Module 4

LEGAL FORMS OF ENTREPRENEURIAL

ORGANIZATIONS
 Intellectual property (IP)
• Intellectual property (IP) is a category of property that
includes intangible creations of the human intellect, and
primarily encompasses copyrights, patents, and trademarks.
• It also includes other types of rights, such as trade secrets,
publicity rights, moral rights, and rights against unfair
competition.
• Artistic works like music and literature, as well as some
discoveries, inventions, words, phrases, symbols, and designs,
can all be protected as intellectual property.
•  It was not until the 19th century that the term "intellectual
property" began to be used, and not until the late 20th century
that it became commonplace in the majority of the world.
 Cont….
• The main purpose of intellectual property law is to encourage
the creation of a large variety of intellectual goods.
• To achieve this, the law gives people and businesses property
rights to the information and intellectual goods they create,
usually for a limited period of time. Because they can earn
profit from them, this gives economic incentive for their
creation. 
• These economic incentives are expected to stimulate
innovation and contribute to the technological progress of
countries, which depends on the extent of protection granted to
innovators.
What does IP(Intellectual Property) mean?

Trademarks
Patents Includes also:
Designs Copyright
Utility models Unfair Competition
Business Secrets
Manuals
Domain names
etc…

4
 IP in Summary
Law Covers Registration Duration

Patent Technical Yes 20 years

Utility Model Technical Yes 10 years

Design Look Yes/No 5 x 5 years

Brand name of
10 years x for
Trademark product or Yes/No
ever
service
Artistic and
life + 70 years
Copyright literary No
thereafter
works/software
5
 PATENT
• The word patent originates from the Latin patere, which means "to
lay open" (i.e., to make available for public inspection). which was
a royal decree granting exclusive rights to a person, predating the
modern patent system. Similar grants included land patents, which
were land grants by early state governments in the USA, and
printing patents, a precursor of modern copyright.
• In modern usage, the term patent usually refers to the right granted
to anyone who invents any new, useful, and non-obvious process,
machine, article of manufacture, or composition of matter.
• A patent is an exclusive monopoly grant by the govt. of an inventor
over his invention for limited period of time
 CONT….
• Patent is an exclusive right given by a country to
the owner of an invention to make, use,
manufacturing and market the invention.
provided the invention satisfies the criteria.
• Exclusive right implies that no one else can
make, use, manufacture or market the invention
without the consent of the patent holder.
 CONT…..
• The law relating to patents in India is governed by Indian
Patents Act, 1970 as amended by Patents (Amendment) Act,
1999 and Patents (Amendment) Act, 2002,which came into
force with effect from May 2, 2003. In our discussion, we will
refer to this act as the Indian Patents Act (IPA).
 3 Different Types of Patents
• Utility Patent • Plant Patent • Design Patent
– Most common type – Distinct & new – Ornamental
granted variety of appearance of an
– Works to produce a asexually article of
useful result propagated plant
manufacture
– Not by tuber
• Process (ex. propagation, – Design and the
making a new found in an applied object are
chemical or a uncultivated inseparable
new business state, or by seeds – Can also be
method) – Can also be protected by a
protected by a utility patent if it
• Machine (ex. utility patent if it meets those
camera) meets those requirements
• Article of requirements
– Ex. surface
Manufacture – Ex. hybrid rose
plant with a ornamentation of
(ex. carpet) novel color flatware
• Composition
 OBJECTIVE
• To provide protection of creativity of creators.
• To promotes the creativity of new creators.
• To accelerate the technological and industrial
development of the countries.
• To provide the exclusive right to invention and
affords protection against unauthorized use of
invention by third parties.
• Understand the meaning of specifications
 WHAT CAN BE PATENTED?
Any invention which must be
• Novel
• Non-obvious
• Capable of industrial application
• Must not be declared as non-patentable
under the patent act.
 WHAT CAN NOT BE PATENTED
• Any artistic creation
• Mathematical methods
• Business schemes.
• Anything against universal law
 ADVANTAGES
I. PATENTEE
• Right to use patented invention in several ways,
• To develop a business to prevent competition from
copying during the term of patent.
• Allow others to use it at a price mutually agreed.
• Sell it.
II. SOCIETY
• Newer, better and cheaper products available to the
public. As a database for further invention
• Freely available technology after expiry of patent
 NOT PATENTABLE MATTERS
• An invention, whose use could be contrary to the public order
or morality or which causes serious prejudice to human,
animal or plant life or health or to the environment.
For example, a new type of gambling machine.
• Inventions relating to atomic energy because the Central
Government has the sole responsibility for the development of
atomic energy.
 Cont…
• Discovery of any living thing or non-living substances or
objects occurring in nature.
• A substance obtained by a mere admixture of the components,
or a process of producing such mixture.
• Mere arrangement or rearrangement or duplication of known
devices.
• An invention which in effect is traditional knowledge.
• A mathematical or business method or a computer programme.
 Cont……
• A method of agriculture or horticulture.
• Any process for the medicinal, surgical, curative, prophylactic,
diagnostic, therapeutic or other treatment of human beings and
animals.
• Plants and animals in whole or part thereof other than micro-
organisms.
• Seeds and biological processes for production of plants and
animals.
• A literary, dramatic, musical or artistic work including
cinematographic work and television productions.
 FILLING OF AN APPLICATION
FORM

