareholders' Agreement

Identifying Objectives and Concerns

Before drafting a shareholders' agreement, it is crucial to identify the objectives and concerns of the shareholders. This allows for the inclusion of provisions that address specific needs and protect the interests of all parties involved.

Defining Shareholders' Rights and Obligations

The agreement should clearly define the rights and obligations of each shareholder. It covers areas such as decision-making authority, capital contributions, non-compete clauses, and confidentiality requirements.

Drafting Clauses for Various Scenarios

A comprehensive shareholders' agreement anticipates potential scenarios and includes clauses that address them. These may include scenarios such as the death or incapacity of a shareholder, dispute resolution procedures, or exit strategies.

Seeking Legal Advice

To ensure the agreement is legally sound and tailored to the specific needs of the company, it is essential to seek legal advice. An experienced business attorney can provide guidance and help draft an agreement that protects the interests of all shareholders.

Common Mistakes to Avoid

Ignoring the Importance of Shareholders' Agreements

One common mistake is underestimating the importance of a shareholders' agreement. Failing to establish a comprehensive agreement from the outset can lead to misunderstandings, disputes, and financial losses down the line.

Lack of Clarity and Specificity

Vague or ambiguous language in a shareholders' agreement can create confusion and leave room for interpretation. It is crucial to ensure the agreement is clear, specific, and leaves no room for misinterpretation.

Failing to Update the Agreement

As circumstances change, it is essential to review and update the shareholders' agreement regularly. Failing to do so may result in outdated provisions that no longer align with the company's needs and objectives.

Overlooking Dispute Resolution Mechanisms

Disputes among shareholders can be detrimental to a company's growth and profitability. It is essential to include robust and effective dispute resolution mechanisms in the agreement to address conflicts promptly and prevent further escalation.

Conclusion

A shareholders' agreement is a powerful tool for maximizing profits and promoting harmony within a company. By clearly defining ownership rights, decision-making processes, and dispute resolution mechanisms, such an agreement protects shareholder interests, fosters collaboration, and sets the stage for sustainable growth. SimplyBiz Private Limited provides managed services in the field of Advisory, Transactions, Business Setup, Compliance, Accounting, and Taxation. SimplyBiz has its Head office in Hyderabad and branch offices in Bengaluru, Chennai, Mumbai, and National Capital Region.

FAQs

FAQ 1: Is a shareholders' agreement legally binding?

Yes, a shareholders' agreement is a legally binding document that outlines the rights and obligations of the shareholders within a company.

FAQ 2: Can a shareholders' agreement be changed?

Yes, a shareholders' agreement can be changed if all parties involved agree to the modifications. It is important to follow the proper procedures for amending the agreement.

FAQ 3: Do all shareholders need to sign the agreement?

Ideally, all shareholders should sign the agreement to ensure that everyone is bound by its terms. However, the specific requirements may vary depending on local laws and the provisions of the agreement itself.

FAQ 4: What happens if a shareholder breaches the agreement?

If a shareholder breaches the agreement, there may be consequences outlined in the agreement itself. These consequences can range from monetary penalties to the forced sale of shares or other remedies as specified in the agreement.

FAQ 5: Can a shareholders' agreement protect minority shareholders?

Yes, a shareholders' agreement can include provisions to protect the interests of minority shareholders. These provisions may include rights of first refusal, veto powers, or other mechanisms to ensure fair treatment and prevent dilution of minority shareholdings.

Resource: https://simplybiz45.blogspot.com/2023/07/maximizing-profits-and-harmony-power-of.html

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Multinational Companies Continue to Invest in India, Capitalizing on Lucrative Market Opportunities.pptx

Shared with Jumpshare

India, as one of the fastest-growing major economies in the world, has caught the attention of multinational companies seeking to expand their global footprint. The country's market potential, favorable business environment, and government initiatives have made it an attractive destination for foreign investments. This article delves into the factors that drive multinational companies to invest in India and how they leverage the market opportunities available.

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Understanding Exit Rights: An Investor’s Perspective

Introduction

As much time and energy is spent entering into a business relationship, the same, if not more, attention is paid to getting out of one. Although each company and its dynamic between its shareholders differ on a case-to-case basis, the need for a suitable exit strategy is universal. In any case, the primary objective of an investor is to divest his/its holdings and realize the return on investments made in a company by exiting profitably.

As such, exit strategies are a highly crucial part of undertaking investments for both private equity players and strategic business investors. The investment horizon is customarily pegged to 5-7 years. That being said, exit mechanisms are not always time-bound and often take shape as remedies available to investors, owing to default by the investee company or key promoters, thus prompting a likelihood of an early exit. It is, therefore, essential to efficiently understand and negotiate the exit rights of an investor to guarantee maximum returns.

