INDIA Law and Practice Contributed by: Lalit Kumar, JSA Advocates and Solicitors
tion, then the investor has a right to terminate the transaction without any recourse, except for legal and other expenses and cost incurred by the investor. Generally, investors ask for indem - nity for the breach of representations and war - ranties prior to closing but as standard prac - tice such indemnities are not given. If there is a breach of representations and warranties after the closing of the transaction, then investors have a right to seek indemnity and other rem - edies available in law. Generally, the indemni - ties are qualified and limited to a certain agreed amount and time within which the indemnity can be sought. Typically, the threshold amount and time limit agreed depend on the nature of repre - sentations and warranties. Generally, there are no government/quasi- government programmes to incentivise equity financing in growth companies. However, if the company is a start-up as per the definition pre - scribed by the government, certain provisions of law are exempted for such companies. Further, from time to time the government announces certain benefits and schemes for a particular industry/sector, which can be availed of by com - plying with the conditions of such schemes (eg, the Production-Linked Incentive (PLI) schemes). 4.2 Tax Treatment 4. Government Inducements 4.1 Subsidy Programmes As mentioned in 1.2 Key Trends , angel tax has been abolished and long-term capital gains on unlisted shares has been reduced from 20% to 12.5%. This will lessen the tax burden on the selling shareholders and result in investors earning a better rate of return on exit. Foreign investment by venture capital is also subject to the double tax avoidance agreement (tax treaty
between India and other countries), eg, India and Singapore. 4.3 Government Endorsement To attract investment, the government announc - es schemes and incentives from time to time. The government has been trying to improve the ease of doing business and as part of that has provided businesses with single window clear - ance under the National Single Window System (NSWS). As mentioned in 4.1 Subsidy Programmes , the government has announced the PLI scheme and gives incentives to start-ups. The founders/key employees’ long-term com - mitment to the venture is sought by contractu - ally agreeing to some of the following standard provisions: • non-compete and non-solicitation restric - tions; • restriction on transferability of shares through lock-in of shares; • obligation to devote full and whole time to the business of the investee company; and • providing for stringent clauses for breach of these obligations, such as a call option on the founder’s shares at a discounted price. 5.2 Securities Instruments/securities typically used for the pur - pose of incentivising founders/employees are as follows: • employee stock options (ESOPs); • management stock options; 5. Employment Incentives 5.1 General
251 CHAMBERS.COM
Powered by FlippingBook