LEPM Notes

Contract Act

1. Contracts are agreements that are enforceable by law

2. Social agreements are not enforceable by contract law
3. Contract law is primarily dealing with commercial / business agreements
4. For forming a contract, parties should have intention to create binding legal relationship
(hence non-binding agreements are not contracts)
5. Benefits of non-binding agreements:
a. Continue the agreement
b. No unwanted disputes or legal costs
c. Test compatibility with business partner and market conditions
6. Agreement = Offer + Acceptance
7. Offer, acceptance and consideration are important for a contract
8. Contracts formed though spoken offers and acceptance are valid (credit card companies,
telemarketing companies, etc)
9. Termination could be for breach of contract condition, or as per the clause in the contract
a. Liquidated Damages – the suffering party’s right to compensation
b. Additional expenses incurred, the profit which the contract would have gained, etc
c. Use a trade parameter as a benchmark for setting the liquidated damages
d. Benefits of pre-determined damages:
i. Avoid dispute and court proceeding
ii. Clarity on amount to be paid
iii. Caps the maximum damages that can be claimed in case of a default
10. Force Majeure – Impossibility of performance of contract due to unforeseen event /
situation beyond the control of the parties – Act of God – Releases both the parties from
contractual obligation – events should be defined in the contract, if not, it could lead to legal
disputes.
11. Principal-agency contracts – Agent is any person entrusted to perform a certain act on
behalf of the principal – Principal could be held contractually liable for acts done by the
agent – If authority to act is exceeded by the agent, then the principal is not to be held
liable.

Partnership and LPP

1. Sole Proprietorship - An individual owned and managed business - Profit and loss has to be
borne by a single person - Less legal compliance - Not suitable for running business requiring
huge investment and resources.
2. Relevance of other forms of business - Business organizations which allows financial resources to
be pooled - Business organizations which have a separate identity from the owners and develop
goodwill of its own - A system by which the law facilitate and incentivize risk taking.
3. Partnership - A recognised form of conducting business in India under Indian Partnership Act -
Based on agreement of members to form a partnership - Partners pool in their resources to do a
business - Partners agree to share the profits of a business.
4. Partnership agreement/deed can contain clauses on - Dispute resolution - Retirement and
termination – Non compete clause
5. Registration – Partnership agreement between the parties with the Registrar of Firms in the
concerned state– mentions the following:
 a. Financial contribution of parties
b. Share of profit
c. Nature of business
d. Period for which partnership is formed
6. Registration is practically required even though it is optional as per law - A partner of an
unregistered partnership firm cannot file a suit against the firm or any partner - No suit can be
filed on behalf of an unregistered firm against any third party for the purpose of enforcing a
contract.
7. Benefits of partnership:
a. contractual relationship exist between the partners - Disputes can be settled based on
the partnership agreement
b. Can conduct business in the name of the firm - Collectively the partnership is referred in
the name of the firm
c. Less compliance – as compared to companies
d. Collective decision making – based on majority of the partners
8. Prefer to go for a partnership when it is a relatively short-term venture and skilled based
(professional services)
9. Drawbacks –
a. Liability in a partnership is unlimited
b. Mutual agency each partner acts as an agent of the other partners
c. Every partner is liable, jointly with all the other partners and also severally, for all acts of
the firm while he is a partner.
d. All partners are responsible for legal compliances
e. Maximum number of partners now restricted to 100 (previously 20)
f. Limited possibilities to raise financial capital the form of a partnership business
10. Relevance of partnership firms:
a. Pooling of funds
b. Separate identity and goodwill
11. LLP advantages –
a. Partners are liable up to the extent of financial contribution.
b. No limitation on the number of partners
c. Registrations are compulsory under the LLP Act with the Registrar of Companies
12. LLP Compliance requirements –
a. Shall maintain annual accounts
b. Audit mandatory for contributions above 25L or revenue above 40L
c. Statement of accounts and solvency to be filed by every LLP with ROC every year
d. Designated partner responsible for all legal compliances (2 partners hold this position)
13. FDI is allowed in LLP, and foreign partners can be appointed
14. LLP = Suitable model for Start-ups
15. Drawback of LLP – no access to capital markets, as they cannot be listed on the stock exchanges.
16. LLP – A system by which the law facilitates and incentivizes risk taking.

