How to retain control over the management of the new company
mintu
(Querist) 23 September 2009
This query is : Resolved
Forty years ago Mr. Rajaram started his career as a good grains dealer in Palani. Though there was no one else associated with him in the venture, the business was started under the name and style “Raja & Company”. In course of time, “Raja & Co.” embarked upon many other areas of trading and manufacturing activities. More than 5000 employees took shelter under its umbrella. When Rajaram died recently, his two sons ‘Pramod’ and ‘Pradeep’ inherited the business.
The two brothers decided to convert the business into an incorporated body. They also want to enter the new pastures of ‘oil drilling’. For this they have negotiated with M/S Name Inc. USA for technical collaboration. The latter are willing to provide the technical assistance and other facilities, if but only if, they are permitted equity participation in the oil drilling business. The brothers are prepared, provided that they are quite sure that the management and control of the business will always remain with them.
Assume that the brothers are prepared to make a cash investment of Rs. 5 crores in the oil drilling business, which they have in their personal accounts with M/S Deena Bank, Palani Branch. A few friends of the brothers are also willing to make investments upto Rs. 5 crores in the oil drilling venture. The foreign collaborators want a minimum of 15 % equity participation.
The project cost of the oil drilling venture is assessed at Rs. 60 crores. This amount is to be raised by equity and term loan. The IDBI is prepared to provide the loan on the condition that the Debt-Equity ratio does not exceed 2:1.
The brothers seek your opinion. Give a detailed legal opinion, explaining the legal provisions and modus operandi for the same. It must be specifically explained how your advice when implemented would ensure that the brothers together can always retain control over the management of the new company.
riven
Raj Kumar Makkad
(Expert) 23 September 2009
Such detailed legal opinion can not be provided in this column. Better engage either of us, who shall devote his valuable time over the matter and you shall also be in a position to further contact him in case any clarity is required on any clause. On my part, I can say that both the brothers can retain the control over the proposed business subject to terms and conditions to be framed accordingly meeting the requirements of IDBI, friend desirous to invest Rs. 5 crore and technically assisting company of USA hoping ration in profits.riven
