Businesses go for prenups before joining hands

Prenuptial agreements, or prenup as popularly known in the US, are not legally tenable in India since the law doesn’t consider marriage as a contract. But that doesn’t stop India Inc from the idea of having similar agreements while starting a new business or joint venture to avoid any future dispute.Traditionally joint ventures and partnership firms have specific clauses that deal with exit, arbitration in the case of any dispute, and the Right of First Refusal (RoFR) between the parties. However, now taking cues from several ongoing disputes between promoters, JV partners and shareholders, entrepreneurs are putting a specific clause of ‘business divorce’ or a framework of the division of assets and liabilities at the initial stage when starting such ventures. So that if things go south in future, they will know how to bid each other adieu. 84309287“The idea is very nascent among businesses, but the new crop of entrepreneurs are more pragmatic, and hence they are more open to putting specific clauses of partition at the time of the beginning of any partnership itself,” said Nishit Dhruva, managing partner of law firm MDP & Partners. “The new generations of business families and even first-generation entrepreneurs are of the view that getting into any dispute is not only a costly and time-consuming affair, but it also consumes lots of time for parties and hence, it is best to decide on the terms of separation when things are cordial.” Recently, a Delhi-based firm that is in textile business put such a separation clause in their new venture where the new business deals with exports.In the case of any future dispute, these JV partners, in the eventuality of separation, have agreed to split the foreign geographies and their clientele portfolio per the agreed terms.Similarly, a Mumbai-based three-generation partnership firm, while creating holding structures for various verticals, has done family arrangement recoding as to how different businesses and brands will go to separate branches of the family in the event of a conflict — a family council has been created where representatives of different branches are members to take a key decision and monitor various businesses. Most of the businesses in India are family-owned, and in many cases, multiple branches are running different divisions, and they too are reaching out to professionals. “In recent trends, families are writing a family constitution and creating family councils to avoid and address conflicts and building conflict resolution mechanism and, in many cases, identifying as to which business or which business asset or brand will go to whom in the event of a conflict,” said Rajesh Narain Gupta, managing partner, SNG & Partners. “Families are also providing for situations where the family office manages the family investments, but professionals manage the business.”

from Economic Times https://ift.tt/2UHHe6o