Understanding the Legal Dimensions in Indian Education for Entrepreneurs
Feb 25, 2016
Understanding the Legal Dimensions in Indian
Education for
Entrepreneurs
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Regulated/Formal Sector – K12 Segment and Higher Education
Unregulated/Non-Formal Sector – Pre-School, Vocational Education, Tutorial Classes, Test Prep and Multimedia Services
Indian Education Sector
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K12 Segment
Higher Education
Pre-School Segment
Vocational Education
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Regulated sector Largest segment in the Indian education
sector Expected to grow to USD 30 billion by 2012 Run as ‘not-for-profit’ ventures
Key Highlights
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NOC/Recognition from State Education Department
Requires affiliation & approval of curriculum/syllabus from education boards viz. CBSE, ICSE, IB, SSC and HSC
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FAQs
Entities Permitted to Set-up and Operate Schools Only ‘not-for-profit’ entities, i.e. a society,
public charitable trust and section 25 company As permitted by the State education laws
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Governing Laws Societies: Societies Registration Act, 1860 Public Charitable Trusts: Trust registered under
Indian Registration Act, 1908 Section 25 Companies: Companies Act, 1956
States Requiring Registration under the Public Trust Laws Maharashtra, Rajasthan, Andhra Pradesh,
Madhya Pradesh, Chhattisgarh, etc.
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Preferred Entity for entering the K12 Segment Trust
o unregulated entity in most States o lesser regulatory complianceso lesser transparency
Section 25 Company o entitled to benefits of incorporation and privileges of
limited liability o requires statutory compliances and filingso offers transparency
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Establishing Education Ventures through a Single or Multiple ‘Not-for-Profit’ Entity(s)
Size and scalability Divestment and exit options
Minimum Infrastructure Requirements Land area – 1 to 2 acres (1/2 to 1 acre in
metropolitan cities) Minimum 30 years lease or Government lease
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Effect of Right of Children to Free and Compulsory Education Act, 2009 (“RTE Act”) Elementary education a fundamental right No capitation fee
All existing schools to seek recognition Compulsory admission to children belonging to
weaker sections to the extent of 25% of the strength of the class
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Is FDI 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
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Possibility of PE Investment in K12 Segment Allowed only in related entities providing
services
Outsourcing of Services Allowed Services may be outsourced to related/third
parties
Is Sale of CBSE Affiliated School as an Undertaking Permitted No, CBSE bye-laws specifically prohibit
transfer or sale of school
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Policy on Fee Fixation in Private Unaided Schools and Treatment of Profits No policy for fee fixation As per Supreme Court fees charged to be
reasonable and commensurate to facilities provided
Profits to be utilized for the running and development of the school itself
Profits not to be diverted to any individual(s) Capitation fee/voluntary donations prohibited Collection of fees in the name of the school
and not the trust/society
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Existing Business Models in K12 Segment, for Entrepreneurs Greenfield projects/taking over existing
schools Joint ventures with real estate developers Management services to existing schools Franchising of the brand name
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Higher Education
Pre-School Segment
K12 Segment
Vocational Education
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Regulated sector Comprises of under-graduate, post-graduate
degrees and pre-doctoral and doctoral programs
Gross enrolment ratio – 12.4% expected to rise up to 30% by 2020
Higher education institutions have to be run as ‘not-for-profit’ ventures Profits to be infused back into the institute No distribution of profits
Key Highlights
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Regulated by Ministry of Human Resource Development through: At the central level, by University Grants
Commission Technical, legal, medical education is
regulated by :o All India Council of Technical Education
(“AICTE”), o Bar Council of India (“BCI”), o Medical Council of India (“MCI”), etc.
State Governments through private university regulations
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Minimum Land Requirements Private University – requirements are state
specific Haryana – 10 or 20 acres, depending on the
location Himachal Pradesh – 12.5 acres (approx.)