• Application is required to be filed according to the territorial limits

where the applicant or the first mentioned applicant in case of joint
applicants, for a patent normally resides or has domicile or has a
place of business or the place from where the invention actually
originated.
• The four patent offices are located at Kolkata, Mumbai, Delhi &
Chennai.
 Examination
Early request for exam
No application for patent will be examined if no request is made by the
applicant or by any other interested person in Form-18 with prescribed
fee of Rs.2,500/- or Rs.10,000/- for natural person and other than
natural person respectively, within a period of 48 months from the date
of priority of the application or from the date of filing of the application
 Cont…
If the application is filed by the assignee, it must be accompanied
with the proof of the right to make the application.
• the form of application for grant of an Indian patent asks for
(i)full name, address, nationality of the applicant(s) and
inventor(s),
(ii) patent specifications, and
(iii)whether an application has been made or patent granted in a
PCT or
 Cont….
The specification must contain the following:-
• Title, sufficiently indicating the subject-matter.
• Relevant drawings.
• Full and particular description of the invention.
• Details of its operation or use and the method by which it is
to be performed.
• Disclosure of the best method of performing the invention.
• Claims defining the scope of the invention substantiated by
the disclosure.
• Abstract providing technical information on the invention.
• Declaration as to the inventor ship of the invention.
 Cont….
• First Examination Report (FER) stating the
objections/requirements is communicated to the applicant
according to the address for service ordinarily within six (06)
months from the date of request for examination or date of
publication whichever is later. Application or complete
specification should be amended in order to meet the
objections/requirements within a period of 12 months from the
date of First Examination Report (FER)
• Withdrawl
• The application for patent can be withdrawn at least 3(Three)
months before the first publication
• The application withdrawn after the date of publication,
cannot be refiled as it is already laid open for public inspection
 Examination of the Application-
• Examination is taken up only if the applicant or any
other interested person makes a request in the prescribed
manner for such examination within 48 months from the
date of filing of the patent application.
• If such request is not made within the prescribed time,
the patent application is treated as withdrawn.
• When the patent application is in respect of an invention
for a chemical substance used as an intermediate in the
preparation of a medicine or drug including insecticides
etc used for protection or preservation of plants, the
request for examination has to be made within a period
of 12 months.
• or within 48 months from the date of the application,
whichever is later.
 Acceptance and Advertisement of Complete
Specifications-
• Once the complete specification is accepted,
Controller notifies it to the applicant and also
advertises it in the Official Gazette.
• From the date of advertisement of the acceptance
of the complete specification and until the date of
sealing of the patent, the applicant will have the
like privileges and rights as if a patent for the
invention had been sealed on the date of
advertisement.
 Opposition to the Grant of Patent-

• Any person interested in opposing the grant of

patent may give notice to the Controller of such
opposition within 4 months from the date of
advertisement of the acceptance on the grounds
like:-
1. the invention was wrongfully obtained by the
inventor/applicant.
2. the invention, as claimed in any claim of the
complete specification has been anticipated in a
specification filed for another patent earlier.
 Cont…
3.The invention as claimed in any claim was publicly
known/used in India before the priority date of the claim.
4- The subject of the patent is not an invention, within the
meaning of the Act.
5- The information furnished is false.
6- Geographical origin of biological material is
not disclosed or falsely disclosed.
 Cont…..
• Information related to inventions disclosed in a patent
document
• Which information does a patent document provide?
• What is the technology field of the invention?
• Which technical problem is solved and how?
• What is the prior art?
• Who is the inventor?
• When and where the application for patent was filled?
• Name and the address of the inventor..
 Importance
 To researcher/inventor in industry/ R & D
organization/university:
• To avoid duplication of research.
• To find ready solutions to technical problems in ongoing
research.
• To keep up to date with developments in technology
field.
 To industry:
• To improve existing technology.
• To increase production.
• To identify suitable technologies for adaptation
 Cont…
III. To business enterprises:
• To identify new products for marketing.
• To find out patent owners.
IV. Consultants and planners:
• To advice industry / R&D / financial
institutions on issues related to technology.
• To find out a new technology for buisness.
 LIMITATIONS OF PATENT
• Cost
• Time
• Loss of information
• Infringers
• Exploitation of invention by inventor.
 Introduction

