A DESCRIPTIVE RESEARCH ON START-UP FUNDINGS AND INVESTORS RIGHTS
Author- Jyotika Sharma
Mentor- CS Sapna Sarda
ABSTRACT
As there is a growing demand for entrepreneurship in India, we have seen tremendous growth in start-up enterprises in recent years. It is critical to determine the funding sources, how the company will fund its operations, how it will run, and its stakeholders. Funding can be gained through personal sources or via the assistance of others. There are far more financial options available to businesses nowadays than there were previously. The principal purpose of this paper is to give alternative funding options and investor's rights. Investors are the entrepreneur's backbone and play a critical role in a venture. Investors must be protected and aware of their rights. This paper discusses the funding sources available to start-ups at various stages and a brief explanation of the government's schemes that support start-ups. This paper examines investor rights and the various initiatives taken by SEBI to protect investors' rights and provide a grievance redressal mechanism at stock exchanges and the role of the SEBI Complaints redress system.
INTRODUCTION:
Startup India is a government of India flagship scheme designed to create a robust ecosystem for innovation in growth and entrepreneurship in India. This will make sustainable growth sustained and create wide-ranging employment. The government aims to encourage start-ups to expand through creativity and design via this initiative. The Government of India announced an Action Plan addressing all facets of the start-up mechanism to fulfill the proposal's purpose. The Government's Action Plan aims at speeding the spread of the digital technology trend across a wide variety of industries, including healthcare, education, and others.
Prime Minister Narendra Modi initiated the campaign for the first time in his Red Fort address of 15 August 2015. The fundamental goal of this campaign is to support bank funding for start-up firms to boost entrepreneurship and encourage the development of jobs. In addition, it was aimed at restricting states' position in the political arena and eliminating "license raj" and obstacles, such as property allowances, environmental clearances for a foreign investment proposal. The Department of Industrial Policy and Promotion has organized it.
FINANCE FOR START-UP IN INDIA
Blood is the primary source of survival for the human body; similarly, finance is the lifeblood of every business or company. Therefore, the Government of India established , or Micro, Small, and Medium Enterprises, in compliance with the MicrMSMEo, Small, and Medium Enterprises Development (MSMED) Act of 2006. These businesses are primarily involved in producing, manufacturing, processing, or preserving goods and commodities. Therefore, it is crucial to help MSMEs in establishing and expanding their operations and developing new products.
India has a well-developed financial sector that includes banking, non-banking financial institutions, and venture capital firms. Many of these institutions provide for the various financial needs of both start-ups and established companies.MSMEs are essential for the growth of the Indian economy. They make a significant contribution to our socio-economic growth, creating employment opportunities and contributing to the development of the nation's backwardness.
Banks and financial institutions are adopting various schemes like Credit Guarantee Fund Trust for Micro and Small Enterprises, Credit Linked Capital Subsidy Scheme, Credit Guarantee Scheme, MUDRA Yojana under PMMY, and many more. These schemes are adopted to meet the financial needs of micro, small, and medium-sized enterprises. A business enterprise requires funding at nearly every point of its life cycle. MSMEs often struggle to secure sufficient financing for their activities, as well as for expansion and development. These businesses can raise funds in different ways. Some of the methods for raising long-term and short-term capital are listed below.
SOURCES OF FUNDING
1.Bootstrapping its start-up business:
Self-funding, also known as bootstrapping, is an efficient method of start-up finance, especially when the start-ups are just getting commenced. They can invest from their investments or can also contribute to their family and friends. This would be simple to lift due to fewer formalities, compliances, and low raising costs. In most cases, family and friends are willing to work with a reasonable interest rate.
2.Crowd-funding
Crowd-funding is a relatively modern method of funding a start-up that has achieved popularity recently. It is the same as taking a loan, pre-order, contribution, or investment from several people at the same time. Crowd-funding works in this method: An entrepreneur will create a detailed description of his business and post it on a crowd-funding platform like Kickstarter, Wishberry, Indiegogo.
He will discuss the goals of his company, plans for profit, how much financing he requires and why, and so on, and then consumers will learn about the business and donate money if they like the idea. He will discuss his company's goals, plans for profit, how much financing he requires and why, and so on, and then consumers will learn about the business and donate money if they like the idea. Many of those who contribute money will make online pledges to pre-purchase the product or make a donation.
