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Subsidiary Company

Foreign companies setting up branch offices and liaison offices require prior approval of the Reserve Bank. In India, branch offices must be registered with the RoC of the respective Indian state. No approval of the Reserve Bank is required for foreign companies to establish branch offices/ units in SEZs to undertake manufacturing and service activities, subject to satisfaction of certain conditions.

A branch office may enter into contracts on behalf of the non-resident parent company and may generate income. However, the activities of a branch office is restricted to representing the parent company, exporting/ importing goods, rendering professional or  Guide on Doing Business in India.

Following works can be carried by the branch office or Liaison office:

  • Consultancy services,
  • Carrying on research work in which the parent company is engaged,
  • Promoting technical or financial collaborations between Indian companies and the parent or overseas group company,
  • Representing the parent company in India and acting as buying/ selling agent in India,
  • Rendering services in information technology and development of software in India,
  • Rendering technical support to the products supplied by parent/group companies and foreign airlines/ shipping companies.

 

Following works cannot be carried by a branch office:

  • Retail trading activities of any nature,
  • Manufacturing or processing activities in India, whether directly or indirectly.
  • The scope of the activities may be further curtailed by conditions in the approval granted by the Reserve Bank.

Following works can be carried out by a liaison office:

  • Restricted to representing the parent company/group companies,
  • Promoting export from/to India,
  • Promoting technical/financial collaborations between parent/group companies and companies in India,
  • Gathering information for the parent company and acting as a
  • Communication-channel between the parent company and Indian companies.

 

The expenses of liaison offices are to be met entirely through inward remittances from the Head Office outside India. A project office is usually set up for execution of large projects such as major construction, civil engineering, and infrastructure projects.

 

 

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Agreements, Co-Founder agreement

Would just a good idea be sufficient to invest your money and effort into it, all based on “the Trust Factor”? No, people change as time passes by, crucial decisions like entering into a firm as a Co-founder is even more important. I am going to be describing a real-life example of a Cofounder who entered into a business relationship with his friend as a co-founder (let’s name him X and his cofounder Y).  


X and Y were college friends, Y one fine day, proposed his startup idea to X and convinced him to join the business as a Co-founder. X entered into the startup as a founder investing $50K, speaking of the reality that is huge money that anyone could even imagine of investing in a startup that was still in the ideation stage.  


The mistake that X did was believing solely on the “The Trust Factor” did not pay due to attention to drafting a “Co-founders Agreement” not even an exit plan in place. A reach shows, in Indian startup ecosystem, a whopping 53% of startups do the same mistake. If you are someone who could relate to this scenario, go ahead read the available options for you.

  1. Litigation
  2. A Legal notice intimating the co-founders about your interests to exit.
  3. If the startup is registered as a Private Limited Company, call for a board meeting.

The complication of the situation can be eased up based on the entity type you chose to register your startup as.


Greater Goodness if you had a legal Agreement or contract in place: If you did, then these are your options:


  1. Termination of contract Notice: Contract termination is a drastic step and should be done with caution and with proper legal advice. Clauses addressing the situation of exit will determine if the parties can go for exit based on –
  • Breach of contract, or
  • At will

  1. Reformation:

Reformation allows two parties to modify a contract so that it more accurately reflects what the parties intend.  This remedy requires that the contract to be valid.  It may be available when one of the parties had a mistaken understanding of a material term of the contract.

 

When a contract is terminated, it is often said that it “comes to an end” or “ceases to exist”.  However, these statements are somewhat misleading as the contract not only continues to exist but continues to have an operation in some respects.  What is in fact “terminated” is the future performance of the contract – that is, the primary obligations of the parties that have been partially performed at the time of termination and those that would have fallen due for performance had the contract not been terminated.


We at Wazeer think of all these situations and provide a detailed consultation to our clients upfront, all with a motive to provide right information upfront. We would be happy to help you in this matter -> “Get your Wazzeer” 🙂

 

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