Who is an investor in a company?

investor in a company


Every modern enterprise needs capital to start its business, therefore an investment is the best way to run and for the betterment of the enterprise. It is an asset which is purchased to generate income in the future. It is also important for a business to expand, though, even the inflows from the business can fund that. Capital is essentially obtained in two forms, equity, which is popularly termed as an investment, and, debt, which is the loan that a company takes to start a business. A company has various options that it can exercise to raise capital. The reason attributable to this is the structure. A potential investor would usually repose more faith in a business that is structured as a company, than in other forms, such as sole proprietorship or a limited liability partnership.

With this basic background in mind, it becomes pertinent to explore the area of types of investment to understand how capital is raised in a company.

Who can be an Investor in a Company?

Anyone can be an investor in the Company. An Investor is the one who invests in the company by allocating the capital for the profit in the future. The following can be an investor in the Company:

An individual

Individual purchases small amounts of securities, as opposed to an institutional investor, called as Retail Investor or Small Investor. An Investor can invest in any company such as Sole Proprietorship, Public Company, Private Company, Limited Liability Company, Partnership or any other Company.

A Shareholder of the Company

A shareholder is the one who invests in the company who buys a stock in the Company.

Other Companies

Any other companies can invest in the other company to secure the future earnings. Investing will create partnerships and form relationships with companies relating to their products and services.It is a strategic attempt to gain specific assets.

Foreign Investor

A foreign individual can also invest in the company of India. It is considered as Foreign Direct Investment (FDI) where investment is made in equity shares, fully and mandatorily convertible preference shares and fully and mandatorily convertible debentures with the pricing being decided upfront as a figure or based on the formula that is decided upfront.

Objectives of Investment

Every investor has certain objectives behind the investment which may be monetary/financial in character. There are three financial objectives:

  1. Safety and Security of the fund invested, i.e., Principal Amount.
  2. Profitability, which is through interest, dividend and Capital Appreciation.
  3. Liquidity which is convertible into cash when required.

Period of Investment

There are three terms of the period for the investment:

  • Short-Term- It is up to one year.
  • Medium-Term- It is from 1 year to 3 years.
  • Long-Term- It is of 3 years and above.

Types of Investment

Debt Investment

Debt investment is, as the name suggests, in the form of a debt to the company. In this setup, a person basically loans the money to a limited liability company in the form of money in exchange for the promise of interest income on the principal amount and an eventual repayment of the principal amount. Debt capital is most often provided either in the form of direct loans with regular amortization or the purchase of bonds issued by the business, which provide semi-annual interest payments mailed to the bondholder.[1]

Features of Debt Capital

  • The striking feature of debt capital, amongst others, is that since it is in the form of a loan, the person lending it becomes the creditor of the company and thus, naturally holds a privileged place in the capitalization structure.
  • The basic implication of this would be that if the company goes bankrupt, and the liquidation process must take place, it would mean that the assets of the company would first be utilized to pay off the secured creditors of the company, in this case, a person advancing debt capital would become a secured creditor. This essentially puts them on a higher pedestal than the equity investors.
  • The highest level of debt is a first mortgage secured bond that has a lien on a specific piece of valuable property or an asset, such as a brand name.[2]

For an instance, would be that if someone loans a certain amount of money to a departmental store and is given a lien on the real estate and building, he/she would be eligible to foreclose upon it in the event the company goes south. However, it may take a certain amount of time, effort and money, but they ideally they will be able to recover the loan from the proceeds of the sale that they make of the confiscated property.


Another way of investment would be a debenture. This is understood as the lowest level of debt. This is essentially a debt that is not backed by a lien, which means that it is not secured by any specific asset but, rather, but the company’s goodwill and credit.

Strategic Investment

Strategic investments are usually made by cash-rich giants, such as corporations with huge capital to invest in smaller and younger companies. This is essentially done as a business strategy to develop a business synergy. This works as a related industry, investing into another related industry, which is usually running in cohorts with the bigger giant.

Purpose of the Strategic Investment

  • The basic intention behind such investments is using the investee company to increase the profits of the investor company.
  • Another purpose that this sort of investment solves is that it preempts competition from achieving higher efficiency through profitable business synergy or synergies.
  • They essentially want control over the management, however, more often than not, it is in the form of an indirect control. The usual business practice is that the investor company acquires a controlling stake in the investee company, or alternatively, they merge into the investee company. Due to this basic difference, they reap exponentially larger benefits than the financial investors.
  • Another popular method includes forming a joint venture company, wherein they incorporate a third entity to carry out the proposed business. They keep the investor and investee business separate and thus, the investee company doesn’t have control over the investor company. However, the investor company may exercise direct or indirect control in the joint venture company.

