8.

Exit Strategies and Social Responsibilities

What is a 'Business Exit Strategy'

A business exit strategy is an entrepreneur's strategic plan to sell his or

her ownership in a company to investors or another company. An exit strategy
gives a business owner a way to reduce or liquidate his stake in a business and,
if the business is successful, make a substantial profit. If the business is not
successful, an exit strategy (or "exit plan") enables the entrepreneur to limit
losses.

Entrepreneurs live for the struggle of launching their businesses. But one thing
they often forget is that decisions made on day one can have huge implications
down the road. You see, it's not enough to build a business worth a fortune; you
have to make sure you have an exit strategy, a way to get the money back out.
For those of you who like to plan ahead--and for those of you who don't but
should--here are the five primary exit strategies available to most entrepreneurs:
Just Take It. One favourite exit strategy of some forward-thinking owners is
simply to bleed the company dry on a daily basis. Pay yourself a huge salary,
reward yourself with a gigantic bonus regardless of actual company
performance, and issue a special class of shares that only you own that gives
you ten times the dividends the other shareholders receive. Although we frown
upon these practices in public companies, in private companies, this actually
isn't such a bad idea. It's called a "lifestyle company."

Pros

● Who doesn't like seven figures of take-home pay?

● There's no need to think hard about getting out: Just pull out the money
when you need it.

Cons

● The way you pull the money out may have negative tax implications. For
example, a high salary is taxed as ordinary income, while an acquisition
could bring money in the form of capital gains.
● Without careful long-term planning, you may end up pulling out money
now you'll need later.

The Liquidation. Even lifestyle entrepreneurs can decide that enough is

enough. One often-overlooked exit strategy is simply to call it quits, close the
business doors, and call it a day. I don't know anyone who's founded a business
planning to liquidate it someday, but it happens all the time. If you liquidate,
however, any proceeds from the assets must be used to repay creditors. The
remainder gets divided among the shareholders--if there are other shareholders,
you want to make sure they get their due.

Pros

● It's easy and it's natural. Everything comes to an end.

● There's no negotiations involved.
● There's no worrying about transfer of control.

Cons

● Get real; it's a waste! At most, you get the market value of your
company's assets.
● Things like client lists, your reputation, and your business relationships
may be very valuable, and liquidation just destroys them without an
opportunity to recover their value.
● Other shareholders may be less than thrilled at how much you're leaving
on the table.

Selling to a Friendly Buyer: if you've become emotionally attached to what

you've built, even easier than liquidating your business is the option of passing
ownership to another true believer who will preserve your legacy. Interested
parties might include customers, employees, children or other family members.

Pros

● You know them. They know you. There's less due diligence required.
● Your buyer will most likely preserve what's important to you about the
business.
● If management buys the business, they have a commitment to making it
work.

Cons

● You can get so attached to being bought by someone nice that you leave
too much money on the table.
● If you sell to a friend, they'll be peeved when they discover they just
bought the liability for that decade's worth of taxes you forgot to pay.
 ● Selling to family can tear the company apart with jealousies and
promotions that put emotion way ahead of business needs.

The Acquisition. The acquisition was invented so you can sell your business
and leave the kids money, still spoiling them rotten, but at least sparing the
business from second-generation ruin. Acquisition is one of the most common
exit strategies: You find another business that wants to buy yours and sell.

In an acquisition, you negotiate price. This is good. Public markets value you
relative to your industry. Who wants that? In an acquisition, the sky's the limit
on your perceived value. You see, the person making the acquisition decision is
rarely the owner of the acquiring company, so they don't feel the pain of
acquisition cost. Convince them you're worth a billion dollars, and they'll gladly
break out their employer's checkbook.

Pros

● If you have strategic value to an acquirer, they may pay far more than
you're worth to anyone else.
● If you get multiple acquirers involved in a bidding war, you can ratchet
your price to the stratosphere.

Cons

● If you organize your company around a specific be-acquired target, that

may prevent you from becoming attractive to other acquirers.
● Acquisitions are messy and often difficult when cultures and systems
clash in the merged company.
● Acquisitions can come with noncompete agreements and other strings
that can make you rich, but make your life unpleasant for a time.

