from a business law perspective what a budding entrepreneur

from a business law perspective what a budding entrepreneur should know in order to successfully establish a domestic trading business in children’s garments where international contracts are entered into to: In India to buy fabric; Once purchased the fabric is shipped from India to China via carrier for design and manufacture; Contract with a firm in China to convert the fabric into children\'s shirts based on client designs; Take possession of the finished product in China and ship the garments to Canada, France, and the USA for sale through major department stores. 2500 words

Solution

Budding Entrepreneur:

The Entrepreneur who starts just the business or who just stated getting success.

Now the particular case mentioned in question the budding entrepreneur though he / she is doing the business at domestic level. But he /she needs to manage his first tier , second tier vendors who are located in India & China.

This business requires extensive knowledge & practice of

1)     International Transportations

2)     International Rules & Regulations

3)     International Transportations

4)     Payment & Currency issues

5)     Management & request for credit period

6)     Handling the quality issues which are hampered from vendors.

Etc

Following are the some of the important aspects discussed from Law & Budding Entrepreneurs point of view.

Incorporation and Founders’ Agreement:

This is the amusing part- the honeymoon retro of entrepreneurs. Many entrepreneurs get a secluded limited company recorded without a second thought. A few things you need to timepiece out for at this stage:

It is more significant to have a written agreement between founders than incorporation right at the beginning. The thumb rule is that don’t include till you start getting real income, but have a full co-founders agreement in place. This will save you money, period and much hair-pulling later on.

If you do join, go for a humble no frills service like Vakilsearch, who are also startup-friendly, over some chance lawyer or CA. Startups are dissimilar breeds of business, and their certification should be different. Lawyers or CAs who don’t effort with startups often don’t get that – and, if you don’t pay care to this aspect, you’re sowing a poisonous seed of many problems for the future. Also, lawyers and CAs will often custody you a lot more for routine work than what you need to pay.

What is even more significant though, is to take into thought the following:

Tax liability of the business:

LLP can be much cheap in terms of tax bills, and good for facility, family, lifestyle businesses etc., particularly when you don’t plan on raising any asset in the near future. If you are going to increase money anytime soon and give ESOPS to hire high quality aptitude for cheap, you can still incorporate an LLP. You can always convert an LLP into a secluded limited and vice versa. However, to know what to do when is vital, and you will see industry veterans comprehend these things very well. You can look for leadership to angel investors, mentors who have been in commercial and other entrepreneurs. Depending on lawyers to handhold you for everything may not be such a good idea.

When you take foreign money, commercial structuring goes to additional level of complexity. Many Indian startups, fairly big ones, take investment through offshore parental companies. This can be a very smart move in footings of saving income tax. It is great if, at least, one of your co-founders or CFO gets these things, and this is one reasons why asset bankers and management advisers who bring in such strategic skillsets are in high request as co-founders.

Business Licenses :

It may astonishment you, but doing almost any commercial in India, or even running any kind of office or founding, requires several licenses. Some licenses are humble tax registrations. Some trades just need a trade license or Shops and Founding Registration. For some exact activities like manufacturing and export-import, you may need a group of licenses. For employing more than 10 staffs, you may need various labor and employment related recordings. Not having these things in order when you are rising fast can be fatal and slow down savings, as investors will ask you to first sort of license subjects before they put in money. These things are seriously looked into through any legal due diligence before savings are made.

Also, not following licensing standards leads to fines, costly lawful suits and even business shut-down. If you are a commercial owner in any sector, you better have a sense of what certificates are essential. You should also know what the important license conditions are and safeguard that these conditions are not being violated in sequence of your business.

A lot of businesses totally fail on this point and many creators face massive fines, possibility of custody and highly unproductive proceedings and criminal cases with admiration to tax bills, simply due to neglect and ignorance, usually both joint. Take the famous example of Su-Kam, the founder of which nearly went to jail due to non-payment of excise duty over years. He was just not aware that he needed to pay excise duty. However, unawareness of law is no excuse in any country.

As the founder, the buck stops with you. So, you healthier have some understanding of the secretarial procedure and taxation aspects of your commercial. If you ignore it because it seems boring and highly practical, it will almost definitely come back later to bite you hard. Outsourcing it sightlessly to a CA you know is also not advisable, since stakes are sky-high here.

When the business is besides small for the tax establishments to trouble, you are safe. However, as soon as the profitable starts growing, you will come below the radar of tax officers, who will go over your books with magnifying spectacles to find something wrong (even in transactions that occurred years previous, when you were not actually a ‘big company’ owner). If they find somewhat, you will have to whichever make a costly payment or face a long lawful war where you would end up paying a lot to tax lawyers.

Vendor contracts :

The vendor contracts one arrives into at the early stage of the business can be very significant: For example, if you have outdoor assistance on design or growth of the product, industrial contracts, EPC contracts (relevant when one sets up a factory or plant), stage contracts (for instance, at iPleaders we offer online sequences and use outsourced technology after WizIQ, GradeStack and Trutech for our online sequences and these agreements are very important to our business), marketing agreements, gratified supply agreement, distributorship agreements, advertisement contracts (for instance, we have several long term agreements for advertising with many websites like lawctopus.com or livelaw.in), franchisee contracts and so on – depending on what commercial you are in.

Now envisage if some of these contracts you enter into cover some hidden clauses that could activate unforeseen price growth, or gave away the power to the other party to dismiss without notice – your business could be in disorder. Sometimes, people enter into unenforceable agreements. More frequently they forget to comprise important clauses in the agreement that leaves them very vulnerable.

For example, the company of an entrepreneur acquaintance, whose name I cannot take, engaged a PR activity and signed a minimalistic contract without rational about it twice. As it is the countryside of having a PR agent, you need to share many loan plans with them so that the media coverage strategy goes hand-in-hand with developments in the business. My friend soon figured out that the PR agency had since taken up a new client: his biggest competitor, providing the same product to the same industry. My friend was so suspicious that sensitive insider information will be seeped to the competitor ahead of time, he did not fire the PR agency, but neither did he use them abundant.

What do you think he could have done to evade such a state?

Money spent on that agreement was pretty much wasted. Ensuring that the agreement he signed had a appropriate non-compete and confidentiality section, of course!

Several years earlier, I was leading a due diligence on a company, the Indian arm of which was getting learned by Morgan Stanley (as a PE investment). As we were observing through documentation and checklists, we understood that the contract authorising the Indian arm to use the symbol of the parent company in India was not enforceable in India at all for certain technical reasons. If the parent business refused to honour this contract at any point, or required a huge premium later, the buyers of the Indian arm would have lost a ration of money!

Make sure that your significant contracts are not like that! Learn some contract law, because as a manufacturer, you are going to enter into perhaps thousands of them.

Even Steve Jobs was of the opinion that every intelligent person should know how to read and negotiate a contract, just like everyone should start learning how to code!

Enforcing a contract :

This is why nearly every businessman in India needs to be either a bruiser or an expert at enforcing contracts if they want to live in the marketplace. Do not just enter into a contract and expect all will now go as clockwork. Big companies in India hire contract bosses and a battery of lawyers to ensure contract presentation! If you are a startup founder or SME owner, you can perhaps afford neither, so if you don’t plan ahead and build in sure practices into your business, you are in grave danger. You can learn about systems like adjudication (this can help you to bypass lengthy law court battles), advanced money retrieval strategies deployed finished contracts, registration as MSME, which gives sure privileges which will add countless advantages to your business.