3.Angel Investment in Startup:
Angel investors are surplus money individuals who are keen to participate in future start-ups. They also collaborate in network communities to examine the plans together before they invest. They can also provide mentoring or guidance with capital. Many leading firms, including Google, Yahoo, and Alibaba, were helped by Angel investors. Generally, this alternate type of investment exists in the early stages of the growth of a business, where investors expect up to 30% equities. Investment risks are more preferred for higher returns.
4.Venture Capital
In this form of investment, significant bets are placed. Venture capital funds are actively run funds investment in high-potential companies. They usually invest in a company in exchange for equity and leave when there is an initial public offering or an acquisition. Venture capital offers experience, mentorship, and serving as a litmus test on where the organization is heading, evaluating the company based on its sustainability and scalability.
A venture capital fund could be suitable for small companies that have progressed beyond the start-up stage and are now generating revenue. Fast-growing businesses with an exit plan in place, such as Flipkart or Uber with an exit strategy already in place, may gain up to tens of millions of dollars, which they can utilize to invest, network, and rapidly grow their company. However, there are certain limitations of using Venture Capitalists as a financing source. In terms of company loyalty, Venture capitalists also seek to regain their investment over three or five years. If the idea takes longer than that to reach the market, venture capitalists will be less involved. They generally pursue bigger, marginally more stable prospects, businesses with a strong staff and momentum.
A long-term capital and short-term capital requirement can be fulfilled for start-up's financing needs:
SOURCES OF LONG TERM CAPITAL
The start-up can take advantage of long terms sources of capital as follow:
Reinvestment of profit
Loans from Commercial banks/ Financial Institutions
Public deposit
Issue of share
Issue of debenture
1.REINVESTMENT OF PROFIT
Companies often earn profit from their operations for some time or after the company has established itself in the industry. The organization also must determine how the benefit can be spent. The profit can be reinvested in the same start-up project or another project, or it can be used to payout as a dividend.
Profitable companies do not necessarily pay the whole sum of profits as dividends but instead transfer a proportion to savings. This is referred to as profit reinvestment or plowing back of profit. The profit can be reinvested for future use.
The business may use the reserves built over the years by reinvesting dividends for purposes such as undertaking expansion, meeting permanent or special working capital requirements, and so on. The business can benefit from this source of financing by increasing its creditworthiness, reducing its reliance on foreign sources of finance, and allowing the company to follow a stable dividend policy. Companies with a stable dividend policy provide a fixed dividend payment every year, even when earnings are volatile.
2.LOAN FROM COMMERCIAL BANKS AND FINANCIAL INSTITUTES
Banking and Non - banking finance companies grant loans and corporate executives rather than founders, unlike Venture capital and angels. These loans may be used for a variety of business purposes, including:
Inventory and equipment purchases
Operating capital (working capital)
Funding Requirements for extension and many more.
The organization or the start-up would not need to be set up with its own money. Instead, the capital is borrowed from elsewhere, often or much of the time. Of course, this now depends on the time the money is lent, and it is paid off in due time. For all viable ventures, banks and financial institutions may receive medium and long-term loans for project establishment. Similarly, funds are required for modernization, and renovation projects can be borrowed from them. Such loans are often secured by a mortgage on the company's property, a pledge of shares, personal guarantees, and many more.
3. PUBLIC DEPOSIT
Public deposits are unsecured deposits received from the general public by companies to finance working capital needs. The start-ups will still benefit from public deposits for the future. Companies also receive funds by inviting their shareholders, staff, and public bodies to deposit their savings. The Companies Act 2013 allows deposits for a term of up to 3 years to be collected at a time. In order to satisfy their short-term and medium-term financial needs, businesses may collect public deposits. The business should take advantage of these public funds as their interest rates are attractive, unsecured, and more accessible to mobilize funds than banks, especially for credit squeeze periods.
4. ISSUE OF SHARES
It is the most crucial method. Shareholders' liability is limited to the face value of their shares, which are also freely transferable. A private company cannot allow the general public to subscribe for its share capital, and its shares are not freely transferable. However, there are no such restrictions on public limited companies.
There are two types of shares:-
Equity shares: The equity shares are also known as ordinary shares. The holders of equity shares are the company's real owners, and the number of shares they own represents a portion of their ownership in the company. The dividend rate depends on the available gains and the discretion of the directors on these shares. As a result, the company bears no set burden. Each share has one vote.
