Monthly Archives: April 2011

The Myths About Chinese Money for Your Startup

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As I mentioned in Part 1 of this series, foreign bio-entrepreneurs are increasingly coming to China to look for money. They come with two major misconceptions: First, they think there is plenty of VC money available for biotech startups; and second, they believe they can get free funding from the government and local bio-parks in China. Unfortunately, the reality can be far from their perception.

Myth #1: There is plenty of VC money available around China.

The truth is that at the moment, there is very little money available for early stage ventures, and even less for early stage bio-ventures at the moment.

VC/PE is indeed hot in China, and the market seems to be flush with money. However, most of the money is going to investment opportunities which are already at the PE/growth stage (read, “already showing profit”), or which can foresee an IPO within the next 2-3 years.

Many fund managers focusing on China self-describe as VC, but in reality are more like PE/late stage investors. This is especially true for the many RMB-denominated funds which tend to have a fund life no more than 4-5 years. There is very little money to support pre-revenue companies, or to fill the gap for the $2-10M Series A or B rounds.

To add to the challenge, while there may be over a thousand funds active in the market, there are probably no more than 20 funds seriously investing in healthcare and biotech, and only a subset of those will have an appetite for brand-new technology, which may take 5-8 years to commercialize.

Myth #2: You can get free funding from the government and local bio-parks.

The truth is that local bio-parks may be willing to provide land at low prices, and perhaps a period of free rental, for companies which are considered to be more “established” — but don’t count on the government for providing money required for working capital or R&D.

Various local governments have set up funds to support local technology development —but most of these are available only to local-based and locally registered companies. It is possible to set up a local operation in order to qualify for these funds, but the direct cost of doing so, plus the indirect cost associated with additional management complexity, may end up being greater than the amount of money that you can gain.

Many local bio-parks have a window of only 3 to 5 years in order to prove their success with economic results, such as being able to show evidence that their tenants are generating tax revenue for the local government, or at least demonstrating that they have been able to attract high-talent employees to their park. Consequently, they too are under severe time pressure.

My observation has been that during the first couple of years after their launch, many local bio-parks are willing to provide some free support — but the bio-park may not have complete infrastructure during that period, so effectively you are getting partial compensation for the “hardship”.

Moreover, if your firm is still at the stage of proving its technology, then your product development cycle may be longer than the tenure of the local party leadership — and if so, then chances are that you will not get more than a few months of free rent. (And as noted above, it’s likely that you will have had to spend some money up front anyway, in order to establish the local branch operation which was a prerequisite to obtain local funding.)

Sounds depressing? Well, the outlook for early-stage funding is actually starting to improve. As I noted above, the majority of VC/PE funds are still focusing on investment opportunities which offer the prospect of quick gains. However, as competition heats up for those late-stage deals, it seems likely that a considerable amount of money will likely spill over toward early-stage ventures.

Over the past couple of years, healthcare and biotech opportunities in China have started to receive a lot more attention from VC/PE firms. So even though there are still only a few active bio-investors, the number of potential funding sources is clearly starting to increase.

Moreover, Chinese pharma companies and biotech entrepreneurs are also increasingly hungry to get involved in great new technologies, and also to develop partnership opportunities with their counterparts in the West. China always changes at a speed which surprises people, and I believe that in a few years, or possibly sooner, there might be a lot more funding sources for early-stage biotech ventures.

So in a few years, if your company is lucky to live till then, there’s a good chance that you will be better received in China than today. But if you are thinking about building a China footprint in the future, it’s not too early to start exploring — as long as you have plenty of patience, and set appropriate expectations. For the reasons given above, you may not find money right away — but if you are lucky, you will make some good friends, some useful connections, and some potential business partners.

My next blog post will provide some initial advice for bio-entrepreneurs who are planning to visit China in order to start getting familiar with the environment.

(Karen Liu is a healthcare investor at a leading China based PE and VC fund. The views and opinions expressed here are entirely personal and may not represent those of her firm.)

