Khemka Forum Podcast Series: Transcript of the podcast with Pankaj Jain & Anshuman Jaiswal

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Interviewer: Shivraj Parshad, The PRactice

Transcript

START

Shivraj: Pankaj Jain and Anshuman Jaiswal thank you very much for speaking to the Khemka Forum on Social Entrepreneurship in this very interesting discussion on the legal handbook.

Pankaj Jain: Thanks Shivraj.

Anshuman Jaiswal: Likewise, likewise Shivraj.

Shivraj: So gentlemen, how does the law look at the entire social entrepreneurship sector?

Anshuman Jaiswal: Shivraj, Anshuman here. To be perfectly honest there is no specific categorisation or no specific view that law affords to a social entrepreneurship or enterprise. There is no special benefit, there are no specific exemptions, however depending on the activities that the enterprise undertakes and depending upon the kind of entity it seeks to be incorporated as, there may be certain benefits in terms of tax in terms of governance etc, but by in large, there is no distinction in the eyes of the law for a social entrepreneurship versus you know a regular for profit entrepreneurship.

Shivraj: And Pankaj from your perspective, do you think the laws are catching up? How does that sort of impact the kind of work that you are doing to give access to social entrepreneurs the entire kitty of laws that exist to help them set up their enterprise?

Pankaj Jain: In our experience Shivraj we have definitely seen that there is a huge lag behind the law and social innovation and laws have been struggling, especially in India to play catch up with social innovation. Some of the trends we have been seeing in the developed parts of the world, particularly in the US, there have been interesting developments, wherein law is increasingly responding to some of the social innovation which are happening. In India however like Anshuman rightly pointed out, there has been more than few occasions where laws actually do not distinguish a conventional entrepreneur and a social entrepreneur, one has to see on a fact by fact basis that what are the specific benefits which one can avail. So for instance tax breaks or for instance if one is specifically looking to raise social venture capital as opposed to raising commercial capital.

Shivraj: So what are the common legal challenges that social entrepreneurs face when starting up, is it registration, structuring their board, deciding between not for profit or profit entities?

Pankaj Jain: Essentially here Shivraj, in our experience some of the issues and challenges that social enterprises face in starting up or taking forward their entrepreneurial journey is actually not really different from any other conventional start up in India. There have undoubtedly been a significant proportion of challenges which social business enterprises have been going through and in our experience we have seen that typically some of the issues and challenges include ascertaining what type of legal entity to go for, whether it should be for profit or non-profit, procuring its set up and then struggling in terms of its corporate secretarial or other routine compliances which arise from time to time.

Shivraj: So what are some of the most significant aspects, facts or situations for a social entrepreneur to be aware of from the beginning and be prepared and cautious for?

Anshuman Jaiswal: Two things to be kept in mind. One is of course the structure you want to land into and you want to land yourself into and the reason why I use that word is and use that phrase is that today you may be due to the size of your business etc may not require you to be registered as a for profit or not for profit as the case may be, but one thing everybody needs to keep in mind and specifically entrepreneurs need to keep in mind is two years down the line, three years down the line to how large they want to grow and their ability to access funds. For example if you were to go down certain routes which we have highlighted in the handbook, it may be significantly difficult for you to raise foreign capital or even capital within India and distribute or use the proceeds from the work you do than certain other structures, so clearly that’s one and the second is understanding completely and understanding in a fairly comprehensive manner what the cost of running an enterprise is and what the cost in terms of compliance, because even if you have a straightforward private limited closely held company, there are compliance costs in terms of filing annual returns, filing you tax statements etc. So clearly one is the structure and two what does it entail and three in the long term, what are your plans and how much do you want to grow and do you want to source capital etc. So these are three broad things one would need to keep in mind in addition to what Pankaj said of course.

Shivraj: And of course I believe there was a lot of due diligence and questions solicited from social entrepreneurs before putting together this handbook. So what were the questions, doubts and dilemma you typically were posed by those in the sector when you crafted this legal handbook?