• What is Copyright ?
• “The exclusive right given by law for a certain
term of years to an author, composer etc. (or
his assignee) to print, publish and sell copies
of his original work”
(Oxford English Dictionary)
 COPYRIGHTS
• Copyrights is a right which is available for
creating an original literary or dramatic or
musical or artistic work.
• Cinematographic film and recording on disc ,
tapes, or other devices are covered by
copyrights.
• Computer programmed and software are
covered under literary works and protected in
India under copyrights.
 Cont…
• The copyright act-1957 as amended in 1983,1984,1992,1994
and 1999, govern the copyright protection in India.
• The protection for literary works is from the author’s life plus
sixty years.

Coverage area of copyrights

• Literary, dramatic and musical work, computer programmed,
software.
• Artistic work
• Cinematographic films which include sound track and video
film
• Recording on any disc, tape.
 Whose Rights are protected?
• Copyright protects the right of Author, i.e.
creator of Intellectual Properties.
• He/She is also called the First Owner of
Copyright.
• However, in course of employment, the
employer is the first owner of these rights.
 Work Creator of work

Literary or dramatic Author

work
Musical work Composer

Cinematograph Producer

Sound recording Producer

Photograph Photographer
 Indian Copyright Act, 1957
• First right in India in 1914
• Now, Indian Copyright Act,1957; w.e.f. 1958
• Further amendments in
1983,1984,1992,1994,1999
• Adopted many English provisions, introduced
new ideas and concepts.
• Created Copyright Office and Copyright Board
• Introduced civil and criminal remedies against
infringement
 Term of Copyright
• The general rule is that copyright lasts for 60 years. It is
counted-
From the death of the author
• Literary
• Dramatic
• Musical
• Artistic work

From the date of publication

• Cinematograph films
• Sound recordings
• Photographs
• Posthumous publication
• Works of government & international organizations
 Registration of Copyright
• Berne Convention: registration is not needed
• Acquisition of Copyright is automatic with the
creation the work
 Copyright Symbol ©

• Use of the "©" symbol

• Anyone who claims copyrights can use it
• Not necessary to have a registration to use the
designations
• Highly advisable to incorporate a copyright
notice
• Example: Copyright © 2009 Microsoft
Corporation
 Assignment of Copyright
• The owner of the copyright may assign to any
person the copyright either wholly or partially.

• Duration, in case of default

• 5 years
• The moral rights are independent of the
author’s copyright and remains with him even
after assignment of the copyright
 Counterfeiting to Copyright
Counterfeit mark
Counterfeit products:
Infringement "mixed :
Infringement of copyright :
The production of certain
brand bags by putting a false
label, and sold at low prices.
Copies of articles, similar to
the original under a different
name
Copy for both the model and
brand.
Ex. Fake Louis Vuitton bags or
Rolex watches for instance.
Copying or using the work of
another creator, without his
prior permission
Remedies for Copyright Infringement

• Civil
• Criminal
• Administrative
 Civil Remedies
Civil remedies
• Injunction
• Damages
• Accounts
• Delivery of infringing copy
• Damages for conversion
 Criminal Remedies

• Criminal offences, if done knowingly

• Imprisonment : 6 months – 3years
Fine: Rs.50,000 – Rs.200,000
• Seizure of infringed copies
 Briefing out
• Each country has own law compliant to any
international convention
Copyright prevents distribution of Idea, not Idea itself
• It safeguards interest of the creators
• It encourages people to create something new
• Registration is not compulsory
• Economic rights can be assigned to another person
• Infringement is a criminal offence, if done knowingly
 Limitations to Copyright
Fair use and fair dealing
• For the purpose of research or private study
• For learning & teaching in a class room
• For criticism or overview
• For reporting current events
• In connection with judicial proceeding
• Performance to non-paying audience
 Meaning of Franchising
• Some Terms Regarding Franchising
• Franchisor: The licensing company in the
franchise agreement.
• Franchisee: The independent owner of a
franchise outlet who enters into an agreement
with a franchisor.
• Franchise: The right to use a specific business
name and sell its goods or services in a specific
city, region or country
 Meaning of Franchising
Combining resources A contractual
relationship

Franchise

Common public Branded product or

identity Marketing procedures service
 Purposes of Franchising
• To restore individual entrepreneurship
• To provide an easily recognized and accepted
product or service.
• To compete with big business.
• To allow consumers to buy good quality items
or services at the right price.
• To provide entrepreneurs a means to enter
business with a low capital investment and
risk.
 Types and Arrangements of Franchise
• Franchises are found in practice as under:
• Sales Type Franchise
• Store Type Franchise
• Service Type Franchise
 Cont….
•Manufactures
Manufacturers •Wholesalers
•Retailers

Wholesalers
Wholesalers
•Retailers

Retailers Retailers

Services Services
 Cont……
• Franchising agreements:
Type Description

Business Format Franchises

Franchises Based on a specific operating system; consist
mainly of retail and service businesses.