Karen Liu

A portrait of a Brasilian bioentrepreneur

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Brazil is the fifth largest country in the world, after Russia, Canada, China and US. With more than 190 million people, the country is divided into 26 federal states and one federal district in which the capital, Brasilia, is located. Today it is the biggest economy in Latin America and the eighth-largest economy in the world. In accordance with a Goldman Sachs study, Brasil will become the world’s fourth-biggest economy by 2050. It has also the most natural diversity in the planet, is self-sustainable in oil and one of the largest exporters of commodities in the world.

As every strong country has struggled in learning how to grow, Brasil is also learning on its own and from others how to develop its economy, step by step. Development is not only about a strong economy, but also about education and innovation. Indeed, Brasil must improve its expertise on managing extensive resources and natural advantages, but it also must continue to develop its knowledge of investing and creating innovative technologies, especially with biotechnology. The biotech industry in Brasil is about 15 years old and divided in 5 different sectors: human and animal health, agriculture, reagents, bioenergy and environment. My goal with blogging is to share my experiences surviving as an entrepreneur in the biotech industry. I want to discuss the challenges and efforts required for a bioentrepreneur to succeed.

I work in a typical Brasilian biotech company, meaning one created by a researcher or professor from a university, one with a technology it would like to sell. The company I work with was created by two brothers: one a dentist and scientist, and the other a physician and entrepreneur. After developing an innovative technology with no public or private money, the two brothers then created a company to manufacture and commercialize their technology. This was in the 1980’s, and their tissue-regeneration product, named Osteosynt, was far ahead of its time. Thirty years later, their invention has become one of the most efficient solutions in the world for tissue engineering applied in the reconstruction of bones losses or defects.

By looking back at this experience and at the Brasil of today, we’ll get an idea of the challenges that a bioenterpreneur faces in Brasilian biotech – this young, dynamic, competitive and complex industry.

Julio Vito Wykrota

Growing By Merger

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We’ve just published a new article on the Bioentreprener site, this one by Anu Acharya. She’s the CEO of Ocimum Biosolutions and also blogs for Disruptive Women in Healthcare. It’s a unique piece, detailing how and why a small biotech company might want to consider mergers and acquisitions as a form of growth, based on her experiences. You can read the PDF version here or go here for HTML version.

Brady Huggett

Academic bias and biotech failures

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I just met with an entrepreneur who was the founding CEO of a company created around an academic lab’s discoveries. It was fascinating new approach to drugging hot receptor targets. To protect the innocent I won’t mention the names, but Atlas Venture looked at in back in 2008 and, although intriguing, we ended up passing on the deal. Thankfully, because we missed a bullet – it recently was shut down.

The reason: the foundational academic science was not reproducible outside the founder’s lab.

The company spent $5M or so trying to validate a platform that didn’t exist. When they tried to directly repeat the academic founder’s data, it never worked. Upon re-examination of the lab notebooks, it was clear the founder’s lab had at the very least massaged the data and shaped it to fit their hypothesis. Essentially, they systematically ignored every piece of negative data.

Sadly this “failure to repeat” happens more often than we’d like to believe. It has happened to us at Atlas several times in the past decade.

The unspoken rule is that at least 50% of the studies published even in top tier academic journals – Science, Nature, Cell, PNAS, etc… – can’t be repeated with the same conclusions by an industrial lab. In particular, key animal models often don’t reproduce. This 50% failure rate isn’t a data free assertion: it’s backed up by dozens of experienced R&D professionals who’ve participated in the (re)testing of academic findings. This is a huge problem for translational research and one that won’t go away until we address it head on.

Reality is we live in a tournament model world of academic research: winners get the spoils, losers get nothing. Publish or peril.  Grants are really competitive, and careers are on the line. Only positive findings are typically published, not negative ones.  This pressure creates a huge conflict of interest for academics, and a strong bias to write papers that support the hypotheses included in grant applications and prior publications.  To think there is only objectivity in academic research, and pervasive bias in industry research, is complete nonsense.

But what about academic bias?  Or the lack of repeatability of academic findings? I couldn’t find a single paper in PubMed over the past few years.