This article explains some of the key exit rights that investors possess to obtain considerable returns on their investments.

Key Exit Rights

1. Initial Public Offering (IPO)

One of the main reasons for IPOs to be a preferred exit route is that investors get access to public markets. It is a strategy where the company’s shares get listed on the stock exchange allowing the investors who’ve invested in a company during the pre-IPO to sell their shares for a profit. The timelines and implementation of an IPO are generally strategized considering conducive market conditions and its potential impact on the public market over the coming years, i.e., the year the IPO is proposed to take place. The IPO may be executed as a ‘fresh issue’ or through an ‘offer for sale’ of existing shares or a combination of both. That being said, investors generally offer their shares in an ‘offer for sale’ in an IPO.

While IPO might present investors with liquidity risks as insiders can be subjected to lock-up restrictions or risk of being recognized as ‘promoters’, it also offers several advantages to the investors. It gives them room to negotiate favourable positions, including priority to offer up their shares for sale and affirmative voting rights regarding IPO processes, among others. IPOs also enable investors to leverage their contacts from the newly public company to assist future portfolio companies in several ways, whether by acquiring customers or partners or initiating acquisitions.

From an investor’s point of view, IPO clauses should be structured in a way that provides the necessary flexibility to the investor to realign its exit strategy if need be. Although IPO is a lengthy process requiring the Securities and Exchange Board of India (SEBI) approval, Small and Medium Enterprises (SMEs) can undergo SME IPO by listing their shares at BSE SME or NSE Emerge platform. 

2. Third Party/Private sales

The reason why third-party or private sales have gained preference is due to minimal promoter intervention, as any limitations on third-party sales are primarily contractual. Transfer restrictions include the Right of First Offer (ROFO), Right of First Refusal (ROFR), co-sale rights, etc. It enables investors to bypass complex processes and legal obligations under Indian laws and exercise a significant amount of control over the whole process. However, when a private sale is from or to a non-resident investor, care should be taken to comply with FEMA regulations administered by RBI. The pricing guidelines stipulated by RBI provide that sale of shares from a resident to a non-resident shall not be less than the fair market value determined by international valuation methodology certified by a Chartered Accountant or SEBI-registered Merchant Banker. On the other hand, in the sale of shares from a non-resident to a resident, the said floor cap applies as a ceiling instead.

3. Secondary Buy-out

The investors can also adopt a secondary buy-out wherein one investor can sell shares to other strategic or financial investors. This exit right shortens the lifespan of the transaction, as the investor making the original investment might seek an early exit even before the company gears up for a trade sale or an IPO. However, investors find this exit strategy attractive as it provides them with instant liquidity. However, for any other strategic or financial investor to be involved in a secondary buy-out, the investee company should be positioned to show strong and continued shareholder value growth. This exit strategy provides an immediate exit and can be executed faster and more efficiently than an IPO.

4. Mergers or Acquisitions

Mergers usually involve court processes, while an acquisition can be accomplished through the sale of assets or the sale of a company. It’s common for investors to include a clause that allows them to initiate an exit event if the company they’ve invested in plans to merge with or acquire a business in a similar or competing industry. Investors may choose to exit partially or fully depending on the expected gains from the merger or acquisition. By selling their portfolio to larger companies, investors can realise a considerable return on their investment.

5. Buy-Back

Investors can negotiate for a mandatory buy-out by the company promoter or a company buyback clause at a pre-determined price. This approach is usually adopted when the portfolio company has substantial cash reserves and can acquire back shares from its investors. This method offers investors prompt and efficient exit while enabling the portfolio company to maintain its ownership percentage. However, it is essential to note that a company buyback requires adherence to complex regulatory requirements before implementation. These requirements may include restrictions on the funding sources for the buyback and the redistribution of profits, a cap on the buyback amount, which cannot exceed 25% of the company’s free reserves and paid-up capital, and the need to offer the buyback to all shareholders, among others.

6. Put Option

The Put Option has gained widespread acceptance as an exit strategy in business practice and is typically incorporated into Shareholders’ Agreements and Share Subscription Agreements as a “Put Option Clause”. The right to sell is not granted to shareholders by law but rather through contractual arrangements established between the parties involved. Simply put, a put option gives an investor a right (not an obligation) to mandatorily require the founders to purchase the shares held by such an investor upon the happening of any specified event at a predetermined price. Thus, this provision allows investors to exit the company, but the decision to exercise this right remains entirely up to the investor’s discretion. The promoters are responsible for purchasing these shares at a fair value or a predetermined internal rate of return.

