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Know Various Aspects Related To The Term Sheet
Company

Know Various Aspects Related To The Term Sheet

1. What is a Term Sheet?

A term sheet is a nonbinding agreement that shows the basic terms and conditions of an investment. The term sheet serves as a template and basis for more detailed, legally binding documents. Once the parties involved reach an agreement on the details laid out in the term sheet, a binding agreement or contract that conforms to the term sheet details is drawn up.

2. Term Sheet in the Indian Context 

A term sheet may likewise be referred as a letter of intent, an MOU i.e. memorandum of understanding. The first round of speculation from a financial investor is known as a term sheet. Every round of investment has its own terms & conditions and these terms define a business seeking outside capital funding. The label isn't imperative, and regarding their structure and drafting they set out the key business and legitimate terms in regard to a proposed transaction.

You may also read Partnership Firms - The Principle Of Together We Rise, Together We Sink.

3. Is the Term Sheet legally binding in India?

One of the fundamental aspects in every corporate transaction is ascertaining whether the term sheet is intended to be binding or non-binding. Below we discuss the various facets of binding nature of term sheets, from a drafting perspective as well as enforceability perspective.
a.    Drafting Perspective  
i)    Non-binding Term Sheet: While this is the most common position in term sheets, calling this document 'non-binding' term sheet is a misnomer as actually it is a partially binding term sheet. There indeed is express language to indicate that the term sheet would not be binding between parties, as there would be detailed definitive documents in the future. At the same time, typically an exception would be created for clauses like Exclusivity, Confidentiality, Term and Termination, Governing Law and Dispute Resolution, and the like, which would remain binding between the parties.
ii)    Binding Term Sheet: As is self-explanatory, a binding term sheet implies all clauses and provisions therein would be binding between the parties. From an enforceability perspective, it has more teeth. Therefore, any definitive documents in the future should clearly have provisions that override this document.
iii)    Unilaterally Binding Term Sheet: This is an interesting practice that we sometimes observe, where the term sheet is drafted as a hybrid of the above two models. In other words, for one party it would be non-binding (with the exception of clauses cited above), while for the other party all obligations and commitments would be binding. This is normally done to a party that is perceived to be one that could significantly try to alter principles agreed in the term sheet during negotiations of definitive documents, or for start-ups where at term sheet stage the investor/acquirer does not have sufficient visibility of the facts.

4. What does a Term Sheet include?

Company valuations, investment amounts, the percentage of stakes, and anti-dilutive provisions should be spelled out clearly.
Voting rights. Startups seeking funding are usually at the mercy of VCs who want to maximize their investment return. This can result in the investor asking for and obtaining a disproportionate influence on the company's direction.
Liquidation preference. The term sheet should state how the proceeds of a sale will be distributed between the entrepreneur and the investors.
Investor commitment. The term sheet should state how long the investor is required to remain vested.

You may also like to read Know the various facts about Share Purchase Agreement.

5. What is the purpose of a Term Sheet?

All term sheets contain information on the assets, initial purchase price including any contingencies that may affect the price, a timeframe for a response, and other salient information.
Term sheets are most often associated with startups. Entrepreneurs find this document crucial for investors, often venture capitalists (VC), who may offer capital to fund startups. 

6. Who prepares the Term Sheet?

A term sheet may be prepared by either party – the investor or the founder. Usually, if a venture capital firm is investing, the VC offers a term sheet.

7. Is a Term Sheet legally binding?

Generally, term sheets are non- binding in nature, but they can become legally binding if executed on a stamp paper. The provision for its nature being non-binding can be inserted in the term sheet itself. Parties should be careful while drafting these documents at the negotiation stage.

8. Why are the terms important if they are non-binding?

While terms in a term sheet may be non-binding, they still represent the conditions of an agreement that both parties have agreed in-principle, like a handshake deal. If the due-diligence progresses well, these are the terms according to which a binding stock purchase agreement will be prepared.

9. How do you negotiate a term sheet?

Following are the ways to negotiate a term sheet: 
Get more than one VC interested
Understand common market terms
Watch out for red flags
Understanding valuation and dilution is critical
Consult with experts for advice

10. Are term sheets enforceable?

Generally, term sheets are non- binding in nature, but they can become legally binding if executed on a stamp paper. The provision for its nature being non-binding can be inserted in the term sheet itself. Parties should be careful while drafting these documents at the negotiation stage.

11. What is a term sheet in M & A?

A term sheet is a mostly non-binding document signed by the target and the prospective buyer that describes the major terms of the proposed acquisition. While most term sheets are non-binding, they often contain binding provisions regarding non-solicitation, exclusivity and confidentiality.

Also read Profession Is The Link Between An Individual And The Larger Society

Know About The Mutual Fund Calculator
Company

Know About The Mutual Fund Calculator

The Definition Of A Mutual Fund

A mutual fund is defined aa a professionally managed investment fund that combines money from various investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV in Europe ('investment company with variable capital') and open-ended investment company (OEIC) in the UK.

