by LegitPro Associates | Oct 30, 2023 | IPR, Startup
Exit strategies are of paramount importance in the realm of business. For SMEs and start-up’s, a paradigm shift in the consideration of Intellectual Property (IP) is essential, especially when viewed through the lens of investor perspective. The execution of the exit strategy, by which investors and entrepreneurs seek returns, demands particular attention since the realization of these returns is the shared aspiration. As emerging businesses witness peers achieving commendable strides, a substantial share of the credit is attributed to safeguarding interests and assets through intellectual property rights. Contemplating the significance of intellectual property at the nascent stage is pivotal for start-up’s and SMEs to capitalize on every initial opportunity they embark upon.
Intellectual property, typically associated with patents, also encompasses trademarks and trade secrets, and each facet serves a distinct role in safeguarding business interests. Trade secrets protect technical solutions and inventions, copyrights preserve original creative content, and trademarks foster brand development. It is incontrovertible that IP rights empower investors and creators to convert their outputs into tradable commercial assets. The primary objective of Intellectual Property in the realm of start-up’s is to provide the option, for a designated period, either to prevent third-party usage without authorization or to engage in profitable business negotiations. Unauthorized use of protected IP assets is often penalized, thereby bolstering the growth prospects of start-up innovations. Since these creative outputs inherently belong to the start-up’s, they possess significant potential to assert ownership and derive value from their assets. Licensing, a prevalent practice, involves the exchange of royalty fees to deter similarly named companies operating in the same geographical region, which could otherwise cause confusion among prospective customers.
IP assumes a pivotal role in the considerations of investors. Leveraging IP assets for growth becomes feasible when the protective umbrella is established at an early developmental stage. The integration of IP rights into business plans manifests into reality as IP assets frequently drive current and future revenue streams. The prospect of augmented value and lucrative exits, despite the initial costs for start-up’s, offers these ventures an opportunity to reconsider an asset like IP, which bears a substantial price tag. To craft an effective exit strategy, start-up’s and SMEs must assess which intellectual property rights are pertinent to their business and determine when asset protection becomes imperative.
In many respects, entrepreneurs are also investors. They invest their invaluable time and resources in nurturing and expanding their ventures. Concerning intellectual property, all businesses must adopt a holistic approach, integrating intellectual property into their business plans and instituting measures to ensure the effective management of their intellectual property assets by their workforce.
Efforts on the human resource front include enhancing awareness and competence in intellectual property through the engagement of qualified intellectual property advisors or consultants. Often, this process begins with the implementation of rudimentary safeguards for protecting sensitive business information and includes explicit clauses in employment contracts, defining the transfer of intellectual property rights. On the business side, owners must develop a foundational understanding of how diverse intellectual property rights can be harnessed to advance business objectives and the requisite steps for securing them. Specific intellectual property rights may necessitate meticulous procedures before securing them; for example, patent claims depend on factors like novelty and other criteria, making it necessary to maintain confidentiality regarding technical developments before filing a patent application.
Novice investors perceive the acquisition of intellectual property rights as a risk management exercise. Being the first to secure these rights through timely applications is imperative to avoid the risk of forfeiting them. Velocity is of the essence, especially in a competitive market, where securing intellectual property rights minimizes vulnerability to infringement claims. For businesses seeking to capitalize on intellectual property opportunities, the initial steps include identifying and quantifying existing intellectual property assets (e.g., know-how, customer lists, intelligence, website, creative content, etc.), understanding their value, and implementing appropriate protective measures.
These considerations delineate the consequences of heightened competition facing our portfolio companies.
by LegitPro Associates | Oct 9, 2023 | Regulatory Compliances, Startup
The Start-up industry in India has witnessed remarkable growth over the past decade, transforming the country into a hub for innovation, technology, and entrepreneurship. With a burgeoning ecosystem, a young and tech-savvy population, and a government supportive of entrepreneurial ventures, India has become a hotspot for Start-ups. In this article, we will explore the dynamics of the Indian Start-up scene, when founders should pay attention to legal and regulatory compliance, the necessity of budgeting for compliance, and the critical challenges founders face today.
