Building Education Financing System in India By: Ms. Seema Jhingan (Partner)

2 Formal Education Sector is regulated Trust, society and section 25 company are recognized forms of ‘not-for-profit’ entities (“NPE”) The trust/society running the school/higher education institutions should:  be of a non-proprietary character  not vest control in a single individual or members of a family  operate in not-for-profit mode No dividends can be distributed and the surplus needs to be ploughed back into the educational institution Understanding the Legal Dimensions In Indian Education for Entrepreneurs for Seeking Investments

3 Possibility of PE/VC Investment in Formal Sector  Allowed only in related entities providing services to NPE  Investment in real estate and construction companies providing services to NPE Indirect control over the NPE  Nomination rights over the Board of Trustees  Affirmative voting rights to Nominees  Life Membership to the Nominees  Succession Rights to the Nominees Investment Strategies/Collaboration Models

Is Foreign Direct Investment permitted in Education Sector  100% under automatic route  Specifically prohibited in trust and society  FDI permitted in section 25 company but prohibition on declaring dividends  Investment in education infrastructure companies permitted - exemptions from minimum capitalization and land area requirements 4 FDI in Education Sector

Is early stage investment a Good Option Minimal Enterprise Valuation Entails larger stake sale Grant of substantial rights for lesser capital Greater control with lesser flexibility 5 Is Early Stage Investment a Good Option

Management Services Arrangements  Provides all services except core management and operation functions  Nominates a member on the board of trustee with affirmative votes  Nominates key members on the management committee of the institution  Recommends the Principal and Manager  Oversight on financial operations of the institution  Long term non-terminable contracts  Arms’ length pricing Brand Licensing  Ensures revenue generation without significant involvement  Ensure protection of brand & goodwill  Define scope of license, usage, concept, revenue flow, etc.  Advertisement and enhancing brand image, standard of quality to be maintained by licensee 6 Investment Strategies/Collaboration Models

7 Franchising Arrangements  Franchise of concept, brand, know-how and best practices  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 Investment Strategies/Collaboration Models

8 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 Investment Strategies/Collaboration Models

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