Area Franchises Franchisees that have the right to run franchise on

territorial basis; this allows franchisee to develop
entire city, state or region.

Single Unit Franchises Franchisees that have the right to run franchise at
only one site

Multi Unit Franchises Franchisees that have rights to open several

franchise units at once.
Sub franchises Franchised outlets sold by area
franchisees to other business people in
their areas

Piggyback Franchises Two or more franchised businesses

that share space to offer a more
comprehensive product or service to
customers.

Distributorships Franchisees Franchisees that distribute products

manufactured by franchisor or some
other source
Benefits and Problems of Franchise
• Less stake of capital-installment and or delayed
payment facility
• Easy to manage credit
• Management/ technical is obtainable with little/ no
cost
• Easy/ cost-free advises/ Consultancy is available
• Available market and clients
• Promotion and advertisement cost is very minimum
 Cont…
Problems:
• Profits need be shared with the parent company
• After initial agreement, unfavorable terms often imposed
• Compliance of the technology, very little scope for any R&D
and innovation
• If wants to remain only franchisee, franchise agreement may
appear expensive
• Most important decisions are taken by the parent company,
hence no freedom of making such decisions
• Most of the supplies at a higher prices to be had from the
parent in spite of better alternatives
 Favor Obtainable from the Parent Company
• Location selection and advice
• Product, product design and product development
• Marketing strategy, with emphasis on advertising
• Help in the development of uniform image creating
• Advertising modes & languages
• Initial employee and management training
• Negotiation of leases
• Store Design and equipment purchasing
• Standardized policies and procedures
• Centralized purchasing with savings
• Continued management counseling
• Develop a set of customer service standards
• Financing at the start-up and afterwards
World Famous Franchise Business
 Points about which to Remain Careful
The parties desires to be involved in franchise business should be
cautious about some points as under:
• Consider the experience and reputation of the franchisor.
• Ask questions of several existing franchises.
• Agree on management assistance and promotion.
• Examine territory.
• Find out if they can open other outlets.
• Ask if they have participation in the decision for site
selection.
• Make sure they understand terminations , transfers , and
renewals.
• Ask if prices to the customers are predetermined or flexible.
• Determine if the contract includes a “refine from entering
similar business” clause.
Procedure for Evaluating franchise
Opportunities
 Franchise Agreement
1. Fees and initial cost
2. Product service methods
3. Restriction upon purchase of materials
4. Record keeping requirements
5. Life of franchise
6. Termination
7. Royalties
8. Location and territorial rights
9. Training provisions
10.Controls of operations and performance
standard
 Franchise Agreement (Cont’d)
Obligations of the Franchiser and the Franchisee:
• Franchisor Guarantees:
• Use of company name
• Management training
• Financial help
• Continuing management help
• Wholesale prices on purchases
Franchisee Obligations:
• Paying franchise fees
• Making minimum investment
• Meeting quality standards
• Following procedures
• Maintaining business relationship
 When Owning a Small Business Through
Franchise is not Advisable?
• No Sizable Demand
• Discouraging Buying Habits
• Too Many Litigations
• Existent Franchises
• No /Declining Goodwill
• Unsatisfactory Financial Transactions
• Unfavorable Terms
 LLP- Limited Liability Partnership
• Limited Liability Partnership entities, the world wide recognized
form of business organization has been introduced in India by
way of Limited Liability Partnership Act, 2008.
• In an LLP one partner is not responsible or liable for another
partner's misconduct or negligence; this is an important
difference from that of a unlimited partnership.
• In an LLP, all partners have a form of limited liability for each
individual's protection within the partnership. However, unlike
corporate shareholders, the partners have the right to manage
the business directly.
• An LLP also limits the personal liability of a partner for the
errors, omissions, incompetence, or negligence of the LLP's
employees or other agents.
 Cont…
• Limited Liability Partnership is managed as per
the LLP Agreement, however in the absence of
such agreement the LLP would be governed by
the framework provided in Schedule 1 of
Limited Liability Partnership Act, 2008 which
describes the matters relating to mutual rights
and duties of partners of the LLP and of the
limited liability partnership and its partners
 Cont…
• LLP has a separate legal entity, liable to the full extent
of its assets, the liability of the partners would be
limited to their agreed contribution in the LLP.
• Further, no partner would be liable on account of the
independent or unauthorized actions of other
partners, thus allowing individual partners to be
shielded from joint liability created by another
partner’s wrongful business decisions or misconduct.
• Limited Liability Partnership Act, 2008 came into
effect by way of notification dated 31st March 2009.
 Characteristics of LLP
i) The LLP shall be a body corporate and a legal entity having
perpetual succession, separate from its partners.
(ii) The mutual rights and duties of partners of an LLP inter-se
and those of the LLP and its partners shall be governed by
an agreement between partners or between the LLP and
the partners subject to the provisions of the LLP Act 2008.
(iii) The LLP will be a separate legal entity, liable to the full
extent of its assets, with the liability of the partners being
limited to their agreed contribution in the LLP which may
be of tangible or intangible nature or both
tangible and intangible in nature
 Cont…..
iv)Every Partner Equal: Each partner is an equal member
in a LLP company. They decide together on various
company issues, such as the name of the business,
where it is located and how it is going to be operated.
Partners also share equally in the profits and losses of
the business. Like a general partnership, there are no
limits to the number of partners a LLP can have.
(v) Limited Liability Protection: Each partner in this type
of partnership is protected against the actions of the
other partners which results in a lawsuit.
 Advantages of LLP
• Separate legal entity
• Easy to establish
• Flexibility without imposing detailed legal and procedural requirements
• Continuous existence irrespective of changes in partners
• Internationally renowned form of business in comparison to Company
• No requirement of minimum capital contribution – No restrictions as to
maximum number of partners
• LLP & its partners are distinct from each other
• Partners are not liable for Act of other partners
• Personal assets of the partners are not exposed except in case of fraud
• Easy to dissolve or wind-up
• No requirement to maintain statutory records except Books of Accounts
• Less Cost of formation (Compared to a company)
 Disadvantages of LLP
• LLP cannot raise funds from Public
• Any act of the partner without the other may
bind the LLP
• Under some cases, liability may extend to
personal assets of partners
• No separation of Management from owners
ONE PERSON COMPANY
 What is One Person Company?