The investors seek put option rights in the event of a failing IPO or any material default or breach by the founders. For example, if Mr A, an investor, has put an option over, say, 25% of his shares in the company, which he can exercise when the company becomes insolvent. In such a case, he can sell his shares to Mr B, the founder. Now B cannot refuse to purchase shares from A.

Conclusion

All businesses require an investment to operate, and when investors inject money into a company, they aim to safeguard not only their investment but also secure exit rights and generate profits. Investors have various exit strategies at their disposal, which they can select based on the portfolio company’s requirements and market conditions. Investors should acknowledge the risks involved with each approach and collaborate closely with the portfolio company to determine the most suitable exit strategy. By choosing the appropriate exit strategy, investors can optimize their returns and provide start-ups with opportunities to expand and compete globally.

Our product SimplyTransact is just meant for you. Please reach out to our Product Head– Ms. Shilpa Agarwal at the mail ID [email protected] or [email protected] to know more.

Resource: https://medium.com/@simplybiz/understanding-exit-rights-an-investors-perspective-a1b35d413e02

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Multinational Companies Continue to Invest in India, Capitalizing on Lucrative Market Opportunities

Introduction

India, as one of the fastest-growing major economies in the world, has caught the attention of multinational companies seeking to expand their global footprint. The country's market potential, favorable business environment, and government initiatives have made it an attractive destination for foreign investments. This article delves into the factors that drive multinational companies to invest in India and how they leverage the market opportunities available.

Growing Economy and Market Potential

India's economy has been experiencing robust growth, making it one of the world's largest economies. With a GDP growth rate consistently exceeding global averages, India offers a vast market potential for multinational companies. The rising purchasing power of the Indian population and the increasing demand for consumer goods and services create a favorable environment for businesses to thrive.

Expanding Middle Class and Rising Disposable Income

India's middle class is expanding rapidly, accompanied by a significant increase in disposable income. This upward mobility in the socio-economic ladder has led to a surge in consumer spending, creating a vast market for multinational companies. As the middle class continues to grow, there is a rising demand for high-quality products and services, presenting ample opportunities for foreign companies to cater to these needs.

Favorable Government Policies and Initiatives

The Indian government has implemented various policies and initiatives to attract foreign direct investment. Initiatives like "Make in India" and "Digital India" aim to promote manufacturing, innovation, and digitalization in the country. Additionally, the government has relaxed regulations and eased bureaucratic processes, making it easier for multinational companies to set up and operate in India.

Improving Infrastructure and Ease of Doing Business

India has been investing heavily in improving its infrastructure, including transportation, logistics, and digital connectivity. These developments have significantly enhanced the ease of doing business in the country. Better infrastructure enables multinational companies to efficiently reach their target markets and streamline their operations, ultimately leading to improved productivity and profitability.

Technological Advancements and Digital Transformation

India has emerged as a global hub for technology and digital services. With a young and tech-savvy population, the country is at the forefront of digital transformation. Multinational companies recognize the potential of India's tech talent pool and the opportunities presented by the digital landscape. By investing in India, these companies gain access to cutting-edge technologies, innovation, and digital solutions.

Emerging Sectors and Industry Verticals

India's economic landscape is witnessing the rapid growth of various sectors and industry verticals. Sectors such as e-commerce, renewable energy, healthcare, and financial technology are experiencing significant expansion. Multinational companies are keen to tap into these emerging sectors, leveraging their expertise and resources to capitalize on the opportunities they present.

Strategic Partnerships and Collaborations

Collaborations and strategic partnerships with local Indian companies have proven to be successful for multinational companies entering the Indian market. By teaming up with established local players, foreign companies gain valuable insights into the market, cultural nuances, and customer preferences. Such collaborations also facilitate knowledge sharing, technology transfer, and joint product development.

Access to Skilled Workforce

India boasts a large pool of skilled professionals across various industries. The country's education system produces a significant number of engineers, IT professionals, and business graduates every year. Multinational companies are attracted to India's talent pool, which offers a diverse range of skills and expertise. By establishing a presence in India, these companies can tap into the local talent and build teams capable of driving their businesses forward.

Competitive Advantage and Cost Optimization

India provides multinational companies with a competitive advantage in terms of cost optimization. The availability of skilled labor at relatively lower wages compared to developed economies is a significant advantage. This allows foreign companies to reduce their operational costs without compromising on quality. The cost-effectiveness of doing business in India further enhances the attractiveness of the market.

Cultural Diversity and Localization Strategies

India is known for its rich cultural diversity and varied regional preferences. Multinational companies recognize the importance of adapting their products, marketing strategies, and customer experiences to cater to the diverse Indian population. By embracing localization strategies, foreign companies can better connect with their target audience, gain their trust, and establish long-lasting relationships.