Preference shares: the preference share is mainly known as preferred stock. It is a type of share option that allows the shareholders to receive dividends declared by the company before the equity shareholder. Preference shares create a special right for the shareholders to claim dividends during the company's lifetime. The dividend is payable at a set rate on certain shares and only if profits occur. Therefore, the finances of the corporation do not have an obligatory responsibility. Those shares are not eligible to vote.
5.ISSUE OF DEBENTURES
The debenture is derived from the Latin word "debere," which means "to owe." A debenture is a written instrument that accepts a loan under a general authentication enterprise. It consists of an agreement for the repayment of principal after a set period or intervals at the enterprise's option and the payment of interest at a fixed rate due to, usually yearly or semiannual, on fixed dates. A 'debenture' is described in Section 2(30) of The Companies Act, 2013. The term "debenture" includes debenture stock, bonds, or any other instrument of a company evidencing a debt, whether or not it constitutes a charge on the company's assets. The issue of Debentures seems to be somewhat similar to the issue of shares by a company. The money may be accumulated as either a lump sum or in installment here. The accounting treatment of the two is almost identical. Now, the debentures may be issued for cash or other considerations. Debentures are often issued or circulated as collateral security. There are different types of debentures:
Secured and unsecured debentures: Secured debentures impose a fixed or floating charge on the company. These debentures are also known as mortgage debentures. Debentures that do not create any charge or security on the company's securities, on the other hand, are known as bare or unsecured debentures. Holders of these debentures, like ordinary unsecured creditors, may sue the company to recover the debt.
Registered and bearer debentures: These are the debentures that are payable to registered investors. A registered debenture holder is one whose name appears on both the debenture certificate and the company's debenture registry. They can be transferred using the transfer deed.
Except those debenture holders whose names appear in the register are entitled to repayment of the principal sum (capital) and an annual payment of interest. Bearer debentures are those that can be transferred by simple delivery without reminding the company.
Redeemable and irredeemable debentures: Redeemable debentures are issued on a redeemable basis or on the condition that they are redeemed within a set period. Irredeemable or perpetual debentures are those that are not repayable during the company's lifetime. However, the debt becomes redeemable only if the company liquidates or if the interest is not paid on a daily basis when it accrues.
Convertible and non-convertible debentures: Convertible debenture holders can turn their assets into stock interests after a certain period, needed to participate in the company's affairs. Non-convertible debentures are those that cannot be converted into equity shares.
Preferred and Ordinary Debentures: Preferred Debentures or First Debentures are debentures paid first at the time of winding up. As a result, they are similar to preference shares. Regular debentures are those that are paid after the preference debentures at the time of winding up.
Equitable and Legal Debentures: Equitable Debentures are secured by deposit property title deeds and a memorandum establishing a charge. In this situation, the property remains in the hands of the company. Legal debentures are secured by the physical transfer of legal ownership of property from the company to the holder.
SOURCES OF SHORT TERM CAPITAL
The start-up will use short-term funding options in the following ways:
Bank overdraft or Cash Credit
Trade Credit
Discounting Bill of Exchange
Factoring
1. BANK OVERDRAFT AND CASH CREDIT
It is a standard way of meeting short-term financial criteria implemented by companies. Cash credit refers to an agreement that requires the Commercial Bank to draw funds as advances under a given amount from time to time. This facility is given in exchange for the security of goods in stock, promissory notes with a second signature, or other marketable instruments such as government bonds.
Overdraft is a credit extension given by the lending institution when the amount in the account reaches zero. An overdraft allows users to continue withdrawing even when the account does not have funds or has insufficient money to cover the withdrawal amount. An overdraft means the bank that allows consumers to borrow a certain amount of money. The interest rate is comparatively higher in cash loans and overdrafts than on bank deposits.
2.TRADE CREDIT
Companies buy credit from various manufacturers for raw materials, components, shops, and spare parts. Suppliers generally grant credit for 3 to 6 months and thus provide the business with short-term financing. The amount of activity is related to the availability of this form of financing. When products are manufactured or priced further, the number of sales immediately increases, and more trade credit is available.