So what can drive the failure to independently validate the majority of peer-reviewed

published academic findings?I’m sure there are cases where it’s truly fabrication or falsification of data, but as an optimist I believe that must be a tiny percentage: most of the time I think its just the influence of bias.  A few possible hypotheses exist for how this bias could manifest itself:

1. Academic investigator’s directly or indirectly pressured their labs to publish sensational “best of all experimental” results rather than the average or typical study;
2. The “special sauce” of the author’s lab – how the experiment was done, what serum was used, what specific cells were played with, etc.. – led to a local optimum of activity in the paper that can’t be replicated elsewhere and isn’t broadly applicable; or,

3. Systemically ignoring contradictory data in order to support the lab’s hypothesis, often leading to discounting conflicting findings as technical or reagent failures.

Importantly, how are venture capitalists who invest in biotech supposed to engage on cool new data when the repeatability is so low? Frankly, most VCs don’t do early stage investing these days, and this resistance to fund early academic spin-outs is in part due to the insidious impact of the sector’s high failure rate with academic reproducibility (a.k.a. ‘bias’). But for those of us who remain committed to early stage investing, I’d suggest there are at least two key takeaways for VCs:

  • Findings from a single academic lab are suspect. If other labs haven’t validated it in peer reviewed literature, it’s very high risk. It’s probably bleeding edge rather than cutting edge. If it’s only a single lab, it’s likely only a single post-doc or grad student who’ve actually done the work. Given the idiosyncrasies of lab practices, that’s a concentrated risk profile. Wait for more labs to repeat the work, or conduct a full lab notebook audit.
  • Repeating the findings in an independent lab should be gating before investing. Don’t dive in with a Series A financing prior to externally validating the data with some real “wet diligence”. Sign an option agreement with an MTA, repeat the study in a contract research lab or totally independent academic lab.

These two conclusions should help reduce the “reproducibility problem” for startups.

There are other implications of this problem, more than I can discuss here. But one is around the role of tech transfer offices. Although many TTOs are keen to start “seed funds” to spin-out new companies, this seems like a waste to me. I’d argue that the best use of these academic “seed” funds would be to validate the findings of an investigator’s work in a reputable contract research lab that industrial partners and VCs would trust. If a TTO could show 3rd party data supporting a lab’s striking findings, the prospects for funding would increase significantly. This is the type of de-risking that TTOs should focus on.

The bottom line is we need to confront the issue and figure out how to reduce academic bias and improve the external validation of published findings – this will undoubtedly reduce the failure rate of new biotechs and bring more capital back into the early stage arena.

Bruce Booth

Funding and biotech parks

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In my last post I talked about how to select the biotech sector to focus on, and how to become attractive to acquirers.

Today I want to talk about looking for government funding. Indian biotech start-ups, besides raising PE/VC capital, should start to look for government money, once they pass the proof-of-concept phase. For the high risk, IP sensitive, product companies (in the category of drug discovery, diagnostics, and clinical trials) with long thirst for funding, there’s now public money available for radical research. The Department of Biotechnology (DBT) as part of a comprehensive biotech development strategy for the life sciences, has launched the SBIRI (Small Business Innovative Research Initiative) as an early stage, and Biotech Industry Partnership Programme (BIPP), as a later-stage support scheme to concentrate on science and innovations and to rescue and fill the funding gap for early-stage investment and business support to biotech and medical device start-ups in the country. In addition, under the 11th Five-Year-Plan and the new legislation, the country’s DBT has kept aside 30% of its annual budget to fund public-private collaborations on new drug development. DBT has also sponsored Biotechnology Industry Research Assistance Programme (BIRAP) in partnership with ABLE and Biotech Consortium India Limited (BCIL) with an objective to assist and promote emerging biotech entrepreneurs and facilitate innovative research and development in existing small, medium as well as large industries. Enzene, a start-up that uses silk worms to develop therapeutic proteins and Navya Biologicals, which develops a complex biological technology platform, received early funding from the DBT.

