LEGAL ASPECTS OF BUSINESS

ASSIGNMENT

SUBMITTED BY
ASHIRWAD TIWARI
M210049MS
1:- Please explain the different types of instruments under which a company
under Companies Act, 2013 can raise capital.

Answer:-
Fund elevating via agencies has picked up tempo in the last few years resulting from upward
push in begin-up culture and entrepreneurship in India. Whilst doing it, one’s company faces
several demanding situations, like the hurdle faced with the aid of every startup organization is
CAPITAL RAISING.

Corporations incorporated underneath the Companies Act 2013, have the choice of issuing
diverse contraptions to it’s buyers and meet their capital necessities from time to time. The
technical terms for units issued by means of businesses to traders is securities. Even as the
difficulty of securities represents an investors’s hobby in agency, they are in a general package of
rights and duties accruing to the investor on the time of it’s issue or at the occurrence of the
precise activities or polishing off of the enterprise. Once the securities are issued to buyers, they
cannot alter the capital table of the company.The capital table is a structure depicting the whole
capital infused in a company sub-divided into the percentage of shareholding held by every share
holder.

The instruments usually issued by using companies at the time of fund elevating are equity based
instruments, debt based instruments and totally devices or hybrid instruments containing an
aggregate of features of each equity and debt primary based devices. The character of
instruments to be issued via an organization depends on a big volume of agency required via
unique mechanisms. The number one distinction between the issue of equity and debt based
gadgets are the dilution of the shareholding to the prevailing shareholders of the company. Even
this issue is in the simple terms, primary based instruments results in instantaneous dilution of
existing shareholding. The problem of debt devices will result in dilution of shareholding in
latter degree in the shelf life of a company. In any case the dilution of a company is reduction in
the overall amount of shareholding percentage of existing shareholders due to problem or
allotment of new shares to the new investors.

Following are the types of securities normally issued in a fund increased are elaborated below:-
 1. Equity Shares
2. Preferential Shares
3. Debentures
4. Hybrid Instruments

1:- Equity Shares:-

It is defined as the Shares of a company which represent ownership to the investor upto the
fraction of shares held by such person and permit a right to vote in decisions pertaining to the
company.It contains Equity Shares with voting rights which are the shares which allow each
holder to participate and vote in all meetings of the company and thus, run the operations of the
company, Equity Shares with Differential Voting Rights (“DVRs”) : these are the shares
carrying superior voting rights (i.e., multiple votes on an equity share), inferior voting rights (i.e.,
a fraction of the voting right on an equity share or shares with differential rights as to dividend) ,
Employee Stock Options (“ESOPs”) – which are the benefits given to employees of a company
to purchase, or to subscribe for, the shares of the company at a future date at a pre-determined
price and Sweat Equity Shares – equity shares which are issued by a company as a reward to its
employees for providing their know-how or making available rights in the nature of intellectual
property rights or value additions, by whatever name called for consideration other than cash

2:- Preferential Shares:-

 These are the shares which entitle the holder to a preferential right to receive fixed dividend
during the life of the company as well as a preferential right to receive the amount paid on such
shares during the winding up of the company . It does not confer voting rights in ordinary
circumstances.  It consists of

1. Participating and non – participating preference shares – these are the right to a fixed
preferential dividend and a right to participate in surplus profits.
2. Cumulative and non – cumulative preference shares –which are the right to claim
dividend fixed at a sum or percentage for the past and current year out of future profits;
and 
 3.   Redeemable preference shares –these are the obligation on the company to redeem the
shares after a specified limit

3:- Debentures:-
 Debentures are the security evidencing debt due to the holder of debenture by the company
repayable in principal amount with interest. The debenture may or may not be secured by the
assets of the company.These consists of the following:-

1. Redeemable debentures – debentures which upon issue will be repaid to the holder upon
a specific time limit;
2. Convertible debentures – debentures which may be converted into equity shares upon a
specific time limit or upon the occurrence of specific events.
3. Compulsorily convertible debentures or CCDs must be converted to equity shares within
a period of 10 years from the date of its issue otherwise the same will be treated as
“deposit” under the Act.

4:- Hybrid Instruments:-

Hybrid Instruments are the  securities which have elements of both debt securities and equity
securities. Hybrid securities typically issued by companies include optionally convertible
debentures (fully or partly), compulsorily convertible debentures, compulsorily convertible
preference shares and optionally convertible preference shares (fully or partly) all of which are
convertible into equity shares of the company at specified events.