Financial Investment

Financial investments are made with the expectation of making only financial returns in terms of cash flow from which investment is made. It would essentially boil down to the dividends that the investor gets from the profits of the company. Investor here looks forward to much more.

Some financial Investors in a company

  1. Venture Capitalists

Venture capitalists, angel investors and private equity investors are essentially financial investors in a company. They are the money managers who make high-risk, high-return investments.[3] Venture Capitalists essentially raise a fund in millions of dollars from private and institutional investors and thereafter invest those funds in a company, usually termed as “portfolio companies”, in expectation of a substantial return. They are rewarded in various ways. Venture Capitalists are paid a percentage of the fund’s value as a management fee and also have a “carried interest” in the company. This means that they get a percentage of profits above a certain pre-decided point.

  1. Angel Investor

An angel investor (also known as a business angel, informal investor, angel funder, private investor, or seed investor) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity.[4] A small but increasing number of angel investors invest online through equity crowdfunding or organize themselves into angel groups or angel networks to share research and pool their investment capital, as well as to provide advice to their portfolio companies.[5]

Purpose of the Financial Investment

  • The sole purpose of financial investments is that they want the dividends from their shareholding and the value of their shareholding to increase over the years.
  • They are generally not interested in running the business unless the business is running profitably. They, therefore, rely on the existing management for running the affairs of the company. However, they might appoint professionals to run the business rather than taking it over themselves.
  • They are also interested in the controlling stake in the business, which is generally at more than fifty percent of the stake. Along with that, they inject funds into the company by investing into freshly allotted shares.
  • They usually specify the number of years in which they would want to exit from the company, for instance, venture capitalists want to exit in five to six years of their investment. When that happens, they recover the amount invested, along with a portion of the profits.

Recent Activities

For entrepreneurs, this is the perfect time period to engage in startup and start a business of their own.

  • The country has committed itself to reducing the red-tapism to a minimum, much of which was flaunted by our Prime Minister Shri Narendra Modi in Davos recently.
  • This has been reflected in the increasing rank of the country in World Bank’s Ease of Doing Business. The Prime Minister’s vow to encourage startups by opening avenues for emerging business by way of Foreign Direct Investments (FDIs) and Make in India campaign, has made the financial environment of growing market for investments.
  • The updation of the Company Law via the amendment in 2013 has been an effort towards this goal. Along with that, the passing of the Insolvency and Bankruptcy Code, 2016, is also a brilliant effort towards this. The changes in the Double Taxation Avoidance Agreement with Mauritius are also one of them.This has led to a general trend that Angel Investors are naturally keen to invest in startups.

With the advent of an increase of use of apps and especially in this technological era, there are more opportunities to start a business with less capital. It is thus an exciting time to weigh options and invest.

Laws Governing Comparative Advertisements in India


Every Company wants to promote their products, services, and brands in different styles. Advertising is the most crucial step in determining product’s future prospects. It is the most advantageous way to catch the attention of the consumers in the market. Speaking legally, there are multiple players in the market focusing on increasing their advertisements and many times in order to gain attention and pecuniary gain they use some tactics which land them in trouble. Comparative advertisements is one such unfair trade practice.

Comparative Advertisements

Comparative Advertisements means such practice where one goods or services is compared with another belonging to one of the same field , speaking legally through an advertisement. The comparison is made on the basis of price, quality by referring the alternative brand’s name, visual illustrations, and other distinctive attributes. This type of advertisements is mostly more attention-grabbing and have high rate than non-comparative advertisements. Such type of advertisements creates confusion in the mind of consumers. It mainly affects the goodwill and reputation of the competitors whose products are comparing in such a manner.

Reckitt & Colman v. Kiwi TTK[1]

The Delhi High Court stated that an advertiser can compare his goods by stating it better than the goods of the competitor but he cannot state the competitor’s goods as bad, this would amounts to defamation. Court has the power to grant an injunction in this regard.


Comparative Advertising shall be permitted when the following conditions are met

  1. It should not misleading.
  2. There is a comparison between the goods and services which is for same needs and the same purpose.
  3. It compares those goods and services where there are relevant features, which may include price.
  4. It does not create any confusion in the market between the advertiser and a competitor or between the advertiser’s trademarks, trade names, other distinguishing marks, goods or services and those of a competitor.
  5. In the reputation of trademarks of a competitor, there is no unfair advantage.

Classification of Comparative Advertisements

  • Direct Comparative Advertising: This type of advertisement deals with the competing products either are explicitly named or can be precisely identified (by photos, images or trademark).
  • Indirect Comparative Advertising:It does not directly refer to competing brand names.