3.DISCOUNTING BILLS OF EXCHANGE
Companies use this approach extensively for short-term financial raising. When the goods are sold on credit, we usually draw bills of exchange for the buyer's goods to accept. The companies may discount the bills with the commercial banking banks on payment of the fee known as bank discount instead of keeping them until maturity. The discount rate that banks charge is recommended from time to time by the Reserve Bank of India. The discount balance will be deducted at a discount from the value of the bills. The cost of raising funds using this approach is the bank's discount.
4.FACTORING
Factoring is a financial service in which companies sell their bill receivables at a discount to a third party to raise funds. It is not the same as invoice discounting. The notion of invoice discounting is obtaining the invoice discounted at a set rate to obtain funds, but the notion of factoring is broader. Factoring includes selling all accounts receivable to an outside agency. The agency is known as factoring.
Amounts due to a company from consumers on account of credit sales usually remain outstanding for the period of the credit allowed, i.e., until the debtors' dues are collected. Thus, on the payment of specified company charges, the bank takes the duty to recover the debtors' balance. The seller can delegate book debts to the FACTOR, who will provide the seller in advance with a value of approximately 80%-85% or higher of the book debt. The Element will also receive debt (credit sales) from the debtors, which are the numbers. The provision of short sums against claims by the MSME units is an effective way of increasing this. The FACTOR costs are known as the cost of raising funds.
GOVERNMENT SCHEMES TO SUPPORT START-UPS IN INDIA
India is developing a robust start-up ecosystem increasingly. The government has formed a department to encourage small companies to facilitate and assist entrepreneurs. The ruling party has unveiled various plans to strengthen entrepreneurship in India and provide financial incentives for emerging start-ups.
1.Startup India Seed Fund
Prime Minister Narendra Modi announced the launch of the Startup India Seed Fund — with INR 1,000 crore in value — to finance start-ups and the innovations of aspiring contractors on 16 January 2021. PM Modi said the government is taking crucial steps to avoid capital shortages for start-ups in India.
2.Startup India Initiative
The Startup India Project was launched in India in 2016. The idea is to maximize the income and employability of entrepreneurs. The government provides start-ups with tax benefits, and to date, 798 applicants have used this system. This initiative continues and is being treated as a long-term effort by the Industrial Policy and Promotion Department. The maximum age cap has been extended from two to seven years for start-ups. Moreover, the age limit is ten years from the date of incorporation for biotechnology corporations. It is one of the most vital creative start-ups funded by the government, and it has many concessions.
3. MUDRA Bank
Micro Units Development Refinance Agency (MUDRA) has been developed to improve the loan facilities and promote small business development in rural areas. This program to help Indian small enterprises has been launched by the government. In 2015, INR dedicated 10,000 INR crores to support the country's start-up community. The MUDRA banks offer up to INR 10 lakhs to minor, non-corporate, and non-corporate Small and micro-enterprises. MUDRA is part of the Pradhan Mantri Mudra Yojana (PMMY), which was introduced on 08 April 2015. The loan is categorized as Tarun, Kishore, and Shishu. The bank's financing creates the assets, and there is no collateral security.
4.Multiplier Grants Scheme (MGS)
The Multiplier Grants Scheme was developed by the Department of Electronics and Information Technology (DEITY). The scheme aims to promote joint R&D (Research and Development) between industry and academics/institutions to develop goods and packages. According to the system, the industry sponsors the R&D of products that can be commercialized at the institutional level. The government would offer financial assistance that is up to twice as much as the amount given by the industry. Thus, MGS encourages and expands the growth of indigenous products and packaging.
5. Credit Guarantee Fund Trust for Micro and Small Entreprises (CGTMSE)
The Government of India developed business loans with zero collateral to micro, small-scale, and start-up companies. It enables companies to take advantage of loans without the need for security at significantly discounted interest rates. The government provides up to INR100 lakhs under this scheme to boost new companies and rehabilitate existing ones in cooperation with SIDB I (Small Industry Development Bank of India). This credit may be used in working capital or term loan, primarily for production units.
INVESTORS
Investors are the backbone of the securities market, defining the degree and scale of the securities market activities and the whole economy. In India, the increase in investor numbers is very promising. The trends suggest that small investors are steadily restoring and the FIIs and institutional investors, their trust in financial markets rattled in recent decades due to stock market scam. This faith is essential for the stable growth of the business sector. However, many investors may not have sufficient skills/knowledge for informed decision-making on investment.