2. Raju and Vinayak are partners who started a partnership under the
Partnership Act, 1932. There are differences arisen between them and they
have approached you to advice them to resolve their issue
a. Please suggest ways how they can resolve their differences without
approaching conventional court of laws
Answers:-

The Indian Partnership Act 1932 is an act to define and amend laws that are related to
partnerships. The definition of PARTNERSHIP is mentioned in the section4[1] of this act which
says the relation between persons who have agreed to share the profits of a business carried
on by all or any of them acting for all .Persons who have entered into partnership with one
another are called individually, "partners" and collectively "a firm", and the name under which
their business is carried on is called the "firm-name.

Under section 5 the relation of partnership arises from contract and not from status; and, in
particular, the members of a Hindu undivided family business as such, or a Burnese Buddhist
husband and wife carrying business as such, are not partners in such business. Another important
section i.e. section 69 which reads as The provisions of sub-sections (1) and (2) shall apply also
to claim of set-off or other proceeding to enforce a right arising from contract, but shall not
affect-

1. the enforcement of any right to sue for the dissolution of a firm or for accounts of a
dissolved firm, or any right or power to realize the property of a dissolved firm, or

2. the powers of an official assignee, receiver or Court under the Presidency-towns

Insolvency Act, 1909, (2 of 1909).or the Provincial Insolvency Act, 1920, (5 of 1920). to
realize the property of an insolvent partner.

In this case of Mr Raju and Mr Vinayak, conflicts can happen through many reasons. I t can be
either of underperformance or lack of contribution of any one of the partner, or any secret profits
is used and violated by any one of them or by management and personal conflicts arised after the
commencement of the business.

A decent and well-balanced dispute resolution process is essential for maintaining the smooth
functioning of the partnership business. The process commences right from choosing what kind
of resort both the partners are looking for; or any technique explicitly mentioned in the
Partnership Agreement. If the method resorted for resolving the dispute is mediation, then I will
be able to interfere and try to solve their problems.

I can will use the Alternate Dispute Resolution process (ADR). I will listen to the grievances of
both the parties and will try to make a solution which is cost effective, time effective and easy to
follow. I can either act as an Arbitrator or Mediator, depending on their trust on me.If they chose
me as an arbitrator, then I will study the problem closely, try to give a decision which will be
legally binding on both. In the other case I’ll try to negotiate and provides various alternatives
which can be helpful to them and they can choose any one based on their mutual agreement.

b.Please elaborate the advantages of resolving their differences without

approaching conventional court of laws

Answer:-
There are many advantages

1. A single Procedure:- Through this ADR , both of them can resolve their issues in a
single procedure. They can save their time than approaching to the judiciary bodies .
They have also saved their money hiring a professional lawyer to file the case in the
court, his individual charges, complexity of the jurisdictionary litigation, delayed
hearings and sometimes inconsistent results.

2. It is Autonomous:- Because of it’s private nature this method will ensure the privacy
and facilitates greater control to both Mr Raju and Vinayak, to exercise greater control
over the way that this conflict is resolving. In case of court litigation the judgement of the
Judge is supreme . In contrast they know me, they have immense trust on my clarity and
decision making. In addition, they may choose the applicable law, place and language of
the proceedings. Increased party autonomy can also result in a faster process, as parties
are free to devise the most efficient procedures for their dispute. This can result in
material cost savings.
3. This method is fairly neutral to the law, culture and language of both the party. This will
avoid any home court advantage to any of the party, where familiarity of any law and
knowledge of local proceedings can provide additional profit.

4. Our meeting will be private and confidential. No other person will be allowed to be a part
of our discussion, not even in the case of listening the conflict. Also they can keep the
meeting according to their convenience. This will help them to know the merits of the
disputes without any concern of it’s public impact, goodwill especially in the case if the
company run by both the parties have good commercial reputations and sensitive trade
secrets.

5. Since they chose me to preside over this conflict, my decisions will be based on pure
facts and equally justifiable to both of the party. Hence there is no chance of any bias.

6. Once a court verdict is delivered, it invariably leaves one side disappointed, upset, angry,
and even bitter. I will use each and every opportunity to maintain the rapport between
both the parties.