Legal & Regulatory Issues in Cross Border Investments:

What Corporate Legal Counsel What Corporate Legal Counsel Should Know?Should Know?

Preet Sethi Partner– Kaden Boriss Partners, Lawyers

Law & Economic PoliciesGo Hand in Hand

Law & Economic Policies

• All Laws have their roots in Economic Policies, the Social Structures and

Economic Background of a Country

• Laws & Economic Policies are not Divorced from each other

• Laws are enacted to implement Economic Policies & Economy is managed

by the instrumentality of law

• Law codifies social values

• Business has to function within the ambit of Economic Policies & Laws

enacted to give effect to these

What should be done?

• Have a background check on the economic & political scenario of a country

– chances are you will get a fair idea about the prevalent investment &

business laws & where they are headed

• Check ‘whether the laws are more of a restrictors rather than facilitators of

trade & business?’

• Check for past trends in changes in regulatory policies & laws

Cross Border Investments:2 Fold Analysis

To Analyze the Cross-Border Investment Feasibility the following two aspects need to be considered:

1. Legal & Regulatory Parameters of the Investor’s Country

2. Legal & Regulatory Parameters of the Investee’s Country

Legal & Regulatory FeasibilityFor a Cross Border Investment

Project

Legal Framework in Investor’s Country

Legal Framework in Investee’s Country

Cross Border Investments:2 Fold Analysis

• Tax Laws & DTAA implications

• Market Practices on

Commercial, Corporate

Transactional & Trans-national

documentation

• Regulatory approvals

• Post Investment compliances

• Inbound & Outbound FDI laws

• Securities & Stock Exchange

laws

• M&A laws &Takeover Codes

• Company laws/statutes

• Foreign Exchange

Management/Remittance laws

Yardstick to Analyze the Previous Mentioned Considerations

Repatriation of Profits – Key to FDI

Repatriation of Profits

• No one wants to invest in a country from where they cannot take

their profits back home

• The domestic rates of taxation as well as rates of taxation in the

invested country need to be considered

• Structures that can let the company derive the benefit of DTAA’s

need to be considered

Making Joint Ventures ‘a Mission Possible’

Choosing Right Work Partners

Joint Ventures – Key Concepts

Different Forms of JVs

Equity Joint VenturesContractual/

Unincorporated JVs

Special Purpose Vehicles

Pre-requisites of a Joint Venture Agreement

• Identification and screening of a prospective partner

• Development of a detailed business plan & short listing a set of prospective partners

• Due Diligence of the Project & the JV Partner

• Ascertainment of the value of assets being contributed to the joint venture

• Negotiations about the Acquisition Price & Terms, including Capital Structure, plus Management Plan after take over

Points to be Discussed & Added in JV Agreement

• The project or object of the JV

• Capital structure of the company

• Compensation to the members

that provide services

• Allocation of revenues & expenses

from the project

• The contribution, role &

involvement of each co-venturer

• The provisions for management & performance of JV obligations

• Chief Executive Officer

• Determination of financial policy of the company

• Marketing arrangements

• The term for which the JV will exist

• Change in capital structure & exit options

The Cross Border Acquisition Process

Negotiations On Final Agreement & Execution Of A Formal AgreementAlong With Formation of a J.V. Company Or

Share Acquisition & Other Transaction Closing Formalities

Formal Due -Diligence

Signing of LOI Term Sheet

Approaching The Most Suitable JV Partner& Informal Negotiations

Informal Due - Diligence

Identification of Prospective Business Partners

Identification of Business Opportunities

in a Country

Case Study: FDI In India - The Asian Tiger

Wheat To Bread

India: A Case Study on How Changes in Economic Policies Led to Wide Spread Changes in The Legal & Regulatory Framework and Business Environment

Before 1991

A highly regulated business

environment

A pervasive license system

High tariff barriers

Slow Economic Growth

After 1991

A new spirit of economic freedomStrong political consensus on economic

liberalization policies at the central &

state government levels FDI is freely allowed in all sectors

including the services sector, except

where the existing & notified sectoral

policy does not permit FDI beyond a

ceiling. A new spirit of economic freedom

India Today

• The 4th Largest Economy (in terms of Purchase Power Parity) in the World

• 10th most Industrialized country in the World

• Well developed Banking System & vibrant Capital Market

• 2nd most attractive FDI location in the world due to its liberal and transparent Foreign Investment Regime

What Made This Possible?

What We Already HadWhat We Already Had

• English - Preferred Business Language

• Established Independent Judicial System with a hierarchy of courts

• Reservoir of highly skilled manpower

What We Didn’t Have –What We Didn’t Have –The Changes MadeThe Changes Made

• Conducive Foreign Investment Environment - freedom of entry, investment, location, choice of technology, production, repatriation of capital, dividends, etc

• Acceleration of the privatisation process & restructuring of public enterprises

• Special investment & tax incentives for export in certain sectors

THANK YOU

Kaden Boriss PartnersLawyers

Kaden Boriss Building, 495Udyog Vihar, Phase – V, Gurgaon, Haryana, INDIA

Tel: +91 124 4040193 Fax: +91 124 4040194

Email: info@kadenboriss.com