Sustainability and Corporate Social Responsibility

Multinational companies are increasingly focusing on sustainability and corporate social responsibility (CSR). India's commitment to sustainable development aligns with the values of these companies. By investing in India, they can contribute to social and environmental initiatives, positively impacting local communities and gaining the trust of the Indian consumers.

Challenges and Risks

While India offers immense opportunities, multinational companies must also navigate certain challenges and risks. These include bureaucratic hurdles, complex tax regulations, infrastructure gaps in certain regions, and cultural differences. Companies entering the Indian market need to carefully analyze these challenges and develop strategies to mitigate potential risks.

Conclusion

The thriving economy, expanding middle class, and favorable business environment in India remain irresistible for multinational companies pursuing lucrative market opportunities through foreign direct investment (FDI). By strategically investing, forming local partnerships, and comprehending the Indian market, these companies can fully leverage India's potential for exponential growth and unparalleled success in their ventures.

SimplySet-up help you from start to finish right from incorporating your company to getting your startup recognised with DPIIT. For further enquiries reach out to our Product Head – Ms. Geetanjli Aggarwal at the mail ID [email protected] or [email protected] or [phone].

FAQs

1. What are the key factors that attract multinational companies to invest in India?

Multinational companies are attracted to India due to its growing economy, expanding middle class, favorable government policies, improving infrastructure, and access to a skilled workforce.

2. How does India's cultural diversity impact multinational companies?

India's cultural diversity requires multinational companies to adopt localization strategies and tailor their products, marketing, and customer experiences to cater to the diverse Indian population.

3. What are some of the emerging sectors in India?

India's emerging sectors include e-commerce, renewable energy, healthcare, and financial technology, which present significant growth opportunities for multinational companies.

4. What challenges do multinational companies face when entering the Indian market?

Challenges faced by multinational companies entering the Indian market include bureaucratic hurdles, complex tax regulations, infrastructure gaps, and cultural differences.

5. How can multinational companies contribute to sustainability and CSR in India?

By investing in India, multinational companies can participate in social and environmental initiatives, positively impacting local communities and demonstrating their commitment to sustainability and corporate social responsibility.

Resource: https://simplybiz45.blogspot.com/2023/06/multinational-companies-continue-to.html

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Health Check on Overseas Direct Investments (ODI) Transactions

  We have been approached by a client who is a global provider of media technology solutions and innovations. Their objective is to create a

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India’s made its first official body to regulate competition in May 2009 and the Competition Commission of India (CCI) was set up under the Ministry of Corporate Affairs. It is a stand-alone body which is responsible for investigating mergers, acquisitions, and pricing strategies of different companies.

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Taxation on Employee Stock Option Plan

What is ESOP

Section 2(37) of Companies Act, 2013 defines “employees stock option” which means, ‘the option given to the directors, officers or employees of the company or of its holding or subsidiary company or companies, if any, which gives such directors, officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a future date at pre-determined price.’

How is ESOP beneficial for an Employee

Employee Stock Option Plan are offered by the companies to their employees as a benefit scheme. Employees get the reward for hard work in the form of equity rather than cash. They get option to buy the company’s shares at a lower price after a predetermined vesting period i.e., minimum 1 year.

How is ESOP beneficial for Company

ESOP attracts and retains talents it also improves employee’s morale and productivity. It reduces employee turnover, which provides a greater job security and better employee retention. It increases cash flow by making plan contributions in stock instead of cash.

Tax implication of ESOP

A) For the Employee

At the time of exercise (Prerequisite) – Upon allotment of shares after the employee exercises his/her option on the completion of the vesting period.

The difference between the fair market value (FMV) of shares on the date of exercise and exercise price of shares at the time of grant is taxed in the hands of the employee under the head “income from salary”.

Example

Mr. A received 1000 shares at INR 20 per share. The FMV of such shares are INR 55 per share.

Tax implications on the above transaction:

Purchase Price: INR 20

Fair Market Value: INR 55

Perquisite: INR 35 (55-20)

Taxable Amount: INR 35,000 (1000*35)

At the time of sale by the employee (Capital Gain) – When the employee sells these shares, a tax event happens. The difference between the Sale Price and FMV on the exercise date is taxed under the head “Capital Gains” as a short-term capital gain or long-term capital gain depending on the time period of holding.

Example

Mr A works for a company listed on NSE Ltd. He received 1000 shares from his company under the ESOPs scheme in FY 2021-22. And he sells the shares on 20/01/2023.