Pankaj Jain: Well typically Shivraj, some of the concerns that we have heard time and again from social entrepreneurs are something which in our opinion is actually not rocket science and something which is very capable of replication and sharing knowledge aspects. So one of the first trends that we noticed was a recurrence in terms of the same questions that kept getting asked again and again, what are the various types of legal entities which are available, within the choice of the various legal entities available, how does one go about choosing the most appropriate form of legal entity which is suited to specific business model. Once that entity is set up is there any specific tax regime or fund raising regime, especially relevant if one is looking to raise commercial capital for a for profit entity or donor capital for a non-profit entity which ends up becoming applicable, what are the recurring compliances which apply from time to time- be it from a labour standpoint or be it from a taxation standpoint or routine corporate secretarial compliances. And when we kept hearing a recurrence of those questions as we interacted with more and more social entrepreneurs , we realised that there is really no point reinventing the wheel again and again and provided us with a thesis to come up with the kind of a handbook where it currently stands wherein we have tried to provide all the basic informational inputs that typically start-up, early stage social business enterprises would require for an informed decision making as they embark on their journey.

Shivraj: So if you were to just go back the basic questions, what are the advantages of actually registering a social enterprise and what are the flow or process of registering a social enterprise?

Anshuman Jaiswal: So a couple of responses there, one is of course the advantage of registering a enterprise versus not registering an enterprise is fairly obvious, easier to raise funds, easier to run, of course it comes at a cost. So again process, like I mentioned if one were to go in for a not for profit entity and/or a Section 25 company under the Indian Company’s Act then the procedure there is a little more onerous and the government is kind of tightening the registration norms there. In terms of timelines it depends from state to state, there is also a mechanism of public notice etc involved. Keeping that aside there are also partnerships and trusts etc, so if one were to read the handbook I think we have discussed all this in great detail and outlined in a very very comparative fashion what the advantages and disadvantages would be and how one needs to approach these relevant entities and as to the time it can be something as soon as from a week to somewhere about a couple of months depending on what kind of structure and entity you choose.

Shivraj: And you know gentleman you have been talking about all the complexities that the social entrepreneurship space must look out for but the one thing is very clear, the law continues to evolve, like you’ve been talking about tightening of norms, it’s an evolving process, so how is this handbook going to help social enterprise going forward? Are you going to continue to update it? Is it an evolving and growing process as well?

Pankaj Jain: So on this note Shivraj before I answer that specific question I must actually take a couple of steps back and reflect on the journey which prompted this legal handbook. As we worked increasingly in this sector we did realise that there is a huge vacuum out there for affordable access to a trusted and competent legal counsel for social entrepreneurs and like I mentioned during the course of our conversation earlier, there was also a persistent reinvention of the wheel wherein there was no aggregated form of knowledge inputs available for these questions that we kept hearing time and again. So this legal handbook essentially was a joint endeavour under the thought leadership of the Khemka Foundation and Amarchand Mangaldas as well as in my personal capacity in which we tried to democratise access to these kind of informational inputs and put them down on paper. Some of aspirations we definitely have viz a viz the legal handbook is probably convert it into a Wikipedia type of format and put it online wherein increasingly a lot of users will also not only have access to it but also will have the flexibility to appropriately edit it under suitable moderation of course.

Shivraj: And finally gentleman for someone listening to this conversation on the legal handbook, just your final words on how essential the handbook is, what is its need and how should it be actually utilised by those accessing it?

Anshuman Jaiswal: The handbook as Pankaj says definitely gives a lot of answers to the preliminary standard questions that any and every enterprise, that any start up whether it be social or otherwise has and specifically it focusses on social enterprise in terms of experience, in terms of specific tax sops etc. So it’s a good ready reckoner but again at the risk of sounding like a disclaimer it should not be a sole reference point, it is very good for entrepreneurs to get a basic understanding about how the regime in India functions and then from thereafter take it from there and then you know either approach competent counsel or then speak to people in the sector or speak to Pankaj or individuals like Pankaj would be more than happy to help them out. So it is for all practical purposes a ready reckoner and you know that is how it should be treated.
Pankaj Jain: I totally second Anshuman there Shivraj, because while this is a great starting point and its an effort to bring together a kind of a compilation of what have been the learnings in the sector in order to help social enterprises start up and thrive ultimately one should also realise that it is also a very fact specific science, the practice of law is a very fact specific science and one should definitely not do their own brain surgery.
Shivraj: Pankaj Jain and Anshuman Jaiswal thank you very much for speaking to the Khemka Forum on Social Entrepreneurship.

Pankaj Jain: Thank you Shivraj.

Anshuman Jaiswal: My pleasure.

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