India’s Elephantine Legal System
Reprinted from Harvard Business Review, see original here.
Navigating India’s legal landscape often reminds me why the tale of the elephant and the six blind men originated in that country. Before setting up a corporate entity in India, my partners and I spent a great deal of time asking experts worldwide — including senior executives, accountants, and attorneys in India — in the life sciences industry about the right legal structure. We wanted to ensure our company could tap equity and debt both from public and private sources of funds, within India and globally. As it turned out, all our due diligence wasn’t sufficient and, initially, our company ended up with articles of association that didn’t meet all our requirements.
Instead of waiting to get it right, though, we incorporated the company knowing that, in the future, we would have to amend some of the articles of association. That turned out to be the right call because it saved us time and allowed us to create legal entities whose articles we could modify with relative ease later on. Had we insisted on getting the details right at the outset, we may have had less time to make other key decisions — and still make changes later.
We learned three lessons during this process. One, if you ask six experts about how to structure a company in India, you are bound to get six different answers. Expect to receive several opinions — not because people in India won’t tell you the truth, but because there are probably six different ways to structure your company and experts will be divided about which suits your purposes best. Trying to find the universal truth in such a dynamic place is a never-ending quest that may drive entrepreneurs crazy. Two, don’t let your desire for clarity slow down the task of setting up your company. Three, set something up and then work with your advisors to amend it into shape.
We later decided to bring in a seasoned U.S.-headquartered law firm as a minor equity partner in our venture. It will eventually work with an Indian firm to harmonize our legal structure across national boundaries. That’s important, as Indian law firms are becoming world class — just look at the fees they charge. (Incidentally, the law forbids Indian firms from deferring legal fees for startups.) They know how to work with foreign experts so you will end up with the right structure for your India-based global venture.