The Indian Start-up Ecosystem: A Thriving Ecosystem
India’s Start-up ecosystem has witnessed unprecedented growth, thanks to factors like demographic advantage, improved access to capital, and an increasingly entrepreneurial culture. Cities like Bangalore, Delhi-NCR, and Mumbai have emerged as hotspots for Start-ups, with numerous tech parks, incubators, accelerators, and venture capitalists.
Start-ups in India span various sectors, including technology, e-commerce, fintech, healthtech, and agri-tech. Notable success stories like Flipkart, Ola, Paytm, and Zomato have captured global attention and encouraged aspiring entrepreneurs to dream big.
Legal and Regulatory Compliance: A Foundational Aspect
As Start-ups navigate the complex landscape of Indian business, it’s crucial to address legal and regulatory compliance from the outset. Ignoring this aspect can lead to significant issues down the road. Founders must pay attention to compliance at the very beginning of their entrepreneurial journey. Legal and regulatory compliance encompasses a wide range of issues, such as company registration, intellectual property protection, taxation, labor laws, and industry-specific regulations.
Registering a company under the appropriate legal structure, obtaining the necessary licenses and permits, and complying with labor laws are fundamental steps. Intellectual property protection through patents, trademarks, and copyrights is crucial for safeguarding innovation. Founders must also be aware of tax obligations and ensure proper bookkeeping and accounting practices. Failing to address these aspects can result in penalties, legal disputes, and even the shutdown of the Start-up.
Budgeting for Compliance: A Wise Investment
Founders should allocate a specific budget for legal and regulatory compliance. While Start-ups often operate with limited resources, cutting corners in compliance can prove to be a costly mistake in the long run. Legal issues can disrupt operations, tarnish the Start-up’s reputation, and result in financial losses.
The budget for compliance should cover legal counsel, licenses, permits, registrations, and any necessary intellectual property protection. It should also factor in ongoing compliance costs like taxes and labor-related expenses. Investing in robust compliance from the beginning not only mitigates risks but also establishes a solid foundation for sustainable growth.
Critical Challenges Faced by Founders Today
Founders in the Indian Start-up landscape face a unique set of challenges, including:
Regulatory Complexity: The regulatory landscape in India can be labyrinthine, with different states and industries having varying requirements. Navigating these complexities requires expertise and resources.
Access to Funding: While the availability of venture capital and angel investors has grown, Indian Start-ups has seen a dip in securing funding in 2023. Securing funding can still be challenging, especially for Start-ups in non-metropolitan areas.
Talent Acquisition: Attracting and retaining skilled talent is a constant challenge. Competition for the best employees is fierce, and compensation expectations are high.
Market Competition: Many sectors are saturated with Start-ups, leading to intense competition. Start-ups must differentiate themselves to capture market share.
Operational Scaling: Scaling up operations is often resource-intensive. Efficient management of resources and sustainable growth is a balancing act.
Global Expansion: Expanding beyond India’s borders can be challenging due to different regulatory environments and market dynamics in other countries.
In conclusion, the Indian Start-up industry is on an upward trajectory, driven by a dynamic ecosystem and a supportive entrepreneurial culture. Legal and regulatory compliance is a cornerstone of success and should be addressed from day one. Allocating a budget for compliance is an investment in long-term sustainability. While founders face challenges, India’s Start-up landscape continues to offer immense opportunities for those who navigate the complexities with foresight and innovation. As the ecosystem evolves, Indian Start-ups have the potential to make a global impact and shape the future of business and technology.
by LegitPro Associates | Sep 21, 2023 | Criminal Law, Cyber Crime
Cloud Computing is the process of two different cross roads meeting their friends and trying to carry them along to provide services of similar nature. With the coming of Internet of Things advanced data structures have become a reality. Cloud Computing has the capacity to handle massive amount of data which can store and retrieve data from anywhere at all times. Business, education, healthcare and research and development will be at the receiving end of a huge advantage when incorporated in Big Data Cloud Computing. The larger segment of cloud computing has always been data protection. But the intentional acts, cybercrimes, and infringements committed in the cloud need urgent legal control. The users and the providers have to be protected alike since not only a huge amount of data is lost but a huge economic disaster probably awaits them because of infringements occurring at the level of cloud. Since the nature of cloud technology is omnipresent on the globe, all the cybercrime committed on the internet would also be committed with greater magnitude due to this very reason. The cyber framework has to be revised at the international level. Out of different conventions enacted and ratified the European Council Convention on Cyber Crime is the first one. With 51 members signing the instrument and 39 of them ratifying it in the glare of the fact the results arising from such treaties cannot to be promising because they are often vague and difficult to interpret.