Company Law

1. Memorandum of Association (MOA) – crucial information like name, registered office, object
clause (describes the business that the company is into – Specific or Unrestricted Object
Clause), share capital of the company.
 2. Article of Association (AOA) – Guidelines for the internal management of the company –
Appointment of directors, restriction of transfer of shares in case of pvt ltd co, indemnity for
all directors and managers
3. Directors – Min 2 (pvt ltd) and 3 (public ltd), maximum 15 (unless AOA permits more)
a. Who – A person elected by the shareholders, they can also vote him out
b. Ensure proper functioning of company on behalf of shareholders, Conduct board
meetings, Constitution of committees such as audit, finance, Conduct AGM.
4. Independent director should not:
a. Have any monetary interest in a company (no more than 2 of shares)
b. Be related to the promoters or management
c. No professional relationship (for preceding three years)
5. For public listed companies – minimum 1/3 rd BOD should be independent – important to
protect the interests of minority shareholders.
6. The following classes of companies shall have at least 2 directors as independent directors
a. Public Companies with paid up share capital of Rs 10 crores or more.
b. Public Companies with turnover of Rs 100 crore or more.
c. Public Companies with aggregate outstanding loans, debentures, and deposits,
exceeding Rs 50 crore.
7. Directors can be fined – personal liability of Rs. 1-5 lakhs – in case attempt to take undue
advantage and misuse his/her office is evident, conduct creating conflict of interest leading
to loss to the company.
8. The ‘business judgement rule’ provides immunity to the board and directors from liabilities
that might arise if the company and shareholders suffer loss because of genuine error in
judgement.
9. Enlightened shareholder value (ESV) is the idea that corporations should pursue shareholder
wealth with a long run orientation that seeks sustainable growth and profits based on
responsible attention to the full range of relevant stakeholder interests.
10. CSR – mandatory up to 2% of the profits of the company – applicable to companies with at
least 5cr net profit or 1000cr turnover or 500cr net worth.

Intellectual Property Rights

1. Key features of IPR:

a. Helps business organisations innovate and promotes creativity
b. Leverage the investment made into product research and development
c. Different from traditional property/asset right
i. Inventions,
ii. Literary and artistic work, designs
iii. Names and Images used in commerce
d. Classified into Patents, Copyrights, Trademarks, Designs, Trade Secrets
2. Patent:
i. Protect the new product / process for 20 years – exclusive right to sell / use
and license the product/process
ii. Registration mandatory with the Indian Patent Office
iii. Not to publish details of the invention before the patent is granted
b. What can be patented?
i. Novelty – Invention must be new and not known to this world
ii. Non-obviousness – an inventive step and not an obvious to any expert
iii. Utility and enablement – practical or commercial significance
 c. What can’t be patented? (public interest exceptions - patent protection)
i. Surgical methods
ii. Agricultural methods
iii. Plants and animals
iv. Computer Program codes
d. Government has the right to issue a compulsory licensing to use a patent in the
public interest, if the public has reasonable requirement of the patent which has not
been satisfied, and if the patent is not available to the public at a reasonable price.
3. Trademarks:
a. Words, logos, symbol, packaging and color combination which could distinguish the
products and services are protected – 10 years – helps in protecting the brand value
– Trade Marks Act, 1999.
b. Trademark infringement – using an identical or similar mark in relation to similar
goods – confusion in the minds of the customers and a possible loss of brand value
for the original trademark owner.
c. Trade-dress protection – to protect consumers from packaging or appearances of
products that are designed to imitate other products.
d. Sound marks - trademark function of uniquely identifying the commercial origin of
products or services - ‘Factual Distinctiveness’ of the sound is the required –
immediate recall value of sound with the product/service.
e. Well-know marks – market reputation needs to be considered, which includes trans-
border reputation
f. Domain names can also be trademarked.

Consumer Law

1. Consumer Protection Act – Defective goods, Deficient service, Complaint before Consumer
courts, Can claim compensation / ask for replacement.
2. Any beneficiary who use the service / product are also consumers
3. Cannot take cover of parking at “owner’s risk” clause, hotels are liable.
4. Commercial use is not consumer – only in case of self-employment this benefit is available.
5. Unfair trade practices are regulated under this act.
6. False / misleading advertisements – Advertisement Standard Council of India (ASCI Code)
acts as a self-regulatory mechanism for controlling misleading advertisements.
7. Disparaging advertisements – advertisements that lead to misleading or false statement
relating to products or services of another company – prohibited practice under law.
8. Celebrities are expected to conduct certain level of due diligence before they endorse
products.