Date of Exercising the ESOPs i.e., Purchasing Shares: 25/02/2022

Fair Market Value as on 25/02/2022: INR 50

Sales Price as on 20/01/2023: INR 80

Tax treatment and calculation of tax liability for Mr. A:

Mr. A is required to pay tax on Capital Gains in FY 2022-23 on the sale of shares.

Period Of Holding – 25/02/2022 to 20/01/2023 i.e., less than 12 months

Type of Capital Gain – Since the shares are of a company listed on a recognized stock exchange in India and the period of holding is less than 12 months, it is a Short-Term Capital Gain (STCG).

Tax Rate – The applicable tax rate for STCG is 15% under Section 111A

Capital Gain per share = Sales Price – FMV = 80 – 50 = INR 30 per share

Total Capital Gains = 1000 shares * 30 per share = INR 30,000

Tax Liability = INR 30,000 * 15% = INR 4,500

Inter country taxation of ESOP

The tax treatment for ESOPs given by foreign entities is similar to how the ESOPs from Indian entities are taxed, even employees of Indian companies often receive ESOPs from overseas parent companies, this does not change the allocation of tax treatment.

It may also be taxed in the country in which the shares are listed or the company is headquartered. In that case, refund can also be claimed. If applicable, benefits under DTAA (Double Taxation Avoidance Agreement) can be claimed.

The period of holding is 24 months on foreign shares for the purpose of the tax. Short-term gains are taxed at slab rates, while long-term gains are taxed at 20% with indexation benefit.

B) For the Company

The Issuing Company can claim ESOP’s cost as a deduction, the discounts under the ESOP are an employee cost and is to be allowed as a deduction over the vesting period, in the hands of the issuing company.

When ESOP shares are bought back by the Company and if any income arises to a shareholder on account of buy back shall be exempted in the hands of such shareholders. As per section 115QA, tax @ 20% shall be paid by the unlisted company on the buyback of shares.

However, Union Budget 2019 made the same section applicable to the Listed Company as well. Provided it is effective on all buyback of shares after July 5th, 2019.

Hence Section 115QA is applicable to both listed and unlisted companies.

SimplyFACT is a product of SimplyBiz where we provide Entity Management Services covering Accounting, Compliance, Taxation, and Payroll. We not only help you with the start-up registration but also with availing Tax benefits. In case you want to know more on the scope of work, please write to our Product Head – M Pavan Kumar at [email protected] or [email protected].

Resource: https://simplybiz45.blogspot.com/2023/05/taxation-on-employee-stock-option-plan.html

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Small Companies are the backbone of the Indian economy. In a country like India which is in its developing stage, Small Companies play a very vital role in the creation of more employment opportunities and in the growth of the economy. The concept was introduced to protect small Companies with fewer revenues, from stringent compliances applicable to other big Companies having ample resources and revenue.

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Role played by India in G2

As a major developing economy India has a vital stake in the stability of the international economic and financial system.

India has been actively involved in the G20 preparatory process both at the Sherpas Track and the Financial Track since its inception.

The Prime Ministers of India have participated in all seven G20 summits.

India’s agenda at the G20 Summits is driven by the need to bring in greater inclusivity in the financial system and ensuring that growth prospects of developing countries do not suffer.

India has strived to ensure that the focus of the global community remains on the need to ensure adequate flow of finances to emerging economies to meet their developmental needs.

Prime Minster of India called for the recycling of surplus savings into investments in developing countries to not only address immediate demand imbalances but also developmental imbalances.

India has worked to maintain the dynamism and credibility of G20 deliberations for establishing a framework for strong, sustainable and balanced growth, strengthening international financial regulatory systems, facilitating trade finance, pushing forward the Doha agenda.

India remains committed to the G20 process for achieving a stable, inclusive and representative global economic and financial system.

Conclusion:   In spite of all of these challenges, the formation of G20 signifies an end of an era when developed countries dominated global economic governance. By raising their voices and building on their influence, emerging economies will be able to steer world economy towards a more just, balanced and rational future.

SimplyBiz Private Limited provides managed services in the field of Advisory, Transactions, Business Setup, Compliance, Accounting, and Taxation. SimplyBiz has its Head office in Hyderabad and branch offices in Bengaluru, Chennai, Mumbai, and National Capital Region.

Resource: https://simplybiz45.blogspot.com/2023/04/role-played-by-india-in-g20.html

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What is the future of Alternative Investment Funds

Before we delve into what lies in the future for Alternative Investment Funds, we can understand what it really means. Alternative Investmen

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What is the future of Alternative Investment Funds?