JURISDICTIONAL HURDLES AND THEIR STAGES
Treaties are more or less termed as soft power due to lack of mechanism to punish the states for the misconducts. States violating the guidelines of the treaties cannot be called up for violating the conditions of the treaty since most of the provisions happen to not be binding on them. In the light of the constitutional privacy concerns the cybercrime treaty has been evaluated as the least effective of all. Cybercrime Treaty can be used in respect of cloud computing for data protection however there are jurisdictionary issues. The jurisdictional problems can be categorized into three stages. The Treaty is silent pertaining to the point where law and enforcement of country A need access to data in country B. In cases where the treaty does not even make mutual agreement binding, arriving at a solution becomes difficult. A situation where access to data prevails in one country which is owned by a citizen of another country lands in no legal solution at all.
When cybercrime has been committed in the cloud investigator of the country where the commission has taken place will have to contact the service provider of the same country for providing information stored in an alternate country. Legal possibilities in such cases are still unclear. In the Belgium Yahoo case the concept of electronic service provider for facilitation of the above purpose was widely interpreted. This is where the criminal code for cloud can be developed. Extra territorial application of Jurisdiction with multiple countries participating and cloud computing becomes a necessity. Explicit criminal acts of perpetrators would come to surface and they will be convicted for such offences covering incidental or peripheral conduct. Prosecution in cloud crime would be slightly difficult as a few countries has United States have 45 different statutes one of which makes the act of accessing a protected computer, criminal offence. Few examples of this maybe Wire Tap Act, The Electronic Communication Privacy Act, or The Computer Fraud and Abuse Act. Collection of evidence, investigation, and preservation in the virtual environment have become very complicated and challenging.
Challenges of international law have to be combated for which an international regime is the need of the hour for keeping pace with technological developments and problems that occur because of the defendant being a foreign national amidst lack of trans border mechanism for search and seizure. One of the possible solutions for this is also hybrid in nature. In general cloud computing is forced to travel through a web of regulations. Organizations like the United Nations can harmonize cloud computing regulations by surrendering before enforcement mechanisms. Harms related to cloud computing need promulgation of a specific regulation. Third party agreement is necessary for allocation of cloud space and regulation by specific set of laws.
Criminal activities in cloud can be intercepted using intelligence agencies. In case of an international law regime extra territorial jurisdiction would become a reality so that foreign national can be tried by a nation in which the cause of action has arisen. In a global regime, harmonization of state laws creates a greater leverage for avoiding conflict of laws in addition to which uniform International Cloud Policy would make supervision easier. Public private partnership and cooperation among different states in cloud space allocation would resolve the dispute amicably. The world has shrunk into a saturated dot com. Cloud Computing has opened avenues for a paradigm shift in information technology with formidable challenges. The worst casualty is data. With numerous ID stealers, intruders and international pilferers software engineering innovations can address the cluster of harm pertaining to data protection to which the world is being exposed to. India ought to join the Global partnership for overcoming such data protection hurdles.
by LegitPro Associates | Sep 7, 2023 | Corporate Law, Knowledge Series
The term holding company has been defined under Sec 2(46) of the Companies Act 2013.The bare minimum reading of the Act states that companies of which a few companies are subsidiary companies are called as holding companies. The term subsidiary company has been defined under Sec 2(87) of the Act which states it, in relation to any other company, a company in which the holding company may control the composition of board of directors, exercises control over more than one-half of the total share capital either by its own or with the aid of one or more subsidiaries. Moreover, the explanation of the section can be stated as:
A deemed subsidiary company status would be conferred on a company of the holding company even if control held on it is vide another subsidiary company. The composition of the Board of Directors shall be deemed to be controlled by another company if the company by exercise of its power has the ability to appoint or remove the majority of directors. The Act also covers body corporates within its ambit. The example of Uniliver can be taken into consideration. Uniliver holds more than 50% of shares in Hindustan Uniliver Ltd. However, it is not a company within the definition of Companies Act 2013, albeit which it is called as a holding company. This is because of the interpretation of the provision, since Sec 2(87) includes body corporates. Thus, company in which a foreign body holds more than 50% shares is called as subsidiary company in spite the latter not being registered. However, the 2017 Amendment has had huge effect on holding companies. This article will give a brief overview of the same.