Collaborate with global companies

Indian biotech start-up cannot leapfrog to global scale, as it has to evolve by creating value locally and then leveraging it globally. For example, biosimilars segment would offer huge potential for out-partnering with large biotech and pharma to call back molecules. Collaboration with a global company that has successfully built the biotech business would help a company enter in its markets by anticipating challenges and making strategies to overcome legislative hurdles in the emerging markets by building business development capability overseas. The recent Russia-India Biotech Network (RIBN) agreement holds immense significance for Indian SMEs in the biotech sector. Several global investors are evaluating Indian biotechnology startups’ intellectual property assets. Foreign investors are capitalizing on cross-border investment opportunities by allocating their assets in markets in India to ensure a well-balanced and diversified portfolio. Recently, Bangalore-based Cellworks Group Inc. raised about $8 million -$10 million from a California-based private equity investor. Investors would be more likely to provide capital and clinical expertise in exchange for licensing of a biotech’s pipeline under the collaborative development financing model.

Use a biotech park incubator

Government and industry have invested significantly in setting up biotech parks and incubation centers. They include Shapoorji Pallonji Biotech Park and ICIC Knowledge Park in Hyderabad, Rajiv Gandhi Biotech Park, Pune, TICEL Biotech Park, Tamil Nadu, etc. Catalyz, a stem cell therapeutics-based startup began at the Entrepreneurship Development Cell & Extension Centre of Technopark Biotech Incubator in Bangalore. Navya Biologicals was incubated at the University of Agricultural Services, Dharwad incubation facility. These biotech parks and facilities can provide the access to infrastructure at a low cost, noticeable to investors, and are regionally available.

Viren Konde

Demystifying China: Start up

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People read a lot about China these days. There is the booming economy, maintaining over 8% GDP growth in the midst of a slow global recovery. The Chinese pharmaceutical market is projected to climb into the world’s top three in 2011. The healthcare reform plan is supposed to inject US$128 billion into the healthcare system between 2009 and 2011, and has already helped double pharmaceutical sales one and a half years into the plan. We also hear trendy phrases such as the globalization of drug development, the new paradigm of drug development, FIPnet (Fully Integrated Pharmaceutical Network), superpharma, virtual biotech…and they all seem to be related to China one way or another.

But for many people just starting a company, China might seem at most a remote possibility. Surely it is fine for large global pharma companies to enjoy double digit sales in China. Surely there are good reasons that all the top ten pharmas have opened R&D

centers in China.

But wouldn’t you first need some product to sell, a few million dollars to invest and a sizable on-the-ground team? Wouldn’t results in the lab and in clinic, an M&A deal or another VC investment be more concrete and relevant than learning how to start a biotech company in China?

It leads to this question: How could a startup or an entrepreneur take advantage of the world of resources in China?

What is offered to large pharma in China is also available to small biotech and device companies (click here for more on opportunities in China). The factors making it difficult for a smaller player a decade ago – the requirements of a large investment in time, money, government relations and other human resources – is hardly there. Through two decades of rapid adaptation and adjustment, the Chinese drug development system has largely come into line with international standards, from the enabling infrastructure of regulatory approval process and intellectual property protection, to the quality of service providers and general operational excellence. It is getting easier and easier for little companies to take advantage of what China has to offer.

How the international biotech community uses these resources may have to be different from how large pharma uses them. Indeed, as small biotechs enter China, each seems to be taking on a different strategy and is slowly figuring out how to succeed in this new market.

For most of us, starting a biotech company is hard. In addition to being challenged with the long-term investment, low success rate, and risky nature of the new technology, we struggle with all the other things small business owners struggle with, such as limited resources and lack of experience in areas outside our field. We need all the resources we can find, and in this regard, China can be an additional resource, another tool in the tool chest. It is something you keep in mind when you need solutions, at times tactical, at time strategic. Figuring out when and how to use it is something that needs the creative and resourceful mind of an entrepreneur.

Chloe Liu

The basics: defining investment strategy, business model and value chain

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My last post provided an introduction and something of a road map for my upcoming posts. The objective of this post is to make sure we all have a common understanding of the terms “investment strategy”, “business model” and “value chain”, and how these terms are related. This will help us in future discussions about how biotech firms typically approach investment strategy and in discussing how it could be done better.

A firm’s investment strategy outlines “what”, “when” and “how” it will interact with its value chain to create value for shareholders. These decisions are embodied in its business model.

What is a “value chain”?

