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Sunday, September 25, 2022

Rights Of Investors In Indian Startups

Indian startups are a hot investment opportunity, but investors need to be aware of their legal rights and protections.

The startup landscape in India is constantly evolving, with new companies emerging and raising capital every day. Investors need to stay up-to-date on the latest legal developments so they can protect their interests.

Our team of experienced attorneys will help you understand your legal rights as an investor in an Indian startup. We’ll also keep you informed of any changes in the law that could impact your investment.

These rights help to ensure that investors can make informed decisions about their investments. We know these rights vary from state to state and country to country. So investors must check with local authorities and public watchdog groups.

Introduction

Startups in India have raised over $8 billion from investors in the past five years. However, there is still a lack of clarity around the legal rights of investors. Particularly when it comes to exit options and protections against dilution.

In this article, we will take a look at the legal rights of investors in Indian startups. It is important to know how to become an investor.

What are investor’s rights?

An investor’s right is the legal right of a shareholder or other investment firm. They can seek redress if they feel the company is violating their rights. This can include violations such as fraud, misrepresentation, and/or breach of contract. In some cases, an investor may also have the right to take legal action against the company for damages.

Mandate to know investor’s rights

Before investing it is important to understand all the legalities and rules, when, how, and where to invest. Laws and rights revolving around that. As we are considerate about investors and there in the company. Here below have shared the list of shareholders/investors’ rights:

  • Ensure your voting rights

The right to vote on matters affecting the corporation, such as the election of directors and approval of corporate actions. When a shareholder cannot attend their annual meeting, they have two options. The first option is to send in voting papers by mail and ensure that all votes are counted well. If you don’t want people taking advantage of your absence. Though you could always go through with representation via a proxy. It will make sure that every single one counts towards reaching decisions affecting company fundamentals such as merger proposals/liquidation processes.

  • Entitlement to dividends and other distributions

The right to share in the corporation’s profits, through the payment of dividends. Dividends have been paid out of a corporation’s earnings, and the board of directors has discretion that how much to distribute. Investing in a company is all about getting paid. When you invest your money, not only do investors get an ownership stake. They also receive dividends from the profits that are being reinvested back for future growth and development. This has shown to be one of the most reliable ways as well!

The right to share in the corporation’s assets in the event of liquidation. In a liquidation, creditors get paid first, followed by bondholders. If there is anything left, common shareholders are entitled to a distribution.

  • Preemptive rights

This is the right of common shareholders to maintain their percentage of ownership in the corporation. A shareholder can buy new shares whenever the company sells more shares to anyone else. This right gives common shareholders some protection against dilution of their ownership interests.

The right to bring a lawsuit on behalf of the corporation (a “derivative suit”). If the board of directors fails to take action against someone who is harming the corporation.

  • Company records right

When shareholders examine the documents that detail how a company performs. They have the right to see basic information about its operations. The Securities and Exchange Act of 1934 requires public companies to disclose financials in ten different formats. The annual report is the perfect opportunity to transparently display your company’s financials. It also provides a great resource for investors who want more information about how their money is getting spent!

Shareholders can also access other important pieces such as 10Q statements. These provide an update on quarter results such as AMAc. Markets where investors may find out more detailed analysis from analyst opinions.  This is regarding specific stocks/ instruments etc.; Current Report Which includes press releases. As a shareholder, you have the right to inspect the corporation’s books and records. This right is subject to certain limitations, such as the need to give advance notice.  Also, inspection should be for a proper purpose.

  • Being informed right

While common shareholders have these rights, they also bear the risk that their investment could lose value. Their investment can become worthless if the corporation experiences financial difficulties. Also, common shareholders typically have no say in how the corporation manages and operated on a day-to-day basis. For these reasons, common shares are often referred to as “risky” investments.

  • Derivative suits right

A derivative suit is a lawsuit brought by a shareholder on behalf of the corporation to remedy a wrong that has been inflicted on the company. Derivative suits have been brought when the board of directors fails to take action.  It is against someone who is harming the corporation.

  • Rights upon liquidation

If a corporation has liquidated (i.e., sold off or dissolved). Shareholders are typically entitled to receive a distribution of the proceeds from the sale of the company’s assets.

Final Word

So, what are your rights as an investor in a startup? While there is no one-size-fits-all answer, it’s important to be aware of the key points and understand how they may vary from company to company. After understanding the risks associated with investing in startups, you can make better decisions. You will feel more confident that you’re doing everything possible to protect yourself as an investor. Have you ever invested in a startup? What were some of the things that were important to you when making your decision? Let us know in the comments below!

Author: Namita Gupta is a content strategist with Axiswebart. She is also an author with a keen interest in financial topics. She has 5+ years experience of writing content with different publications. Also, she is a sports enthusiast who loves to play badminton. You can catch her on Twitter at @namita_g30.

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