Applying to be adjudicated as a Sick unit

The Board for Industrial and Financial Reconstruction (BIFR) was an agency of
the government of India, part of the Department of Financial Services of
the Ministry of Finance. Its objective is to determine sickness of industrial
companies and to assist in reviving those that may be viable and shutting down
the others.But from 1 December 2016, by an official notification, Government
of India dissolved it and all proceedings to be referred to the National Company
Law Tribunal (NCLT) and National Company Law Appellate Tribunal
(NCLAT) as per provisions of Insolvency and Bankruptcy Code.
The act was to provide a way to revive sick industrial companies and release
public funds. If a company is found to be sick, the BIFR can give the company
reasonable time to regain health (bring total assets above total liabilities) or it
can recommend other measures. The board can take other actions including
changes to management, amalgamation of the sick unit with a healthy one, sale
or financial reconstruction. The Board can recommend a sick industrial
company for winding up.
The BIFR was intended to bridge the legal gap between sickness and revival. It
would impose time schedules for revival related activities to be completed,
oversee their implementation and conduct periodic reviews of sick accounts.
The BIFR would provide a forum for sharing views, coordinating effort and
developing a unified approach to dealing with sick companies, speeding up the
start of corrective action. The BIFR was meant to either turn companies around
within six months or order closure.

Corporate Social Responsibility (CSR)

Applicability
A. Every Company having:-
(i) Net worth of Rs 500.00 Crore or more during Financial Year or
(ii) Turnover of Rs 1000.00 Crore or more during Financial Year or
(iii) Net profit of Rs 5 Crore or more
Shall constitute the corporate social Responsibility committee.
The Committee Consist of Minimum 3 director out of which 1 shall be independent
director.
-Provided that an unlisted company or private company which is not require to
appoint independent director shall have CSR Committee without the such
director.
-Provided that a private company having the 2 director on its board shall have
CSR Committee with such 2 director.
Every Company which ceases to follow the above 3 condition for 3 Consecutive
financial year shall not be require to follow the provision of sec 135.
Schedule VII –Activity on which amount is to be spend treated as CSR.
In Detailed Schedule VII as per company act 2013
♦ Eradicating hunger, poverty and malnutrition, promoting preventive health care and
sanitation and making available safe drinking water:
♦ Especially among children, women, elderly, and the differently abled and livelihood
enhancement projects;
Promoting gender equality, empowering women, setting up homes and hostels for
women and orphans; setting up old age homes, day care centres and such other
facilities for senior citizens and measures for reducing inequalities faced by socially
and economically backward groups;
♦ Ensuring environmental sustainability, ecological balance, protection of flora and
fauna, animal welfare, agroforestry, conservation of natural resources and
maintaining quality of soil, air and water;
♦ Protection of national heritage, alt and culture including restoration of buildings and
sites of historical importance and works of art; setting up public libraries; promotion
and development of traditional arts and handicrafts:
♦ Measures for the benefit of armed forces veterans, war widows and their
dependents;
♦ Training to promote rural sports, nationally recognised sports, paralympic sports
and Olympic sports;
♦ Contribution to the Prime Minister’s National Relief Fund or any other fund set up
by the Central Government for socio-economic development and relief and welfare
of the Scheduled Caste, the Scheduled Tribes, other backward classes, minorities
and women;
♦ Contributions or funds provided to technology incubators located within academic
institutions which are approved by the Central Govemment.
♦ Rural development projects.”
Following Expenditure are not treated as a CSR
i) Any amount Contributed to political party is not treated as a CSR.
(ii) Any project/Programme which benefits the employees or their family is not
treated as CSR.
(iii)Any activity undertaken by company during the normal course of business is not
treated as CSR.
How much amount is to be spend on CSR
Atleast 2% of average net profit made by company in preceding 3 financial years.
Net profit means
Profit before Tax xxx
(-) Foreign Subsy/Branch Profit (xxx)
(-) Dividend rec from company which is (xxx)
Covered under the provision of Sec 135

Total Net Profit xxx

If company not spend the amount on CSR then Board of Directors shall specify the
reason for not spending the amount on CSR on its Report i.e. Board Report