Internet of Things - How Preemptive Consultation from a Lawyer Can Decrease Your Cost of Doing Business

INTERNET OF THINGS: THE BUSINESS PROSPECTS

As we have seen in the previous posts, the IoT business is in the boom, exploring new trends and possibilities constantly, and continuously evolving with technological advances. It gives rise to several legal questions, and the law is rapidly undergoing corresponding dynamic changes to adapt to the new demands created. When the extent of regulatory control and statutory requirement is spread over a plethora of areas such as Information Technology, privacy, commerce and business, IPR, etc., it becomes quintessential for a company to consult a lawyer before beginning with the business and its procedural requirements. In addition to that, the costs involved in any start up is immense, and would require investments from all people involved, and also formal or informal modes of borrowing. There is less prospect of being able to reduce the costs in terms of hardware/software, inventory, employee or similar requirements; but pre-emptive consultation from a lawyer can certainly help you mitigate the costs at least to some extent.

HOW PRE-EMPTIVE CONSULTATION DECREASES COST OF DOING BUSINESS

·         Choice of Business Structure: The Indian legal scheme allows you to shape a business in several structures, like a One Person Company, Public Ltd Co, Private Ltd Co, Limited Liability Company (LLC), Limited Liability Partnership (LLP), Partnership firm, etc. The limitation (or not) of liability, the legal formalities involved, extent of Regulatory compliances, etc. would depend on the structure, and thus it is a major decision to be made while planning the business. A lawyer can guide you properly, advising you on the nature of each structure, and helping you choose a suitable one. This would help to get rid of confusion and possible unnecessary expenses thereon.

·         Ensuring Pre-Commencement Compliances: Legal advice and guidance from a lawyer can help you make sure that all necessary Regulatory compliances have been met and the mandatory documents are well in place, before you commence with your IoT business. This would prevent occurrences of violations or breaches due to ignorance of law (which is not an excuse), and would in turn prevent chances of imposition of penalties.

·         Contracts (Indian kanoon): Any Business endeavour, whether IoT or not, would need to enter into contractual relationships with several parties in course of business, whether it be consumers, shareholders, or other stakeholders. Proper drafting of these contracts is essential to limit the liability of the company in case of any breach of terms, or loss incurred to the other party; only proper drafting can possibly absolve or at least limit the liability to compensate the person in such case. Since IoT business tests waters of different matters such as IPR, IT, business, consumer laws, privacy laws, etc., it is very important to have carefully drafted contracts and agreements with each of the concerned parties.

·         Equity Financing: Seeking equity financing for a business involves preparation of shareholder agreements and review of related documents, assessment of potential impact of such agreement on other contractual liabilities of the business, etc.

·         Tax Liabilities: A lawyer can assess your business to ensure that your activities do not lead to any unnecessary tax liabilities, and thus minimise taxes; at the same time overseeing that you indeed pay the amount you are liable to pay. While it is perfectly legal to minimise tax liabilities, it is to be ensured that you don’t ignorantly evade taxes in any manner.

·         Risk Appraisal: While entering into business contracts, transactions, or in making investment decisions, it is essential to properly evaluate the risks involved, and balance it with potential profits of a risky investment. A lawyer can properly evaluate a legal risk that may be inherent in a particular nature of investment or a transaction. For eg. a lawyer can reasonably predict whether a particular technology that you purport to buy for your IoT business is under risk of regulatory shackles owing to public safety concerns (like privacy or security); and help you prevent loss.

·         Negotiations: Business transactions include a plethora of negotiations and deals with several stakeholders such as suppliers, financiers, banks, etc. In case of an IoT business, you would be required to negotiate with the manufacturers and Patent holders of a number of different technologies, and work out a deal to bring all this innovation under a single umbrella. A lawyer could help you negotiate well with the other stakeholders, incorporating favourable terms and conditions; at the same time preventing terms that would be unfavourable to you.