Some may not be aware of the complete risk-return profile of the various investment opportunities. Certain investors will not be sufficiently aware of the precautions taken in market intermediaries and securities dealings. The market mechanism and the procedures and their rights and duties will not be familiar to them. Investors are sometimes referred to as shareholders or company members. They add to the share capital, have voting rights on all matters, and have the right to receive a dividend. Investor protection means safeguarding and implementing a person's interests and claims as an investor.
INVESTORS PROTECTION
Investor protection is a broad concept that encompasses various initiatives intended to protect investors from the misbehavior of companies, merchant bankers, depository members, and other intermediaries. Investor Beware should be the match world of all programs aimed at mobilizing savings for investment. Since every investment involves some level of risk, investors should keep this in mind and take all measures to secure their interests in the first place. They assess the extent of market activity.
They invest the money in funds, stocks, and other assets to help the market, and thus the economy grows. As a result, it is essential to protect the rights of investors. Investor protection entails a variety of protections put in place to defend investors' interests from fraud. For example, SEBI is responsible for regulating Mutual Funds and protecting investors' interests. In addition, SEBI has put investor protection measures to protect investors from fraud in the stock market, bonds, and many more.
INVESTORS PROTECTION UNDER SEBI GUIDELINES
SEBI's main objective is not only to regulate stock markets but also to protect the interests of investors. Accordingly, SEBI has issued the following guidelines for this purpose:
Education Campaign- SEBI has initiated a comprehensive education program to raise investor awareness about the securities market, called the "Securities Market Awareness Campaign" (SMAC). The campaign's motto is "An Educated Investor is a Protected Investor." On 17 January 2003, the Prime Minister, Shri Atal Bihari Vajpayee, initiated the campaign at the national level. Launches closely followed the national launch in 12 states. The campaign's structural base is focused on workshops held throughout the country with the continued and active involvement of market participants, market intermediaries, Investors Associations, and others to spread SEBI's message of "Invest with Knowledge.
Workshops: Workshops aim to familiarize investors with the functioning of the securities market, the fundamentals of investing and risk management, as well as their rights and obligations. More than 2188 seminars have been held in about 500 cities/towns around the country to date.
Advertisement: SEBI has created a list of essential "dos and don'ts" for investors about different aspects of the securities market. Over 700 ads related to various aspects of the Securities Market have appeared in 48 different newspapers/magazines, covering approximately 111 cities and nine regional languages in addition to English and Hindi.
Educative Materials- SEBI has created standardized reading and presentation materials for the workshops.
All India Radio: To educate investors through the medium of radio, SEBI officials actively participate in All India Radio programs.
Cautionary Warning on Television - To attract a more significant number of investors via electronic channels, a brief cautionary message in the form of a 40-second film let has been planned and is being screened on television.
Internet-based Response System: A quick and efficient internet-based response system to investor complaints has been developed. When they file their complaint online, an acknowledgment email will be sent to the required email address, and they will be given a complaint registration number immediately.
Risks in Investing in Securities: Investing in equity shares does not guarantee any income or growth. Equity investors are the company's actual owners, and as the company grows, equity holders benefit from capital appreciation. Investment in other securities say debenture; preference shares may yield as specified return to the investors.
INVESTORS GRIEVANCES REDRESSAL MECHANISM AT STOCK EXCHANGE
Based on feedback from market participants and a Working Group established for this reason, the following are issued to improve the Investor Grievance Redressal Mechanism further:
Resolution of complaints by Stock Exchange:
Timeline: The Stock Exchange shall ensure that investor grievances are settled within 15 working days of receipt. If further information is requested from the complainant, it must be provided within seven working days of the complaint's receipt. The 15-working-day cycle begins with the receipt of the requested additional information.
The Stock Exchange shall record all complaints addressed/resolved within 15 working days of receipt of the complaint/additional material. If a complaint is not addressed within the time frame specified, the cause for the failure to address the complaint within the time frame specified must also be recorded.
Service-related complaints: The Stock Exchange will settle service-related complaints. However, suppose the complainant is dissatisfied with the settlement. In that case, the matter can be referred to the Investor Grievance Redressal Committee ("IGRC") after the Chief Regulatory Officer of the Stock Exchange or any other officer of the Stock Exchange authorized on this behalf by the Managing Director has recorded the reasons in writing. Service-related complaints include not receiving/delaying an account statement, non-receipt/delaying bills, closing the account/branch/branch, technical difficulties, branch shifting/closure without notice, incorrect employee service, and freezing the account. It also includes suspected debit in a trading account, contact not available at the office of the trading member, Demat transferred accounts without permission, and many more.