Michael Porter introduced the concept of the value chain in his book Competitive Advantage (published in 1985 and now a pivotal reference in the academic literature on strategy), using the term to describe all the activities a firm performs and how those activities interact. He said a firm’s value chain is embedded in a larger stream of activities, called the value system. This figure shows a typical value chain for the development of a drug.

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Often, in the process of biotech drug development, firms will take up one or a number of the activities required to take a product from discovery to market.

Although Porter originally coined the phrase value system to describe this entire process, most people typically refer to it as the value chain. So I am going to use that term to cover activities carried out upstream, downstream and in parallel to the activities undertaken with a given firm.

The value chain is composed of a matrix of supply chain relationships along the drug discovery process. Only a small handful of biotech companies are engaged in the full value chain, from research and development through to marketing. The vast majority of biotech firms exploit a small or specialised niche.

The pharmaceutical value chain is characterized by two quite different focuses. The first is the business of scientific innovation – discovering a lead drug candidate then taking it through various stages of screening and preclinical testing, and eventually phase I and II human trials. A phase II trial is usually aimed at achieving a clinical proof of concept. The second focus is on commercialisation, which involves gathering information required by regulators and customers and communicating it to them. These activities occur during phase III clinical trials, the regulatory approval processes, marketing and selling, and any phase IV post-marketing studies.

Whilst the value chain outlines the major stages involved in getting a drug from concept to market, it does not indicate how multiple parties may interact with the value chain around any one (or multiple) stage. The vast majority of biotech firms either contract or collaborate for access to a wide variety of skills and complementary assets (such as manufacturing, sales and marketing infrastructure and distribution) that are vital to the development and commercialisation of their own innovation, or they provide know-how and services that other firms are reliant on.

The commercialisation strategy of a biotech involves the decisions it makes about “what”, “when” and “how” it will interact with its value chain. (Investment strategy also includes decisions around other parameters that can be particularly important in some biotech companies e.g. “where” to situate a company, “who” strategic partners are, “whom” strategic shareholders are, etc. But we’ll consider that at a later point.)

“What” describes the final product or service that the firm offers. For a pharmaceutical company this includes the formulation, presentation and therapeutic indications for a drug. “When” describes the point in the value chain that a firm decides to earn a return on its innovation. For example a firm may decide to sell or license a drug candidate soon after its discovery, or after preclinical testing or after phase I, II or III clinical trials. “How” refers to the revenue model through which value flows back to the company. Examples of revenue transaction mechanisms include direct physical product sales, licensing of technology for royalty payments, sale of technology and outright sale of the entire firm. All these strategic choices are summarised in a firm’s business model.

Arguably each firm should aim to insert

their product, service or intellectual property into the value chain at the point that will maximize value creation for its shareholders. Full integration is not an option for most biotech firms due to a limitation in financial and human resources. So a commercialisation strategy needs to evaluate the costs, rewards and risks of participating further down the value chain, or enabling the firm to control more of the product development, manufacturing and marketing activities. To do this it is helpful to have a good understanding of what factors drive a company to commercialise (earn a return) in the “market for ideas” vs. the “market for products”. That is coming up in my next post!

Janette Dixon

South Africa’s TIA plans

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In my earlier post, I talked about how TIA came into being. Now I want to talk about what it does.

In 2007, the new Department of Science and Technology (DST) carried out an audit of its activities and achievements, and used the Organization for Economic Co-operation and Development (OECD) to do this. The results showed a lack of focus, thinly spread human resources, lack of an appropriate intellectual property regime, lack of long-term planning instruments, narrow definition of innovation, fragmentation of instruments and the existence of the “innovation chasm,” otherwise known as the “valley of death.”

In response to the OECD findings, the government through the DST crafted a 10-year innovation plan to address both the technology infrastructure planning and fragmentation gap, and the lack of focus. The Technology Innovation Agency (TIA) Act and the Intellectual Property Rights Act were enacted by parliament in 2008 to address the innovation chasm and the intellectual property protection gaps. The Human Capital Development Strategy is currently under discussion, but a number of initiatives are being taken to address this weakness.

