Are there specific legal requirements or preferences regarding the choice of entity and/or equity structure for early-stage businesses that are seeking venture capital funding in the jurisdiction?
In India, the choice of entity for startups seeking venture capital (VC) investment is not strictly mandated by law; however, certain legal and regulatory considerations significantly influence this decision. The choice between operating as a Private Limited Company, Limited Liability Partnership (LLP), or any other form of business entity affects a startup’s ability to attract VC investment, its fundraising capabilities, and its growth trajectory. Among the available options, the Private Limited Company is the most favoured entity type due to its suitability for equity-based fundraising, ease of transfer of shares, possibility of offering stock options to employees (ESOP), and governance mechanisms that protect investor interests. While it is possible for investors to acquire partnership interest for an investment in an LLP, it is often not considered as a viable option as it may be difficult for the investors to secure an exit through a transfer of such partnership interests.
Please click here to read the full article by Manvinder Singh, Siddharth Mody and Varun Sriram, published in Legal 500.
Manvinder has a practice of more than 20 years and specializes in acquisitions, private equity investment and business restructuring. Manvinder regularly advises leading global private equity funds in structuring and concluding their investments in Indian companies.