Objectives of Comparative Advertisements

There are some objectives behind the comparative advertisements:

  • Evaluation of brand performance,
  • To degrade the competitor’s brand on the basis of value proposition the competitive brand is offering,
  • To increase consumer’s information about alternative brands.
  • To convince the users of competing brands to switch to the sponsored brand.


There are following categories of Comparative Advertisements:

  1. These types of advertisements are done to declare that they are better than others in the market with or without referring to any other particular competing products.
  2. Advertising confers that they are better than other particular class or categories of products.
  3. Advertisement asserting the measurable features of the products or services to make an objective comparison.
  4. Advertisements referring to the competitor’s product with a blurred trademark.
  5. It directs claims that they are better than any single products/ competitor.

Role of Communication in advertising

To increase the strategy of advertising, communication plays a vital role. With the help of print media (newspapers, articles, journals, etc.), audio-visual media (television, internet, movies, etc.), or audio (FM/AM radio), an advertisement can reach to a customer.

Statutory Provisions in India


The Monopolies and Restrictive Trade Practices Act was enacted to prevent monopolies and restrictive trade practices in the economy. Under the MRTP Act, any representation which gives false information or disparages the goods and services of other person is considered as unfair practices in comparative advertisements. Matters relating to untrue and misleading advertisements were adjudicated upon by the MRTP Commission, constituted under the Monopolies and Restrictive Trade Practices Act, 1969. Section 36A of MRTP Act, 1969 listed with ‘Unfair Trade Practices’.

MRTP Act deals with only three aspects of the market:

  1. Monopolistic
  2. Restrictive
  3. Unfair Trade Practices

Unfair Trade Practices: This practice adopts an unfair method, unfair or deceptive practices for promoting the sales of goods and services. Following are the practices which make it unfair:

  1. Provide false information or facts about goods and services.
  2. Unfair practices of making any statement, whether orally or in writing or by visible representation.

However, MRTP Act was repealed by section 66 of the Competition Act, 2002. The provision on unfair trade practices had a life for two years under the MRTP Act. A consumer needs protection not only from defective goods and deficient services but also from unfair trade practices. The provisions on unfair trade practices were copied from the MRTP Act into the Consumer Protection Act.The definition of ‘Unfair trade practices’ was incorporated under section 2(1)(r) of the Consumer Protection Act, 1986.

  1. Balasundaram v. Jyothi Laboratories[2]

An advertisement of Ujala blue showed that 2-3 drops were sufficient to bring striking whiteness of clothes while several spoons of other brands were required but no label of any brand was shown. In the advertisement, a lady holding a bottle of Ujala was looking down on other bottle and exclaiming, chi, chi, chi! in a disgusting manner. The manufacturer of Regaul, a competing brand, approached the MRTP Commission that the advertisement was disparaging its goods. The Commission was of the view that mere claim to superiority in the quality of one’s product by itself is not sufficient to attract section 36(1)(x) of the MRTP Act. The Commission was of the opinion that it could not be a case of disparagement of goods.

New Pepsodent v. Colgate

Hindustan lever ltd. advertised it’s toothpaste, ‘New Pepsodent’ claiming that it’s toothpaste i.e., ‘New Pepsodent’ is better than the leading toothpaste. The Commission was of the view that the word toothpaste has become synonymous with Colgate over the years. In addition, the Commission noted that the jingle in the background was a familiar one. Thus, it was a case of comparative advertisement where a claim could be made of disparagement of Colgate’s product.

Use of Trademark in Comparative Advertisements

Trademark Act, 1999 is enacted to guarantee protection to national and international brand owners, in conformity with the TRIPS Agreement. It regulates Unfair Trade Practices in comparative advertising and prevents trademark infringement in India.

To identify the products and services, the holder of a trademark has the exclusive rights. Sometimes these exclusive rights can be used in comparative advertisements. A registered trademark is infringed by a person if he exploits such registered trademark, as his trade name or part of his trade name, or the name of his business concern dealing in goods or services in respect of which trademark is registered. Trademark Act has made the grounds for such infringement. Section 29(8) and 30(1) deals with comparative advertisements.

Section 29(8) of the Act outlines the situations in which there is the use of another’s trademark in advertising which amounts to infringement. It is considered to be the unification of laws of unfair competition and unfair trade practices that have set considerations for the use of trademarks in comparative advertisements.[3] According to this section, a registered trademark is infringed where an advertisement:

  1. Is harmful to the trademark’s reputation,
  2. Is destructive to the trademark’s distinctive character,
  3. Takes unfair advantage or considered to be contrary to honest practice.