• Company formed by a single person

• one-person company in the legal system is a
move that would encourage corporatization of
business and entrepreneurship
• OPC is a one shareholder corporate entity.
• Legal and financial liability is limited to the
company only
 Salient Features of OPC
• Promotes entrepreneurship across the country.
• De-risks the business by transferring the promoter’s liability to the
company.
• very little paper work
• If same person is doubling as director and shareholder there would
be no need for board or shareholders’ meetings.
• The memorandum of a One Person Company shall indicate the name
of the person who shall, in the event of the subscriber’s death,
disability or otherwise, become the member of the company.
• The memorandum of a company shall state the last letters and word
OPC Limited‖ in the case of a One Person limited company.
• The One Person Companies are also not required to hold any Annual
General.
• The Draft Companies Bill, 2009, (Bill No. 59
of 2009), as introduced in Lok Sabha on 3rd
august 2009, introduces the OPC concept for
the first time in India.
 Cont…
Section 3(1) (c) deals with the formation of One Person Company. It
states:
• One person, where the company to be formed is to be a One Person
Company, by subscribing their names or his name to a memorandum in
the manner prescribed and complying with the requirements of this Act
in respect of registration:
• Provided that the memorandum of a One Person Company shall
indicate the name of the person who shall, in the event of the
subscriber’s death, disability or otherwise, become the member of the
company:
• Provided further that it shall be the duty of the member of a One
Person Company to intimate the Registrar the change, if any, in the
name of the person referred to in the preceding proviso and
indicated in the memorandum within such time and in such form as
may be prescribed, and any such change shall not be deemed to be
an alteration of thememorandum‖
 Conclusion
• OPCs are crucial because they would give
entrepreneurial capabilities of people an
outlet for participation in economic activity
• However, there has been criticism in certain
quarters against the formation of such a
company as it may give room for elusion of
public funds and tax liability by an Individual.
 Cont…
• On a positive note, OPCs are expected to
attract investors who were earlier afraid to take
risk in investing in sole proprietorship business
because of unlimited liability.
• Process of starting a business getting simpler it
could be a boon for every form of small
business.
• Opportunity for a lot of Non Resident Indians
(NRIs) and Persons of Indian Origin (PIOs) who
can set up their companies in India.