2.Complaints to be referred to IGRC: The stock exchange must resolve complaints about the trading, settlement, and "deficiency in services" that result in a financial loss on its own within the time frames set out. Where the complaint is not settled amicably, however, the same will be referred to the IGRC after the Chief Regulatory Officer or any other bond officer authorized by the Managing director on this behalf has recorded his reasons in writing. The Stock Exchange must provide documents/required information after receiving the same from the member and the claimant and provide necessary assistance to the IGRC to ensure timely resolution of grievances.
Handling of complaints by IGRC:
The IGRC shall have 15 working days to settle the investor lawsuit amicably by the conciliation process. If the IGRC requires additional evidence, it can insist that the Stock Exchange supply it before the conciliation process begins. In such cases, where further evidence is requested, the IGRC's timetable for resolving the complaint shall not extend 30 working days.
The IGRC would not dismiss the complaint based on "lack of information and complexities of the situation." The IGRC will suggest the Stock Exchange.
Upon conclusion of the IGRC trial, the IGRC shall determine the assertion value admissible to the complainant.
Arbitration: For any civil dispute between a member and a customer on or emerging out of Stock Exchange transactions, the complainant/member shall first submit the matter to the IGRC and/or the Stock Exchange's arbitration process before resorting other recourse applicable in any other rule. To clear up all doubts, it is explained that the sole arbitrator or tribunal of arbitrators assigned under the Stock Exchange arbitration mechanism shall always be considered to have the authority to rule on its jurisdiction. If a complainant/member is dissatisfied with the IGRC's suggestion, he or she must use the Stock Exchange's appeal process to resolve the case within six months of the IGRC's recommendation.
The stock exchanges are advised to:
To make the required amendments to the applicable bye-laws, rules, and regulations to allow the above decision to be implemented immediately;
Introduce the provisions of this circular to the notice of stock exchange representatives, and disseminate them via their website;
Convey to SEBI the status of enforcement of the provisions of this circular in the Monthly Development Reports.
This circular shall come into force as from 01 January 2021, in exerting the powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read by Section 10 of the Securities Contract Act, 1956, to protect securities interest and of promoting and regulating a securities market.
SEBI COMPLAINTS REDRESS SYSTEM (SCORES)
SEBI's SCORES is a web-based centralized grievance redress system. SCORES enables investors to lodge and follow up on complaints and check the status of redressal complaints online from any place using the website above.
This allows market intermediaries and publicly listed companies to receive investor complaints online, resolve them, and report the redressal online. From the time of complaint is lodged till it is closed by SEBI, all actions will take place online in an automated setting, and the complainant will be able to see the progress of his complaint online. In addition, investors unfamiliar with the SCORES or who do not know how to access SCORES can file a physical complaint with SEBI at their office. The complaint can be scanned and then upload in SCORES for processing.
RIGHTS OF INVESTORS
A shareholder is entitled to different rights. The following addressed various types of rights:
Changes to the Memorandum of Association (MOA) or the Articles of Association (AOA): Any changes to the Company's Memorandum of Association or Articles of the association are subject to be held in the general meeting. The Shareholders have the right to vote on amendments to the Company's MOA or AOA. Any amendments require a special majority, which requires a vote of at least 75 percent of shareholders.
Right to receive dividend: Company can pay dividends for any fiscal year out of its profits for that year after depreciation, or out of its profits for any previous fiscal year or years after depreciation and remaining undistributed, or out of both. Dividend declaration is subject to shareholder approval at an annual general meeting. Dividends are payable within 30 days of the announcement date.
Appointment of directors: In the appointment of directors, shareholders play an essential part. For the appointment, the shareholders shall pass an ordinary resolution. In addition, shareholders may appoint different types of directors. It is the following:
An additional director to retain the office until the next meeting of the general body;
An alternative director who serves as a three-month substitute director;
A nominee director
In case of a casual vacancy, the director may appoint any director assigned to the office of a public corporation at a general meeting. In addition, any resolution undertaken for the director's election to the general meeting may be challenged by this shareholder.