The Meaning Of Mutual Fund Calculator

Well, a mutual fund calculator is an online tool that helps investors calculate their returns and the future value of an investment based on a certain investment strategy. Since mutual fund investors should ideally take a goal-oriented approach for their investments, a mutual fund calculator in India can help them understand how far they’ll achieve their goals based on the planned amount of investment, time horizon, and rate of return.

Also read about The Income Tax Calculator - The Tool That Helps You Calculate Your Tax.  

The ET Money mutual fund returns calculator makes things easier for you because it requires just three inputs: your investment amount (monthly SIP or lumpsum), time horizon, and a rate of return based on your investment strategy.

The Means & Methods To Use ET Money Mutual Fund Returns Calculator?

The ET Money mutual fund calculator is a two-step process that makes mutual fund return calculation a breeze. When you use a mutual fund calculator online, you’re faced with a range of questions. For new investors trying to use any other Mutual Fund returns calculator in India, this can be quite overwhelming. This is why the ET Money calculator has a streamlined design that helps investors with mutual fund return calculation in two easy steps.

Step 1: Choose between a lump sum or SIP calculation from the top-right corner.

Step 2: Enter the amount you wish to invest (or the monthly contribution if you chose SIP), the number of years you intend to hold the investment for (or continue SIP contributions), and the investment strategy.

Choosing the investment strategy on the calculator eliminates the need to estimate a rate of return because the algorithm does it based on the strategy’s risk profile. For instance, aggressive strategies typically deliver higher returns than conservative strategies because they come with greater risk. If you prefer, you also have the option to enter a custom rate by selecting Custom from the drop-down menu.

You’ll now see your investment’s growth in the form of a bar chart over several time frames. On the right, you’ll get an overview of the total investment, total gains, and the future value of your investment.

As you keep changing any variable in the MF return calculator, the chart at the bottom and the overview will change automatically. You’ll also see some of the best mutual funds at the right of the calculator based on your investment strategy. If you happen to be interested in any of those funds, use the “Invest Now” button, and invest in Mutual Funds using the SIP or lump sum investment route in minutes.

The Formula For Mutual Fund Calculation

To calculate mutual fund returns manually, you need to know the mutual fund return calculation formula. It’s always much easier (and faster) to use the ET Money mutual fund returns calculator. This is particularly true when you’re trying to compare returns from your mutual fund investment generated using either a lump sum or SIP strategy.

Even if you choose to use the Mutual Fund return calculator online, it’s helpful to know the formula that was used to calculate the returns on mutual funds that you can receive from your investments. Following are the mutual fund calculation formulas. You shall notice that the formulae for both modes of investment are different. Wonder why? Here is the answer:

Lumpsum investment

SIP Investment

M = P (1 + r/100)n

M = A [ (1 + i)n – 1] x (1 + i)/i

Where:
M = Maturity amount
P = Principal amount
r = Estimated rate of return
n = Holding period (in years)

Where:
M = Maturity amount
A = SIP contribution per period
i = Rate of return
n = Holding period (in months)

Note: For daily/weekly SIPs, adjust i and n accordingly.

 

Know two things about both formulae.

First, the formula used in the lump sum formula is CAGR (compound annual growth rate) while the one used in the SIP formula is XIRR (Extended Internal Rate of Return). The reason is that CAGR works only for calculating returns on a point-to-point basis. When there are multiple cash flows (like in the case of SIP), you need to use XIRR because the returns for each cash flow will differ. XIRR helps you calculate a single return percent for all cash flows and is, therefore, relevant to SIPs. If you are keen to learn more about this, click on XIRR and CAGR to know more.

You may also like reading Income Tax Verification: The checking of your filed taxes.

It’s also worth noting that the based on the scheme you choose and whether you choose a direct or regular plan. The fund house will deduct their commission from your returns when you invest through the regular mode (i.e., through a broker, advisor, or distributor). Since a direct plan doesn’t involve an intermediary, you don’t pay any commission, which reduces the expense ratio and translates to relatively higher returns. Preferably, you’d want to go with a direct plan when choosing mutual fund schemes in India because you’ll end up with relatively higher returns.

For instance, let’s assume that the difference in the expense ratio between the direct and regular plan of a scheme is 0.75%. Following are the returns and the investment value calculated using the ET Money mutual fund calculator for direct vs regular plans:


Direct

Regular

Inputs

Investment = ₹6 lakh
Holding period = 10 years

Investment = ₹6 lakh
Holding Period = 10 years

Expected return before expense ratio (p.a.) [A]

13%

13%

Expense ratio [B]

1%

1.75%

Expected return after expense ratio (p.a.) [A - B]

12%

11.25%

Total returns (based on expected returns after expense ratio)

₹12.64 lakh

₹11.42 lakh

Maturity value

₹18.64 lakh

₹17.42 lakh

 

 

Note that by simply choosing to invest in a direct plan (i.e., without taking any additional risk), you’re able to increase your returns substantially. You can invest in a direct plan online with just a couple of steps through the ET Money website.

Mutual Fund Calculator : How Will It Help You?

India’s mutual fund industry grew over 2x between 2016-2021. The country is taking a liking to how they can gain exposure to a diverse portfolio created by an expert. Mutual funds help investors streamline their investment efforts and even facilitate consistency and discipline through SIP.

