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Legal Practice

Why Indian lawyers must have knowledge of corporate finance?

India has witnessed tremendous growth in the corporate sector in the past few decades. There has been an increase in the set up of businesses and industries, leading to a rise in competition. Corporate finance has played a significant role in the advancement of the corporate sector. Every company ensures that all its financial and investment matters are handled with due care and expertise due to which corporate lawyers are much in demand. A lawyer who has knowledge about corporate finance serves many purposes for a company. Starting from acting as a financial advisor for the company, handling all the business negotiations, mergers and acquisitions and other financial and investment decisions to providing legal advice and taking care of the legal rights and duties of a company, a corporate lawyer can do it all.

What is Corporate Finance?

Corporate finance is primarily concerned with the financing and investment decisions taken by businesses or companies to achieve their corporate goals. Its object is to allocate corporate funds or resources in such a manner as to maximize the profits of the shareholders. The study of corporate finance thus, allows us to understand the financial objectives of a company while creating a balance between the interests of owners or shareholders and creditors or employees, suppliers, and customers.

Why is the knowledge of corporate finance important for lawyers?

In the corporate sector, lawyers have to offer a variety of services to their clients. They have to handle all the business activities of a company which includes negotiation, mergers, and acquisitions, buying and selling of the business or business assets, drafting agreements and financial reports, assisting in financial matters, taking care of the legal rights and duties of a company and many others. To deliver all the above-mentioned services in a diligent manner, it is necessary for the Indian lawyers to have basic knowledge of corporate finance.

Equity and Debt financing

Financial stability is crucial for a business to flourish as well as sustain. It acts as a pillar of the business. While getting financial support for your business may seem like a mammoth task, choosing the correct mode of financing is even tougher. Equity and Debt financing are two ways through which businesses can seek financial support. In debt financing, the creditors lend some amount of money to the businesses which are paid back with due interest. The creditors cannot own the business, whereas, in equity financing, investors invest money in businesses and accordingly receive the profits. Inequity financing, investors gain some control over the business. People often get confused between the two. It is the job of a corporate lawyer to tell his clients the difference between equity and debt financing, weigh the pros and cons of both the methods and advise his client accordingly which one will be the most suitable for the company. Hence, basic knowledge of corporate finance is a necessity for lawyers.

Mergers and Acquisitions

The two most common methods adopted by companies to expand their businesses and gain more revenues is Merger or acquisition. Merging of two or more businesses or companies involves a lot of legal technicalities and issues. A corporate lawyer plays a major role during mergers. He drafts legal documents and assists in negotiations and resolves legal queries. A corporate lawyer also provides guidance on the structure of the transactions, which includes guidance on a stock purchase, asset purchase, or tax-related issues. During acquisitions, a lawyer reviews the finances of the company, their liabilities, real estate leases or any pending cases which the company may be involved in and then determines what portion of the company will be sold and what would be the structure of the deal. Therefore, it is essential for a corporate lawyer to have some knowledge of corporate finance to render the above-mentioned services efficiently.

Miscellaneous functions

Apart from the roles listed above, a corporate lawyer performs several other major functions for which knowledge of corporate finance is essential.

  • Investment- A corporate lawyer serves as the legal advisor of a company. He guides his clients to make proper investments in shares, securities, and debentures.
  • Loans and Borrowings of the Company- A corporate lawyer is required to provide legal assistance in financial matters as well. He has to handle the loans and borrowings of the Company and ensure that inter-corporate loans shall be limited, and the guarantees and securities are given should be restricted to 60% of the paid share capital.
  • Deposits- A corporate lawyer plays a crucial role at the time when his client company accepts deposits. There is a certain procedure which the public and private companies need to follow while accepting deposits. Notice to the members of the company needs to be given, an application needs to be filed with the Registrar of the company, and separate bank details needs to be provided. A lawyer ensures that the above procedure is followed in a proper manner, and the finances of the company are managed efficiently.

Conclusion

Corporate lawyers are deemed to be experts in company and business laws. They must have a good understanding of legal entities, shares, deposits, securities, and other corporate and financial elements to assist their clients in various business transactions as well as operations. To achieve this purpose, lawyers should be well-acquainted with the basics of corporate finance.

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by snehachugh04

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