Introduction to Corporate Law in India
Corporate Law is a complex web of rules and regulations which governs businesses, from their stage of incorporation until their dissolution.
This Article provides a comprehensive framework for each branch of corporate law. It covers the foundational tenets of contract law to the dynamic legal aspects of protecting intellectual properties, entering into mergers and acquisitions, and raising capital both via public and private investments. Thus, it gives a broad glimpse to the reader interested in setting up a business in India.
Law on Contracts
The Indian Contract Act of 1872 establishes a comprehensive framework to regulate agreements enforceable by law, also called contracts. The legislation provides that a valid contract requires an offer and an acceptance, intention to establish legal relations, a lawful consideration, competency to contracts, free consent, and a lawful object.
The legislation provides a framework on how the contracts should be performed and specific remedies for breach mainly damages and specific performance.
Company Law
The Companies Act 2013 and its allied rules govern the Indian incorporated entities. This legislation provides a comprehensive framework for the companies from incorporation until their dissolution. The legislation prescribes a detailed framework highlighting the rights, duties, and liabilities of every member of the company. The regulatory body governing the companies in India is the Ministry of Corporate Affairs (MCA). The investor intending to set up a company in India needs to be mindful of several compliances that the company is required to undertake to sustain itself within the corporate landscape.
Mergers & Acquisitions
Mergers occur when two players unite to form a single entity, and acquisitions occur when one entity purchases another entity to combine the purchases entity within itself. During acquisitions, the acquirer company purchases the majority or all the assets of the target business or its share capital.
The law governing M&A includes the Companies Act 2013 which provides the procedures for mergers and acquisitions, which provides the regulations concerning the approval of shareholders, valuation of shares, and the treatment of the minority shareholders.
Further, the entities entering into either mergers or acquisitions are regulated by the Competition Act 2002, which ensures that the process of either merger or acquisition does not have an adverse effect on the competition in the market by preventing anti-competitive agreements and abuse of dominance within the market.
The procedure involved in undertaking the mergers and acquisitions involves pre-transaction planning, valuation of the assets and liabilities of both companies, and conducting due diligence where the acquiring company conducts a review of the target company's financial statements, and legal documents to identify potential risks or liabilities.
Lastly depending on the nature of the transaction, both companies enter into a merger agreement, acquisition agreement, or purchase agreement depending on the nature of the transaction. Additionally, the transaction requires obtaining necessary approvals from other regulatory agencies and government bodies to close the transaction.
Mergers and acquisitions are strategic tools of businesses to enable the growth of their business to expand the customer base and enter into a new product or a new market. Further, this enables the business to eliminate competition, reduce tax liabilities
Law on Intellectual Property Rights
The laws governing IP are further categorized into the following areas of law:-
- Trademark - The law on trademarks helps any business protect its trade name and logos, which reflect the unique identity of the business. The Trademark Act 1999 facilitates the registration of trademarks and infringement issues and establishes penalties for violations of unauthorized use of such trademarks.
- Patent - The law on patents protects the technological advancement of the company, which is novel and innovative. The Patent Act of 1970 governs the protection of patents, providing enforcement and exclusive rights to the patent holders to control the use and commercialization of their inventions while prescribing the detailed procedures for application, infringement, and revocation of patents.
- Copyrights - The Copyright Act 1957 protects the original works of authors it grants propriety rights to author of every literary, artistic musical work to safeguard their original work against unauthorised use of such intellectual property. Further, the legislation provides remedies to the creator over unauthorized use of copyrighted material, mainly remedies including injunctions, damages and account of profits.
Law on Venture Capital
The law on venture capital covers legal regulations aimed at regulating the flow of investment into start-ups, and small and medium-scale industries in exchange of private equity and ownership stakes.
Securities Exchange Board of India Act, 1992, the SEBI (Venture Capital Fund) Regulations of 1996, and the Securities Exchange Board of India (Alternate Investment Funds) Regulations 2012 regulate venture capital. Further, the Securities Exchange Board of India (Foreign Venture Capital Investors Regulations, 2000) regulates foreign venture capital investors intending to invest in start-ups and small-scale and medium-scale industries. Additionally, the Foreign Exchange Management Act (FEMA,1999) governs the flow of foreign investment in and out of India, impacting foreign investment in Indian ventures, including venture capital.
These statutes and regulations provide a framework for the law governing venture capital funds, the specific investment limits, and permissible investment avenues to safeguard investor interests and foster a conducive environment for startups and innovation.
Law on Capital Markets
This form of law governs public platforms where the exchange of securities takes place where the investors transfer their capital to businesses for the businesses to finance various projects and investments.
The Securities Exchange Board of India, 1992 (SEBI Act) and its allied rules govern the capital markets, the law governing capital markets generally aims to regulate efficiency in the markets by regulating disclosures, trading practices and the conduct of market participants for the smooth and effective functioning of the requisite market.
The rules and regulations in the Securities Exchange Board of India further provide a comprehensive framework on the law concerning the transactions in the securities market, more specifically laws on raising initial public offerings, follow on public offers, the ambit of buybacks, delisting, relisting, insider trading laws, disclosure under the listing agreements to maintain investors confidence in the market.
Law on Insolvency and Restructuring
When businesses become insolvent because they are unable to meet the financial obligations of the creditors, the Insolvency and Bankruptcy Code 2016 lays down a comprehensive framework for the reorganization and insolvency resolution of corporate persons, partnership firms, and individuals for a maximization valuation of the assets, to ensure availability of credit for the repayment of dues in a manner as laid down in the statute.
Conclusion
Corporate Law encompasses within itself several laws and regulations every business either startups/ small scale businesses or the large-scale businesses which need to be mindful of while surviving in the corporate landscape. These laws are not comprehensive, instead provide a brief outline on the dynamics of corporate law which every corporation needs to comply to ensure all legal and financial standards are met.