Introduction

Before we delve into what lies in the future for Alternative Investment Funds, we can understand what it really means. Alternative Investment Funds (AIFs) are basically a pool of funds where the funds are collected from investors to invest it according to a defined investment policy so that the investors can benefit from it. It can be invested in real estate, startups, SMEs, hedge funds, social venture funds and venture capital funds. These are asset classes which are not accessible to all. Although, these are high risk mediums but if invested in smartly they can yield highly impressive returns.

AIFs in eagle eye view

AIFs have three categories. Category I AIFs are majorly for investing in start-ups, SMEs, venture capital funds, social venture funds and infrastructure. This category has a pass-through status exempting it from any tax on running the fund. Category II funds comprise of private equity funds or debt funds. This category too has the pass-through status. Moving on to Category III, this comprises of hedge funds or funds with short term returns. It uses complex strategies to trade. This category does not have the pass-through status and is taxed in various stages; hence it is hardly advised to the investors.

History

AIFs came into existence in the second half of 20th century in the U.S. and since then they have grown into a $7 trillion-plus industry across the world. Venture capitals have been in existence for twenty years in India, AIFs started existing only after SEBI passed its 2012 regulations. Edelweiss Alpha Fund was the first AIF in the country and was launched in June 2013, which was followed by DSP BlackRock Enhanced Equity Fund in May 2014. 

Edelweiss’s distressed assets fund is currently raising nearly $1 billion globally. This tells us that AIFs have gained a reliance and popularity among the investors of the world and also that people are more open to investing in such high-risk mediums.

Some Leading AIFs

Monarch AIF – MNCL Capital Compounder Fund was the top gainer among all AIFs in July having a record return of 13%. Other leading AIF performers in 2022 were Nippon India’s Financial Services Scheme at 12.7% and Ampersand Capital Trust’s Growth Opportunities Fund at 11.87%. Sunil Singhania led Abakkus Asset’s funds gained up to 8.5%. Alchemy Capital’s Leaders of Tomorrow also managed a similar return of 8.36%. These are all Category III AIFs, which use strategies in investments that yield high returns.   

Reason for growth

Investors who have diversified portfolios including alternate investments apart from the FDs, mutual funds, stocks, gold and silver, and real estate etc., are most likely to get better returns and safety for their investments. In India, some of the alternate investment methods have been in use for decades but they have been accessible only to the extremely rich. These are mostly marketed by wealth management firms to their top-tier clients and demand a very high entry price. Fixed income alternate investments are like a shield against inflation. This is because they have no direct correlation with the market. Some other benefits are generation of passive income, and interest payments which can be an excellent post-retirement benefit. Alternate investment methods are a good way to expand one’s portfolio as they help in avoiding risks, and provide stability to income while generating healthy returns. Mutual funds and PMS (portfolio management services) were not allowed but Category-III AIFs are allowed to use complex trading strategies for investors of sophisticated portfolio and who are willing to invest at least Rs 1 crore in high-reward and high-risk bets.

Present scenario of AIFs

There has been a change in lifestyle and with that a rise in income which can be disposed, and this can be smartly put into investments. Individual small-scale investors now have been presented with new mediums that can help them expand their portfolios. Return on Investment is a major focus area but there are other factors as well, such as safety, liquidity, and a strong mechanism which monitors the investment throughout its lifecycle and the individual investors are now aware of these factors. The market for alternate investments is growing at a great speed in recent years, and according to the latest data from the Securities and Exchange Board of India (SEBI), the investments made in Alternate Investment Funds (AIFs) grew over Rs. 3.11 lakh crore by the end of June 2022. While most of these are linked to Category I and II AIFs, it also signifies that investors are getting more interested in such asset classes and they need to be made more accessible. For the reasons such as high-ticket size that was only affordable for high-net-worth individuals (HNIs), the risks involved, lack of regulation in alternate investments the common public was earlier denied an opportunity to invest in these asset classes. But, with the introduction of technology-driven platforms convenience and transparency has also entered the process and the barriers are falling. While the convenience is technology-driven, the world of investments still needs a high degree of due diligence for each opportunity, along with accurate processes and careful post-investment monitoring. Start-ups have a great opportunity to help deepen the financial instruments and portfolios for investors in India. Together they can be the building blocks for financial strength of the country.