Section 30(1) provides with an exception when such use of marks is done according to the “Honest Practices” in industrial and commercial matters. When there are comparative advertisements then it might lead to dilution, tarnishment of the trademark of the competitors

The Act permits Comparative Advertisements in three ways:

  1. If there is a bonafide use of Trademark,
  2. If in accordance with the honest practices,
  3. If it does not take an unfair advantage of the reputation of the mark.

Pepsico. Inc. and Ors. v. Hindustan Coca-Cola Ltd. and Anr.[4]

The concept of disparagement was explained by Delhi High Court where it was stated that ‘a manufacturer can make a statement for making his goods at best level and he also makes statement for puffing of his goods and the same will not give a cause of action to the other traders or manufacturers of similar goods to institute proceedings. In doing so, there is no disparagement of the manufacturer’s goods. A manufacturer is not entitled to say the competitor’s goods are bad as to puff and promote his goods. Thus, it was concluded that comparative advertising cannot be permitted which denigrates the trade name or trademark of the competitor.

Reckitt Benckiser (India) Ltd. v. Hindustan Unilever Ltd.[5]

The court held that the advertisement showed between the defendant’s product “Lifebuoy” and the petitioner’s product “Dettol” was a violation of Section 30(1) of the Trademarks Act, 1999. The Court stated that a trader is allowed to declare his goods as the best but the defendant showed the comparison between the two products in his ad and crossed the thin line between puffery and disparagement.

Tata Press Ltd. v. Mahanagar Telephone Nigam Ltd.[6]

According to the Supreme Court, the information available through the advertising must be for the benefit of the public. The law relating to trademarks is also for the protection of public interests only.

Advertising Standards Council of India (ASCI) and Comparative Advertisements

It is a self-regulating voluntary organization of the Indian advertising industry. It was established for protecting the interests of the consumers while observing and guiding the commercial communications.

ASCI has adopted a Code for Self-Regulation (ASCI Code) which applies to all involved in the commissioning, creation, placement, or publishing of advertisements to scrutinize advertising in India. Chapter IV of the code deals with the form and manner of comparative advertising. Advertisements containing comparisons with competing manufacturers and sellers are permissible in the interests of vigorous competition and free dissemination of information. There are following requirements being to be satisfied are:

  1. Advertiser’s product is being compared with the aspects of competitor’s product.
  2. The comparison should not take place in a way which confers an artificial advantage upon the advertiser and should not suggest falsely that advertiser’s product is better.
  3. A Consumer should not mislead due to the comparison.
  4. The advertising does not unfairly denigrate attack or discredit other products, advertisers or advertisements directly or by implication.

The above mentioned principles ensure the advertising activities are conducted in a fair manner, with the interests of all associated groups being secured. These guidelines do not have the force of law there are merely recommendatory in nature.

Consumer Complaints Council (CCC)

The CCC is constituted by ASCI where a person can complain to the ASCI if there is an objectionable advertising. The CCC consists of eminent persons from the industry and well-known persons from the civil society. CCC hears the facts of the complaint and if it finds that the advertisement in question violates ASCI Code or any other law, then it can suggest that the advertisement is voluntarily either withdrawn or modified.

How to Lodge Complaint against Comparative Advertisements

There are three types of Complaints:

Complaints from General Public which includes Government regulators and consumer groups.

  1. Intra Industry Complaints (When an advertiser lodges a complaint against another advertiser)
  2. Suo Moto

Procedure for Complaint

The Complaint may be submitted by letters at the postal address which is provided on the website, visit https://ascionline.org/index.php/how-to-complaint.html

  1. The Complaint can be submitted through the online form, visitwww.ascionline.org and you can also contact through the telephone in 1-800–22-2724 (toll-free) and also through Whatsapp in +91-7710012345.
  2. No fee required for complaints except in case of Intra Industry complaint which is lodged under the Fast Track Complaint Redressal Scheme where the decision is delivered within 7 days and a fee of INR 75,000 is charged for complaint.
  3. If the complaint is complete, the decision will be taken by ASCI’s Consumer Complaints Council (CCC) within a period of one month (approximately).
  4. On receipt of a complaint, the Secretariat acknowledges the complaint and requests the advertiser or agency to provide comments in respect of the complaint.
  5. Within the period of 4 to 6 weeks, the CCC decides upon the complaints.
  6. If the complaint is upheld, then the advertiser and its agency are informed of the CCC decision within 5 working days.
  7. To comply with the CCC decision, the advertiser is given the time of 2 weeks.

Via: blog.ipleaders.in/blog/