EFFECT OF 2017 AMENDMENT
The amendment made an alteration of replacing the term voting rights with shares. The concept entrenched a formula of 10 DVR (Differential Voting Rights are the ones in which value of shares are considered to be lesser than actual shares) is equivalent to 1 voting right. Hence companies adjudged on the basis of voting rights previously who could not be holding companies became holding companies by virtue of holding shares. Another impact of this is that, a company cannot have more than a fixed layers of subsidiaries. Although the amendment came in the yar 2017, a gap of 4 years post the enactment and implementation of the Companies Act 2013 paved way for a company to have multiple layers of subsidiaries. The catch however is, the amendment has mandated companies having more than 2 layers of subsidiaries, within 150 days to report to the Registrar of Companies. The registrar has the authority to mandate the company to not go in for increasing the number of subsidiaries or if voluntarily closed not to reopen new subsidiaries afresh on the pretext of having owned more subsidiaries before the enforcement of the amendment. Horizontally, a company can have as many subsidiaries as it wants. But vertically, the restriction has to be confined to 2 in number.
IMPLICATION OF A HOLDING AND SUBSIDIARY COMPANY AND THE RELATIONSHIP
While on the face of it, it may appear that the autonomy a company achieves though being a subsidiary or holding company is great, many relaxations provided to a private company are not provided to the subsidiary or holding company. A private company which is a subsidiary of public company will be termed as a public company even when the subsidiary company may continue to be a called as a private company in its articles. Moreover, a company cannot buy back its own shares from the subsidiary. Loan cannot be extended to individuals or companies willing to purchase the shares of a holding company. The books of accounts of the subsidiary have to be inspected by the person authorized by the Board of Directors. The consolidated financial statement of the holding company ought to disclose details about the joint ventures, associate company and its holding in the subsidiary company. In case the holding company has more than one subsidiary, it shall prepare a consolidated financial statement of all joint ventures, associate companies and subsidiary companies. The balance sheet of a holding company should disclose all investments made by it in the subsidiary. The profit and loss account statements should disclose dividends from subsidiary companies and provisions of losses for subsidiary companies. Hence, in addition to giving its own financial statement, a consolidated financial statement should be provided by every company having a subsidiary or subsidiaries. Similarly, balance sheet of the subsidiary should also disclose all shares held by the holding company. Under Sec 226(4) there are also restrictions for appointment as auditor since a person cannot be an auditor if any of his relatives has any interest by virtue of holding shares in company, or its subsidiary or subsidiaries. In addition to this, pertaining to remuneration received by the MD or WTD of a company can even be from a subsidiary company subject to the disclosure in the annual report. The prospectus of the holding company should disclose the particulars of the subsidiary company.
CONCLUSION
The parameters ascertained for holding and subsidiary companies also pave disadvantages. While a holding company holds shares of a subsidiary, subsidiary company cannot hold shares of a holding company. Even if the nominee company holds shares, this restriction extends to the ambit of the nominees of the subsidiary companies as well. But this concept helps subsidiary companies to be a member of the holding company. If the subsidiary is made the legal representative of deceased member of the holding company, or if subsidiary is concerned in shares as a trustee or if investment is held before the company becomes a subsidiary, such an investment can continue. However, no voting rights can be enjoyed by the subsidiary company in the holding company.
by LegitPro Associates | Aug 15, 2023 | Data Protection, Knowledge Series
After plethora of debates, discussions and deliberations the Digital Personal Data Protection Bill 2023 was passed in the parliament on August 7 2023 that introduced the nation to various realms of data fiduciaries, and the way data is utilized by various institutions. Initially, the users of data, who had access to vagaries of personal information for bureaucratic purposes or otherwise had no obligation while processing confidential data of data principals. India needed a data protection bill to be at par with the global standards due to it’s fair share of struggles in keeping pace with rights like personal liberty, right to be forgotten along with public welfare and governmental standards and requirements. Though a lot of organizations have their own way of compliance and technology policies pre-ordained it has now become essential for the policies to defy the key aspects of the bill. Pertaining to applicability of the bill, the provisions of the bill will come into force only when the central government notifies it in the official gazette.