The DST’s 10-year plan sets out projections to address the countries grand challenges, described as: Farmer to Pharma, energy security, global change, human and social dynamics, and space science & technology (Farmer to Pharma is directly related to the biotech space). This plan aims to have South Africa among the top 10 nations in the world in terms of the pharmaceutical, nutraceuticals, flavour, fragrance and bio-pesticide industries by 2018.

To improve in the area of intellectual property, the government established the National Intellectual Property Management office (NIPMO). This office was formed in order to address challenges of Intellectual Property Rights in the country. The Act further advocates for the establishment of Technology Transfer Offices at all universities that conduct research in the country in order to manage the IP generated and provide mechanisms for commercialization. As a foresight of the department, research chair positions in strategic fields were established.

The purpose is to increase the number of world class researchers, retain and/or attract back qualified research scientists, stimulate strategic research across the knowledge spectrum and create research career pathways for young scientists. In addition, the department is liaising closely with the government departments of higher education and basic education toward the development and training of a pipeline of high-level skilled scientists, engineers and technologists.

Like most emerging economies, South Africa is experiencing a major scarcity of high-level skilled individuals who have entrepreneurial flair. To change this situation, there are universities in the country that have started to teach students entrepreneurial skills at Honors level. These programmes will continue right up to the post-graduate level. To make the courses more interesting, industry experts are invited to share their experience with the students. To improve the skills shortage, universities are also creating MBA programmes that target or are tailored to certain industry sectors such as pharmaceutical, diagnostics or agriculture production.

There is, of course, no magic wand that can be waved to create a successful biotechnology industry. After establishing the innovation centers previously discussed, it was realized that consolidating these institutions would result in a better throughput of converting ideas to products and services. This led to the establishment of TIA with a mandate of stimulating and intensifying technological innovation in order to improve economic growth and quality of life of all South Africans by developing and exploiting technological innovations. TIA is attempting to mine the existing knowledge from its former entities, as well as generate new knowledge to bridge the innovation chasm in the country by developing technology-based products and services that have the potential of being commercialized and distributed locally and abroad. The TIA building blocks are the former institutions in the innovation centers, the Innovation Fund, Advanced Manufacturing Technology Strategy and Tshumisano.

The products offering of the TIA are aimed at maximizing socioeconomic benefits throughout the country by:

• Providing appropriately structured financial and non-financial interventions for the commercialisation of research and development results

• The development and maintenance of advanced human capacity for innovation as opposed to just research and development

• Establishing technology nursery programmes aimed at supporting technology development and the establishment of technology-based enterprises

• Facilitating national and international collaboration for technology development and innovation and proactively encouraging and supporting inbound technology transfer

• Leveraging local and international partnerships in order to facilitate technology transfer, build local technological competencies, and encourage foreign direct investment for the commercialisation of technologies in South Africa.

The other institutions that foster innovation in the country are the nine science councils, 16 universities and 8 universities of technology. Science councils involved in biotechnology research are the council for scientific and industrial research (CSIR), medical research council (MRC), the agricultural research council (ARC) and Mintek. The universities are focusing more on basic research while the science councils are focusing in the area of applied research. Together with TIA and the private sector, it is hoped that the innovation chasm will be closed and there will be more biotech products and services coming into the market.

Blessed Okole

Royal Society report

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For those interested in seeing how science is becoming internationally intertwined, let me gently suggest a new report by The Royal Society, titled Knowledge, networks and nations: global scientific collaborations in the 21st century.

It’s a 114-page PDF, and I’ll admit I’m but 20 pages in. Still, the executive summary alone has interesting information. For example: more than 35% of articles published in international journals today are internationally collaborative, the report says; 15 years ago it was 25%.

The paper also offers recommendations, including the one many researches want to hear – that even when recessions hit, national governments should continue to invest in science.

You can read the report here.