The benefits of cost-cutting, stated above, are only a few of the advantages that would accrue to a prospective business by way of pre-emptive consultation of a lawyer. The major premise of a lawyer’s role in business environment is that ensuring various regulatory compliances would prevent future liabilities and consequential penalties. The IoT domain is new and emerging to the business world, and contains lucrative prospects of growth and profits; being ventured into by many companies in the past few years. The help of a lawyer could afford you a s afer and cheaper entry and survival (and of course flourishing, we hope!) in the IoT domain. 

GST FOR BUSINESSMEN-AN INSIGHT INTO A FEW PRACTICAL ASPECTS

The Goods and Services Tax is almost here, and all businesses are eager to make out its implications on their trade and potential profits/loss. The term GST has now become ubiquitous, and all related professionals are focusing on the same to come up with as many sensible speculations and forecasts as they practically could, for arriving at commercial and economic foresight. We have here enlisted a few practical aspects derived from the Schedules I, II and III of the Central Goods and Service Tax Act which received the assent of the President and was published in the Gazette of India on 12^th April 2017.  Since the levy of tax is subject to whether the said activity falls within the meaning assigned to the term “supply” under S.7 of the Act, it becomes essential to comprehend what exactly the term connotes. In this Article, the legal jargons entwined in the Act have been brought out to the common man in simple and straight language.

Supply has been widely defined under the Act (Indian Kanoon), including within its purview sale, transfer, barter, exchange, license, rental, lease; import of services for consideration irrespective of whether it was done in furtherance of business; and in addition, the activities listed in Schedules I and II. Furthermore, activities carried out by the Central Government, a State Government or any local authority in their capacity as  public authorities, are exempted from the purview. In addition to that, activities enlisted in Schedule III are considered neither as supply of goods nor as supply of services.

Activities to be treated as Supply even when made without consideration

·         The permanent transfer or disposal of business assets where input tax credit has been availed on these assets. Input Tax Credit is the credit of input tax that a seller may avail, while the product moves from one level to the other in the chain. (Manufacturer à Wholesaler à Retailer à Consumer)

·         Supply of goods, services or both made in the furtherance of business, when done between related or distinct persons. However, gifts of up to Rs. 50000/- in value in a financial year by an employer to an employee are exempted from this purview.

·         Where a Principal supplies goods to his agent where the agent undertakes to supply such goods on behalf of the principal; or where an agent supplies goods to his principal where the agent undertakes to receive such goods on behalf of the principal.

·         Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

Activities to be treated as Supply of goods or supply of services

·         Transfer of the title in goods is a supply of goods

·         Any transfer of right in goods or of undivided share in goods without the transfer of title, is a supply of services.

·         Transfer of title in goods under an agreement that property in goods would pass at a later date upon the payment of full consideration, is a supply of goods.

·         Any lease, tenancy, easement, license to occupy land is a supply of services; similarly, lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.

·         Any treatment or process which is applied to another person's goods is a supply of services.

·         If goods forming part of the assets of a business are transferred or disposed of at the directions of the person carrying on the business, it is to be treated as a supply of goods, irrespective of whether the transfer is made for a consideration.

·         If goods held or used for the purposes of the business are put to any private use or are used for any other purpose not incidental to the business, under the direction of a person carrying on a business, making available of such goods is a supply of service.

·         Renting of immovable property, construction of a complex, building, civil structure, etc. is to be regarded as supply of services.

·         Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration is regarded as a supply of goods.

Activities treated neither as Supply of Goods nor as Supply of Services

·         Services by an employee to the employer in the course of or in relation to his employment.

·         Services by any court or Tribunal established under any law for the time being in force.

·         Functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities.

·         Duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity.

·         Services of funeral, burial, crematorium or mortuary including transportation of the deceased

·        Actionable claims, other than lottery, betting and gambling.

Reference to the provisions of the Schedules help to interpret the Section defining and elaborating what is regarded as Supply under the Act.