The future of AIFs in India

Currently, opportunities in this space include giving a form of debt to corporates such as a corporate loan, leasing, etc. However, there is a lot of potential for the Indian market, and it can slowly mature to more fields like investing in farmlands, agricultural products, artworks, Non-fungible Tokens (NFTs), collectibles, etc. Growth in technology has also led to innovative products with the use of blockchain/smart contract which helps in the identifying the ownership. This can play a huge role in achieving greater transparency and safety in this space in the future. In the coming times, people will get an opportunity to consume products/services and invest and earn from what they use in their everyday lives. The need for fixed income alternative investments in investors’ portfolio is important. Regulators are also playing a helping hand by bringing clarity to deeply strengthen the financial markets while safeguarding investors. If we look into the minds of investing giants, they believe that AIFs will be the next big boom just like the Mutual Funds. As per the SEBI records, 1070 AIFs are already functioning in India and as more people are getting attracted towards this method, this is bound to see a change in Indian investing practices. After the early 90s, access to public stock markets was driving the wealth for many people in the country. Today, India is facing a similar opportunity, where participating in alternate investments will be the next leap in leading financial stability. 

Conclusion

While we have talked about the scenarios of AIFs, we should also look at some challenges, keeping in mind the restrictions which are imposed on fund managers who accept capital from Indian institutions, many fund managers first raise the capital from the offshores and then domestic capital from private institutions, family offices and HNIs. If any capital is to be raised from India, the financial institutions with significant capital should be allowed more flexibility to invest in alternative assets. This will give the much-needed leap to the AIF industry.

Our product SimplyTransact is just meant for you. Please reach out to our Product Head– Ms. Shilpa Agarwal at the mail ID  [email protected] or  [email protected] to know more.

Resource: https://simplybiz45.blogspot.com/2023/04/what-is-future-of-alternative.html

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The Indian Government come with one flagship initiative that is Startup, intended to boost startup culture and build a strong and inclusive ecosystem for innovation and entrepreneurship in India.

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How to write good Minutes of a Meeting

To write good Minutes of a Meeting, it is important to create an outline or use a meeting minutes template. Attendees should be checked off as they enter, and notes should be taken on action items and decisions. However, it is not necessary to write down everything that is said. Instead, it is crucial to focus on the key points and outcomes of the meeting.

During the meeting, the minutes should be put down as they are discussed. This ensures that nothing is missed, and the minutes are accurate. At the end of the meeting, the minutes should be reviewed with all attendees to ensure that everyone is in agreement with what has been recorded.

After the meeting, the notes should be revised, and any spelling errors corrected. This ensures that the final version of the minutes is accurate and professional. By following these guidelines, anyone can write good Minutes of a Meeting that are reliable and accurate records of the proceedings.

Therefore, it is essential to ensure that proper meeting minutes are maintained as they serve as a critical record of the company’s decision-making process and are essential for maintaining transparency and accountability.

SimplyCorp is a solution that offers comprehensive and end-end management of Corporate Governance & Secretarial Compliances covering all stages of entity life cycle. If want to know more on the compliance requirements and outsource the same to us, please write to our Product Head – Vaishali Vohra at the mail ID  [email protected] or  [email protected].

Resourec: https://simplybiz45.blogspot.com/2023/03/how-to-write-good-minutes-of-meeting.html

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Adjudicating order for non-conducting of Board meetings

Section 173(1) of the Companies Act, 2013: Every company shall hold the first meeting of the Board of Directors within 30 (Thirty) days from

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Startup India Registration

Introduction

The Indian Government come with one flagship initiative that is Startup, intended to boost startup culture and build a strong and inclusive ecosystem for innovation and entrepreneurship in India.

The initiative was started by Government of India on 16th January 2016, the Startup India Initiative has come off with several programs with the objective of supporting the budding entrepreneurs and building a robust startup ecosystem.

The main motive of this Startup Initiative is to transform India from job seekers to Job creators. These programs are managed by a Startup India Team, which directly reports to the Department for Industrial Policy and Promotion (DPIIT).

Benefits of DPIIT Registration

DPIIT registration gives certain benefits, which are listed below:

It helps in simplifying the work processes for setting up the basic infrastructure.

It is providing financial assistance and support to startups via different government-run startup funding schemes and programs.

It helps the founders to grow their network and exploit the process and opportunities presented by the government.

In early-stage startups can also benefit from income tax exemptions and intellectual property benefits, along with a many other perks.

As per the DPIIT (Department for Promotion of Industry and Internal Trade) it was stated that about 28000 startups have registered with the DPIIT till 1st of February 2020.

Eligibility Criteria to Register as DPIIT Recognised Startup

The Startup should be incorporated as a Private Limited Company, Partnership Firm or a Limited Liability Partnership can register themselves under the startup India scheme.

The annual turnover of these business entities should not exceed Rs.100 crores in any of the previous financial years,

The entity shall be considered as Startup up to 10 years from the date of its incorporation.

Such an entity should be working towards innovation, development or improvement of products or services and processes. It should not be formed as a result of splitting up or reconstruction of already existing company.