Leasing of Land (State Specific) Haryana – lease may be permissible Himachal Pradesh – Government lease of
minimum 30 years duration
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Stand Alone Colleges affiliated to University
Ownership and possession of minimum 2 acres of land if located in metropolitan cities or
5 acres if located in other areas
AICTE Institutes 0.5 acres to 10 acres of a continuous block of
land Ownership of land or irrevocable Government
lease for a minimum duration of 30 years.
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FAQs State Government Approvals to Set-up a
Private University Upon fulfilment of minimum eligibility criteria
including land requirements Permission to Section 25 companies to set up
private universities State Government constituted committee
considers proposal and submits report to Government
Issues letter of intent
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Can a University offer Technical Education and does it need approval from both UGC and AICTE? A University may offer technical education Simultaneously governed by UGC and AICTE UGC approval required and compliance with
higher of the norms laid down by UGC and AICTE
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Permissibility of Teaching Curriculum of a Foreign Institution in Technical Institutions. What kind of Degree/Qualifications are Students of such Institutions entitled to? Requires AICTE approval The curriculum and nomenclature of the
course/ degree to be picked up “as is” from the foreign university/institute
Minimum one semester in the country where it is set up
Degree in the name of the foreign university/institute
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Taxability of Services provided by Educational Institutions Eligible for tax exemptions under the Income
Tax Act, 1961 Services provided are Taxable under the head
of “Commercial Training and Coaching Centers”, however, they are exempt from Service Tax with certain conditions.
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Is Legal Regime’s Migration to a ‘For-Profit’ Structure a Possibility Government presently evaluating the
recommendation for allowing education sector to be operated as ‘for-profit’ venture under the 12th five year plan
Can the Institution Affiliate One Course to One University and Another Course to Another University The institution to be affiliated as a whole with
a university
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Latest Business Models in Higher Education Private University:
o State Government approval (constituted by state enactment)
o Minimum 2 years gestation period
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Collaboration Model: Foreign education providers partnering with Indian education institutions:o Introduction of curriculum of foreign
universities in the Indian institutionso Prior approval by foreign university from AICTE
Setting up Education Services Companieso Offer management and other services to ‘not-
for-profit’ entities running the institution
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Pre-School Segment
K12 Segment
Higher Education
Vocational Education
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Unregulated sector Expected to be a billion dollar market by 2012 Valued at USD 300 million in 2008 and is
expected to grow at an annual rate of 36% Considerable PE investment No affiliation or accreditation May be run as ‘for-profit’ ventures
Key Highlights
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Approvals Required for Setting up a Pre-School No sector specific approvals Set-up by ‘for profit’ entity General registrations including Income Tax
Registrations (PAN, TAN) Labour law registrations
FAQs
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Latest Business Model for Operating a Pre-School Franchise Model under brand license and know
how arrangements Partnerships/Collaboration with large investors
geographic expansion and scaling up to K12 segment
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Vocational Education
Pre-School Segment
K12 Segment
Higher Education
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India has target of creating 500 million skilled workers by 2022
Unregulated Segment Includes coaching and test preparation
courses/ classes, vocational and skill training education, multimedia content, curriculum, books, etc.
Other than ITI/Polytechnics, vocational institutions are unregulated.
Key Highlights
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Can be operated on a ‘for-profit’ basis No Restrictions concerning curriculum, fees
charged, minimum land, etc. Can be operated with or without Government
accreditation (National Assessment and Accreditation Council, National Board of Accreditation etc.)
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Latest Business Models in Vocational Education Public Private Partnerships (“PPPs”):
Government has been encouraging PPP Modelso Information and communications technology
contracts from Governmento JV with NSDC to promote skill development
Franchising Model:o Typically with brand license
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FAQs Concerns when entering into a Public
Private Partnership Generally a combination of equity and debt
funding Disbursement of loan in tranches subject to
achievement of milestones Affirmative rights sought in the management
of the investee company
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Provisions to be included in a Franchise Agreement Franchisors Perspective:
o Protection of IP rightso Limitation on scope of license and know-how o Non-compete obligation
Franchisee’s Perspective: o Continuity of arrangemento Right to use brand name and technologies with
updates
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