Mutual funds explicitly caution the investors, “Past performance doesn’t guarantee future returns.” Investors should, therefore, focus on how the fund may perform in the future. This is where a mutual fund calculator can come in handy.

A mutual fund calculator helps you assess the impact of a given variable (i.e., the investment amount, period of investment, and the rate of return) on your total gains and the investment value. For instance, consider that you’re investing with a goal to purchase a home. You input the data and notice your investment value falls a little short of the value of the home you aim to purchase. You change either of the three variables based on your preference to see how you can adjust your investment strategy to achieve your target.

Think of a mutual fund calculator as your music system. The investment amount, rate of return, and period of investment are like the bass and treble knobs. You use them to optimize the music system’s output. Similarly, a mutual fund calculator allows adjusting the three variables that go into it, which can help you understand what combination of investment, rate of return, and holding period can help you achieve your targets.

You can also calculate mutual fund returns for both SIP and lump sum modes to see how they compare using the mutual fund returns calculator. For instance, investing ₹5 lakh as a lump sum or investing the same amount over three years can generate different returns. Manually calculating them can consume a lot of time, while mutual fund return calculation with a calculator typically takes less than 30 seconds.

Also read Form 16 – Here Is About Tax Deducted At Source

 

 

One Person Company – What It Can Provide And What It Can Not
Company

One Person Company – What It Can Provide And What It Can Not

The Companies Act 2013 heralded a massive change in the nature of company incorporation. It allowed the establishment of a single person or one person company. 

 Pre-2013, A Single Person Couldn’t Incorporate A Company 

A new concept has been introduced in the Company’s Act 2013, about the One Person Company (OPC). In a Private Company, a minimum of 2 Directors and 2 Members are required whereas in a Public Company, a minimum of 3 Directors and a minimum of 7 members. A single person could not incorporate a Company previously.
 

Companies Act 2013 Made It Possible

One Person Company (OPC) is a company incorporated by a single person. Before the enforcement of the Companies Act, 2013, a single person could not establish a company. If an individual wanted to establish his business, he/she could opt only for a sole proprietorship as there had to be a minimum of two directors and two members to establish a company.

Now, A Company Can Be Formed With One Director, One Company 

As per Section 2(62) of the Company’s Act 2013, a company can be formed with just 1 Director and 1 member. It is a form of a company where the compliance requirements are lesser than that of a private company.

You may also like to read about Sole Proprietorship Firm.
 

Single Person Companies Enjoy Sole Proprietorship 

The Companies Act, 2013 provides that an individual can form a company with one single member and one director. The director and member can be the same person. Thus, one person company means one individual who may be a resident or NRI can incorporate his/her business that has the features of a company and the benefits of a sole proprietorship.



The Strengths Of OPC


Legal status

The OPC receives a separate legal entity status from the member. The separate legal entity of the OPC gives protection to the single individual who has incorporated it. The liability of the member is limited to his/her shares, and he/she is not personally liable for the loss of the company.  Thus, the creditors can sue the OPC and not the member or director.


Funds Can Be Easily Obtained

Since OPC is a private company, it is easy to go for fundraising through venture capitals, angel investors, incubators etc. The Banks and the Financial Institutions prefer to grant loans to a company rather than a proprietorship firm. Thus, it becomes easy to obtain funds.


Fewer Compliances

The Companies Act, 2013 provides certain exemptions to the OPC with relation to compliances. The OPC need not prepare the cash flow statement. The company secretary need not sign the books of accounts and annual returns and be signed only by the director.


More Convenient incorporation

It is easy to incorporate OPC as only one member and one nominee is required for its incorporation. The member can be the director also. The minimum authorised capital for incorporating OPC is Rs.1 lakh but there is no minimum paid-up capital requirement. Thus, it is easy to incorporate as compared to the other forms of company.


More Easily Manageable

Since a single person can establish and run the OPC, it becomes easy to manage its affairs. It is easy to make decisions, and the decision-making process is quick. The ordinary and special resolutions can be passed by the member easily by entering them into the minute book and signed by the sole member. Thus, running and managing the company is easy as there won’t be any conflict or delay within the company.
 

Perpetual Succession


The OPC has the feature of perpetual succession even when there is only one member. While incorporating the OPC, the single-member needs to appoint a nominee. Upon the member’s death, the nominee will run the company in the member’s place.

You may also read about Partnership Firms


The Disadvantages Of OPC


Suitable To Small Businesses Alone

OPC is suitable for small business structure. The maximum number of members the OPC can have is one at all times. More members or shareholders cannot be added to OPC to raise further capital. Thus, with the expansion and growth of the business, more members cannot be added.


Business Activities Are Curtailed

The OPC cannot carry out Non-Banking Financial Investment activities, including the investments in securities of anybody corporates. It cannot be converted to a company with charitable objects mentioned under Section 8 of the Companies Act, 2013.


Ownership And Management

Since the sole member can also be the director of the company, there will not be a clear distinction between ownership and management. The sole member can take and approve all decisions. The line between ownership and control is blurred, which might result in unethical business practices.

Also read about The Shop And Establishment Act.

 

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