Where Attention Goes,
Investment Follows
By: Seema Jhingan (Partner)
Due Diligence Prior to Partnership


Choosing the Right Partner

Brand

Revenue Model

Management Team

Viability of existing business models

Strategy for and commitment to growth

Alignment of interests

Competitive advantage
Purpose of Due Diligence

Identify and value assets and business model

Uncover hidden liabilities and risks

Determine level of corporate governance
2
Due Diligence Prior to Partnership

Aspects of Due Diligence

Organizational and operational matters

Capital & management structure

Board/General meetings

Corporate compliances/filings

Compliance with law including corporate, labour, taxation, education, charity

Standard contracts with services providers, employees, vendors

Internal policies, including HR policies, privacy policies, data protection

Ownership of/rights to use intellectual property

Title to/right to use immovable property including tenure in cases of lease

Litigation
3
Regulations and Legal Safeguards for a Growing
Educational Enterprise

Applicable Charity Laws – K12 and Higher Education

Societies
Key Compliances under Societies Registration Act:

Annual reporting to the Registrar of Societies regarding holding of
annual general meeting and details of governing body members

Filing accounts and statement of income/expenditure with the
Income Tax authorities

In some states like Maharashtra, there is also a requirement of
submission of audited accounts annually
4
Regulations and Legal Safeguards for a Growing
Educational Enterprise

Applicable Charity Laws – K12 and Higher Education

Trusts
Key Compliances for a trust under a state legislation, for instance, the
Bombay Public Trust Act, 1950:

Maintenance of register of movable and immovable properties of the
public trust

Submitting of duly audited accounts to Charity Commissioner

Submitting a budget depicting probable receipts and disbursement
of the trust to the Charity Commissioner
5
Regulations and Legal Safeguards for a Growing
Educational Enterprise – K12

School education acts and rules passed by State Governments such as the
Delhi School Education Act

Key Compliances under Delhi School Education Act:

Non diversion of funds

Creation and maintenance of reserve fund out of savings/surplus of at
least 10% of the savings of the school

Filing statement of fees to be levied during the academic session

No charging of fees, contribution, etc., from students by the governing
society/ trust

Filing annual audited financial and other prescribed returns
6
Regulations and Legal Safeguards for a Growing
Educational Enterprise – K12

Affiliation bye-laws prescribed by education boards like ICSE, CBSE, IB, etc. such
as CBSE Affiliation Bye-Laws

Key Compliances under CBSE Affiliation Bye-Laws:

Utilization
of
revenue
only
for
expenses
and
expansion

Non diversion of funds to any individual in the governing body or
management committee

Submission of audited accounts to CBSE every year

Non-transfer of assets and property of the school
7
Regulations and Legal Safeguards for a Growing
Educational Enterprise – K12

The Right of Children to Free and Compulsory Education Act, 2009 and the Right of
Children to Free and Compulsory Education Rules, 2010 (“RTE Law”)

Key Compliances under RTE Law:

Reservation of 25% seats in Class I for children belonging to weaker
section and disadvantaged group

No capitation fee

No screening procedure when admitting a child

Equal treatment of students

Pupil-Teacher Ratio - For instance, there should be 60:2 ratio for
Classes I to V

Maintenance of minimum infrastructure
8
Regulations and Legal Safeguards for a Growing
Educational Enterprise - Higher Education

University Grants Commission through University Grants Commission Act, 1956,
UGC (Maintenance and Establishment of Standards in Private Universities)
Regulations, 2003 etc.

Key Compliances:

Operation of private universities to be confined to the boundary of the State
concerned

Admission procedure has to be in accordance with the norms/guidelines
prescribed by UGC and other concerned statutory bodies

Can fix own fees subject to approval of the State or Central level committee

No capitation fee

No profiteering

Fees fixed to remain binding for a period of three years
9
Regulations and Legal Safeguards for a Growing
Educational Enterprise - Higher Education

State governments through Private Universities Act such as Haryana Private
University Act, 2006, Himachal Pradesh Private University (Establishment and
Regulation) Act, 2006 etc.

Key Compliances:

Must obtain accreditation

Admissions based on merits

Follow time period for declaration of results

Utilization of income from endowment fund (may be utilized for
development of infrastructure of the university but not for meeting
recurring expenditure)
10
Regulations and Legal Safeguards for a Growing
Educational Enterprise - Higher Education

Regulatory bodies such as the All India Council for Technical Education, Medical
Council of India, Bar Council of India, Dental Council of India, Indian Nursing
Council, etc. through regulations such as All India Council for Technical Approval
Process Handbook, 2010

Compliance with norms and standards relating to infrastructure, faculty-student ratio,
maximum number of divisions and intake of students per shift

Approval for introduction of new courses
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Regulations and Legal Safeguards for a Growing
Educational Enterprise - General

Vocational Segment


Predominantly Unregulated
General

Service tax laws, Income Tax Laws, Sales tax laws, Corporate laws etc.
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Legally Accepted Business Models for Growth


Management Services Arrangements

Revenue generation without significant investment

All services except for day to day operations and core management and academic
functions may be outsourced
Brand Licensing

Revenue generation without significant investment

Ensure protection of brand & goodwill

Define scope of license, usage, concept, revenue flow,

Advertisement and enhancing brand image, standard of quality to be maintained by
licensee
13
Legally Accepted Business Models for Growth

Franchising Arrangements

Revenue generation without significant investment

Seek appropriate representations and warranties from franchisee regarding
compliance with law

Protecting revenue flow

Quality controls and checks

Non-compete

Scope of license, protection of the concept, image and IP rights
14
Legally Accepted Business Models for Growth

Joint collaboration such as with real estate developers and reputed intellectual
property/pedagogy/content providers

Ensure infrastructural development

Continued responsibility of maintenance and repairs

Clarity on revenue sharing model

Continuity of relationship and limited grounds for termination
15
Legally Accepted Business Models for Growth

Partnering with foreign education providers

Prior approval of AICTE for technical education under the AICTE Regulations
for Entry and Operation of Foreign Universities in India imparting Technical
Education, 2005

Compliance with the Foreign Educational Institutions (Regulation of Entry
and Operations) Bill once it becomes law for higher education institutes
16
Legally Accepted Business Models for Growth

Outsourcing of services to leverage established expertise

Helps leverage external expertise and maintain quality growth

K-12 – extra-curricular programs; teacher training, specialized content

Higher Education - teacher training; licensing of content and curriculum
development services; license of branded trademarks and services marks

Vocational – seeking audio-video and multimedia content; course certification
services, interactive computer aided learning
17
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New Delhi – 110049
Tel: +91-11-41662861
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E-mail: [email protected]