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LEGAL ASPECTS START UPS

 Legal Advise. I have always maintained start up founders should maintain a close liaison with an aware lawyer while setting up the company / start up. Today two youngsters well on their way to setting up a start up (part funds raised) came to meet my son, Prashant Kumar Kapila, who is an advocate. He was pleasantly surprised at their range of queries. Including the finalisation of shares between them (who owns how many and in what mode and why) and I think two more founders, an exit policy for a founder or a star / core employee and developing non disclosure agreements etc. And inquiring about the mode of resolution of commercial disputes with suppliers and customers. They had obviously done their homework. Prashant expected them to be more focused at this stage upon resource raising and planning and execution. I told Prashant if I had known them, I would have complimented them. Rather than go by emotions, they were calmly setting out their shareholding and if it came to it, even exits plus the structuring and smooth ending out the process of dispute resolution and compliances. They were clearly educating themselves, taking time out and going about it professionally rather than just looking up an acquaintance. Even otherwise I find that at times in house legal counsels can be more effective by interacting with lawyers in actual practice. This is another aspect which is important. Just sharing this crucial aspect which is often ignored.

I was myself flummoxed after a founder, who actually pioneered the start up, rang up to ask how he could coax his co founder, who had a substantial share, to exit. He himself had brought him on board with a substantial share. For his technical acumen. Hence the need to be careful from inception. And have a fundamental understanding of the NCLT, Contracts, Arbitration, DRT, NI Act etc. And later, when the core senior executive had to be let go, the concern was how to draft a non disclosure agreement as he knew the technical and commercial aspects in depth. Founders have to develop themselves. Let us work on this. hashtag#legal hashtag#startup hashtag#commercial hashtag#law

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Start Ups. Legal Cases. This is another thought in continuation of the first post on this issue. A youngster, a founder, had come over today to meet my son, Prashant Kumar Kapila, a practising lawyer. I sat in only as the young CEO had met me earlier. The drafting was of agreements with farmers on the one hand and with vendors and suppliers on the other side. Plus a couple of corporates. My only inputs were some on the project as such - not legal but maybe legal cum operational. However we discussed and then agreed that the agreement with farmers had to be structured simply but yet inclusive of all crucial legal aspects. Else they would not agree or would lose trust, or be apprehensive. And their rights and duties had to be clearly defined. As regards the vendors or suppliers, these agreements had to be comprehensive and carefully drawn up, complexity could replace simplicity if the clause or concern demanded so. This is where the skill of the lawyer mattered in drawing it up while nuancing all aspects and the CEO or founder had to equally skilled in providing his or her inputs and views clearly and thoughtfully. The lawyer and the Founder should invest time on the clauses. Clauses with Corporates should ideally have arbitration as an enabling provision. Simply put as above. Just a share to articulate my thoughts.

FLDG and Credit Guarantees. This seems to be the flavour of the season. Two organisations have approached me recently on these issues. The First Loss Default Guarantee, the lending model that protects loan portfolios by having a third party compensate lender if a borrower defaults, essentially a lending model between banks on NBFCs and lending service providers. It’s a sound mechanism and the credit risk is borne by the LSP. I think NABVENTURES has invested in one such start up. And talking about Credit Guarantee as a deriding tool in rural finance, well, one can examine the Credit Guarantee Scheme for financing of FPOs. The main scheme is the CGTSME, huge and on scale.
It seems awareness is still lacking on the Credit Guarantee Schemes. As regards the FLDG, to me it seems still a developing mechanism but should be explored further. Private players should study this concept. We need to widen and deepen the outreach of credit and also have sound underwriting skills, alongside this product of course. There were some core legal issues which I advised them to talk to a lawyer in their city or else with my son, Prashant Kumar Kapila, an advocate.
I am pleasantly surprised that private players do seem to be interested in these products. And setting up maybe their own ventures or collaborate with another organisation. However, as usual, there is no query from North West India. Even on financing tenant farmers, which another person was interested in.

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