Funding Support by Startup India

I) Small Industries Development Bank of India (SIDBI) Fund of Funds Scheme

The Government of India formed a fund of INR 10,000cr to help and increase capital availability as well as to catalyse private investments and thereby the growth and help of the Indian startup ecosystem. The Fund was set up as a Fund of Funds for Startups (FFS), approved by the Cabinet ministry and established the Department for Promotion of Industry and Internal Trade (DPIIT) in June 2016. SIDBI has been given the mandate of managing the FFS through the selection of daughter funds and overseeing the disbursal of committed capital. FFS does not invest in startups directly but provides capital to SEBI-registered Alternate Investment Funds (AIFs), known as daughter funds, who in turn invest money in high-potential Indian startups.

II) Startup India Seed Fund Scheme

Department for Promotion of Industry and Internal Trade (DPIIT) has created Startup India Seed Fund Scheme (SISFS) with a fund of Rs. 945cr, which aims to provide financial assistance to startup for proof of concept, prototype development, market-entry, commercialization and products trials. This would enable these startups to graduate to a level where they will be able to raise investments from angel investors or venture capitalists or seek loans from commercial banks or financial institutions.

Registration Process for startup India

Stage 1: Incorporation of Entity

The person who wishes to incorporate an entity as a Private Limited Company or a Partnership firm or a Limited Liability Partnership. One must file an application for incorporation of an entity to the jurisdictional Registrar of Companies (RoC) and obtain the Certificate of Incorporation.

Stage 2: Register with Startup India.

Startup India requires the business must be registered as a Startup. The entire process is simple as well as online. Visit the Startup India website and register your startup.

First, create your account on the Startup India website by entering your name, email ID, mobile number, password, confirm password and click on the Register button to start the Registration process.

After that enter the OTP which is sent to your email and the type of user, name and stage of the startup and click on the button ‘Submit’. After entering these details, the Startup India profile is created for further process.

Once the Profile is created on the website, a Startup can apply for various acceleration, incubator programmes and other challenges on the website along with getting access to resources like Learning and Development Program and Government Schemes as well as State Policies for Startup.

Stage 3: Process of DPIIT Recognition

The very next stage after creating the profile of the Company on the Startup India portal is to avail the Recognition from Department for Promotion of Industry and Internal Trade (DPIIT). This recognition helps the startups to get and avail benefits such as access of high-quality intellectual property right services, resources and relaxation in public procurement norms, self-certification under various law and norms like labour and environment laws, easy winding of company, access of Fund of Funds facility, tax exemption for 3 consecutive years and tax exemption on investment above fair market value of the shares.

For getting the DPIIT Recognition, the applicant login with registered profile (account) credentials on the Startup India website and on clicking on the ‘DPIIT Recognition for Startups’ button under the ‘Schemes and Policies’ portal.

Need to click on ‘Get Recognised’ button on the next page and scroll down this page and to click on the ‘Click here for submitting your application for recognition as a Startup’ button.

Stage 4: Recognition Application of Startup

The Recognition for Startup Forms need to fill the details such as full office address the entity, authorised representative details, director’s details, startup activities and self-certification.

Once you fill the information in all the sections of the Startup Recognition Form that accept the terms and conditions and click on the ‘Submit’ button.

The startup is a newly established business in our country it is usually small in nature, started by a single or a group of individuals. What differentiates it from other businesses in the market that a startup offers new product or new service that is not being given anywhere else in the same way. The keywords are the Innovation and Novelty.

Stage 5: Required Documents for Registration

1.            The Incorporation and Registration Certificate of your startup registration.

2.            The PAN Copy of the Company

3.            The Proof of funding of the Company, if previous funding is there.

4.            The Authorisation letter of the authorised representative of the company that can be Director or Proprietor

5.            The Proof of concept such as elevator pitch website link or video (in case of a validation/ early traction/scaling stage startup)

6.            The detailed information about Patent and trademark details, if any

7.            The List of total awards or certificates received by Startup, if any

Stage 6: Recognition Number

After submitting the online application, the Certificate of Recognition will be issued after examination of all relevant documents. It usually takes 3-4 working days’ time for approval after submitting the application details online.

Conclusion

There are numerous benefits startups receive under the Startup India Initiative by Indian government, in order to avail these benefits, an entity is required to be recognised by the DPIIT as a startup having innovative ideas.

SimplySet-up help you from start to finish right from incorporating your company to getting your startup recognised with DPIIT. For further enquiries reach out to our Product Head – Ms. Geetanjli Aggarwal at the mail ID [email protected] or [email protected] or  [phone].

Resource: https://simplybiz45.blogspot.com/2023/03/startup-india-registration.html