4. Legal action against directors: According to the rules of the Companies Act 2013, shareholders may also bring legal action against the director. It is the following:
The director can act in any way that is prejudicial against the company's affairs.
Any act against the statute or the constitution.
Fraud.
When a company's assets are being transferred at an undervalued rate.
If the company's funds are diverted.
Any act which is done in a mala fide intention.
Voting right:
Section 47 of the Companies Act 2013 defines the rights of shareholders. Shareholders are therefore entitled to attend and vote at the annual meeting of the General Assembly. Each Indian Company should comply with Companies Act 2013 provisions. An annual general meeting shall be held once a year by every Indian Company. The meeting may be held either at the company headquarters or at any location the company provides. Different mandatory agendas must be debated at the conference. This requires the adoption or ratification of financial statements by the directors and auditors, etc. If the company members resolve, it can only be accepted by voting on it by the shareholders under the company act 2013. The Companies Act 2013 acknowledges the following voting types:
Voting by the showing of hands – Each member attending the meeting has one vote. As a result, in this form of voting, shareholders vote solely by showing their hands.
Voting by the poll – The chairman or the shareholder can demand a vote in this form of vote. However, weighted voting rights can also apply to a single class of equity shares with differential voting rights.
Electronically voting – any company with over 1000 shareholders must have an electronic voting facility. The means of voting online should be open to every member.
Section 105(1) of the Companies Act, 2013 defines, When a shareholder is unable to attend a meeting, he or she has the right to appoint a proxy to vote on his or her behalf. While the proxy is not eligible to join in the quorum during the vote, the proxy can participate in a procedure referred to in the Companies Act 2013.
Right to call for general meetings: Section 100 of Companies Act, 2013 defines the Calling of Extra-Ordinary General Meeting. An Extraordinary General Meeting (EGM) is a shareholder meeting that is not an Annual General Meeting (an AGM). It is conducted when an urgent matter regarding the company or a crisis occurs, and it necessarily requires the participation of all senior executives and the Board.
Right to get copies of financial statements: Shareholders are entitled to receive copies of financial statements. The corporation is duty-bound by a quarterly or annual declaration to deliver its financial statements to all its shareholder.
Right to receive a share in the surplus assets of the Companies at the time of winding up: The Companies Act 2013 specifies in section 297 that the tribunal shall adjust the rights of contributors and allocate any surplus to the members who are entitled to it.
CONCLUSION
In the current scenario, there are several start-up funding sources to choose from. Financing a start-up has come a long way. Previously, people used to use their savings or borrow from family members to finance their purchases, but now there are several alternatives to the traditional financing methods. One must decide based on the needs of their start-up while still acknowledging the scalability and feasibility of all aspects. As a result, selecting the best start-up funding sources becomes critical as there are various available sources. Also, investors need to be protected from various malpractices and unfair practices perpetrated by companies and intermediaries. As the number of individual investors and investment options increases, investors must understand their rights, how they can be protected, and what steps the SEBI is taking to safeguard investors. How can they complain online?
REFERENCES
Martin Zwilling, top 10 Sources of Funding for Startups, Forbes, December, 2010
Dr. Lina Sonne, Okapi, A Snapshot Of India’s Start- ups Ecosystem, Areport Based on Start-up Conclave 2015, New Delhi
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ANALYSIS OF FINANCING SOURCES FOR START-UP COMPANIES by Marina Klačmer Čalopa, Jelena Horvat, Maja Lalić
The (UN)Enforceability of Investor Rights in Indian Private Equity auther: Arjya B. Majumdar https://www.researchgate.net/publication/333089075_The_UnEnforceability_of_Investor_Rights_in_Indian_Private_Equity
INVESTMENT AND SECURITIES MARKET IN INDIA ; DR. V.A.Avadhani, Retired Adviser in RBI and former Director in Bombay Stock Exchange, Himalaya publishing House.
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SEBI Guidelines (Disclosures and Investor Protection) 2000
The Companies Act, 2013- http://ebook.mca.gov.in/default.aspx
*The Author is a 4th-year BBA., LLB(Hons.) University of Petroleum and Energy Studies, Dehradun
Disclaimer: The opinions and views in this article are personal and independent opinions of the author. VAIDHA doesn't hold any liability arising out of this article.
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