Brady Huggett

Registering a company in India

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resized.jpgBiotech companies in India have witnessed a huge growth over the past decade, and the future is bright with the emerging economic and liberalization policies. Growth in the customer base has drastically supported aggressive investments in the biotech sector. Indian biotech industry is expected to be valued at $75 billion -$90 billion by 2020. The high demand for biotech products has also allowed foreign companies to set up bases and reap great profits. Public-private partnerships and strong support from Indian government have boosted the biotech industry to greater heights. You can read many market survey reports and studies carried out by different companies about the opportunities in India, but you’ll need to plan thoroughly and read comprehensively about India and Indian culture before exploring opportunities in the subcontinent. Obviously, it is easy to register a company in India for an Indian citizen, compared to a foreigner. But it can be done, and I’m going to concentrate on the official procedures that are required for starting (interchangeably used for registering or founding) a company in India.

Background preparation: If you are an Indian citizen, then you can register about six to seven types of business entities in India, namely, Private Limited Company (limited by shares), Public Limited Company (limited by shares), Public Company (with unlimited liabilities), Company limited by guarantee, Partnership firm, Sole Proprietorship firm and co-operatives as producer company. Non-Indians (foreigners) are allowed to register private limited company (with 100% equities), private limited company (joint venture with Indians) and public limited company (with minimum of one shareholder and director of Indian citizen). You have to decide which business entity fulfils business requirements. Private limited company is preferred by almost all foreigners (individuals or entrepreneurs), because it has minimal agreement constraints, and it’s the best choice if you do not have any intentions to raise public funds.

For non-Indian citizens, I advise availing the services of a company secretary or chartered accountant – someone competent or authorized to register the company in the specific state or Union Territories of India. All the official procedures will be carried out by them, and it is easy for you to manage him or her as a “single point of contact.” The service charges of such consultants differ from state to state. In Karnataka state, it ranges between $700 and $900 and they will complete all the formalities within a week or ten days. The Companies Act (1956) is one of the governing laws for the registration of companies in India. All registered companies are under the Ministry of Corporate Affairs by means of office of Registrars of Companies (ROC). The guidelines, statutory requirements and official procedures are the same throughout the nation except different official languages and stamp duties in different states and Union Territories. The administration, company names, registry of records, transactions and forms in ROC are carried out in English language through the respective regional directors.

Registration of company name: Registering your company name is the first step in the pre-registration of company or company incorporation in ROC. The process of company registration begins with filling out application Form No.1A, available in the ROC office of the state. You have to submit the filled-in Form No.1A to ROC office by payment of prescribed fees. Pre-requisite for this submission is the address proof of the Registered Office of the proposed company, and name and signature of one of the promoters (director or subscriber). “Promoter” means a person or persons who have control over the affairs of the company directly or indirectly, whether as a shareholder, director or otherwise, and includes any person or persons named as promoters in any offer document or document by reason of his acting in the professional capacity. You have to rent a house or business office, because you might require a “lease agreement” or “rent agreement” as “address proof” of the promoter (director or shareholder). You have the option to propose a panel of three to five company names quite distinct from each other for consideration.

ROC staff will search the proposed names for availability or any resemblance with other company names in India. ROC staff will let you know if they find it difficult to approve names that might create confusion in the minds of the public and harm the interest of the promoters. You will be given up to two opportunities for re-submission of the new panel of company names against the fee paid in the first instance for name availability after the original application is filled. Within a day or two, the name will be allotted for a company. If the name is not adopted 60 days after it is allowed, you may apply for extension for retention of such name for further period of 30 days on payment of 50% of the fees prescribed for the application at the initial stage. The name allowed shall lapse after expiry of sixty or ninety days, as the case may be, from the date it is allowed first. If you agree to the allotted name, the “name allotment certificate” will be issued to you. This is called pre-registration process.

After the “name allotment certificate” is obtained from the ROC, you have to prepare the Memorandum of Association (MOA) and Articles of Association (AOA) for the proposed company. The format and description are almost similar to other countries of the world. MOA mainly covers the primary, auxiliary and other business activities of the proposed firm. AOA incorporates the guidelines for the standard operations and conduct of the proposed company along with the certified share capital, first directors or founding directors, the names and addresses of first directors and so on. Private limited company must have two directors and two share holders; and in case of a public limited company, there should be three directors and seven share holders.

We shall discuss more about the documentation stage of the company registration in the next article. 

Prashanth Bagali