DATA FIDUCIARY VS DATA PRINCIPAL
The bill draws our attention to the difference between data fiduciary and data processor. The storehouse of data is called as a data principal. When the data of the data principal is collected for a specific purpose subsequent to which it is digitally processed, the latter entity becomes the data fiduciary who is under an obligation to comply with obligations on data fiduciaries set out in the bill. In case an organization processes personal data on behalf of another organization, the former entity will be called as a data processor. The organization on behalf of which the data is processed is called as data fiduciary. A few entities in specific situations will be treated as significant data fiduciaries. The list of situations may include: The goodwill and mutual benefit of public order, situations of risk to electoral democracy and threat to security of state, risk to tights of data principals and impact on sovereignty and integrity of the nation, with due regard to volume of personal data processed by the data fiduciaries. When an organization falls into the category of the abovementioned situations, it will be called as a significant data fiduciary. The applicability of the bill extends to processing of personal data collected in digital form and processing a personal data collected in non-digitized form and digitized subsequently. However, not all personal data are same. The Information Technology (Reasonable security practices and procedures and sensitive personal data or protection) Rules, 2011 classifies information into personal data and sensitive personal data or information. Unfortunately, the bill does not do so and considers all personal data uniformly without an intelligible differentia. One panacea to this issue is, continuation of applicability of Information Technology Act 2000 albeit the data protection bill getting enacted. Under Sec 43 A of the IT Act, one has to provide compensation for failure to protect personal sensitive data or information. So, even if the bill fails to ordain a differentiation of personal and personal sensitive data with punishment thereto, bi-compliance of both legislations simultaneously will facilitate better protection of personal data of individuals.
GUIDING PRINCIPLES OF THE BILL
Forming a balance between need for protection of personal data and need to process data for lawful processes from governmental objectives the bill seeks to achieve protection with minimum disruption to enhance ease of doing business and living so that India’s digital economy and innovation ecosystem see a dynamic change. Few principles that guide the implementation of the bill include consented, lawful and transparent use of personal data, purpose limitation of using data for the ascertained purpose at the time of obtaining data from the data principal, data minimization which seeks to collect a small amount of data apropos the purpose intended to be served. The ancillary principles include principle of storage limitation of preserving and storing as much data that is required for the time being, and principle of security, safeguards and accountability. The accountability factor is constantly kept on check vide adjudication of data breaches, infringement of principles enshrined in the bill, and imposition of penalties in case of damage. The bill is, SARAL (Simple, Accessible, Rational and Actionable Law). With plain language, clear illustrations and dearth of cross referencing the provisions have been kept lucid for common individuals to grasp. Though there are powers conferred on the board to remediate and mitigate data breaches, or perform judicial and regulatory functions, processing Indian personal data under foreign contract and locate defaulters and their financial assets, the exemptions granted to certain authorities becomes a bone of contention in understanding the intention of the proposed bill.
THE RIGHTS PROVIDED BY THE BILL
The individuals now have the right to access the information about the processed data, the right to be forgotten that has been interpreted as a foreign judgment has taken a form of a right as seeking erasure of the data, the right to get the grievance redressed, and in case of an unforeseen circumstance of death or incapacity, the data principal has the right to select a nominee for representation of his, and his data. When data breaches are found, the data protection board is intimated immediately in addition to which if the data principal withdraws the consent, the data is sought to be erased. The bill mandates appointment of an auditor who can conduct periodic data protection impact assessment to ensure higher degree of data protection. Extending the protection to children, data fiduciary is allowed to process the data of children only with parental consent and processing that is detrimental to child welfare, like targeted advertising, behavior monitoring or tracking are prohibited.
CONCLUSION
The exceptions provided for non-compliances of certain provisions of the bill can still be concerning. For approved mergers, de-mergers, or prevention, detection, investigation and prosecution for enforcement of legal rights and claims can be arbitrarily used. But much leeway is provided for voluntary undertakings from data fiduciaries since the board is permitted to request the government to block the website of data fiduciary that is found to be repeatedly breaching the data protection guidelines. However, a question arises, as to what if the data fiduciary is the government itself. The bill fails to provide clarity on this aspect.
