Understanding the Legal Dimensions in Indian Education for Entrepreneurs

1. Understanding the Legal Dimensions in Indian Education for Entrepreneurs

2. Indian Education Sector • Regulated/Formal Sector – K12 Segment and Higher Education • Unregulated/Non-Formal Sector–Pre-School, Vocational Education, Tutorial Classes, Test Prep and Multimedia Services

3. K12 Segment Higher Education Pre-School Segment Vocational Education

4. Key Highlights • Regulated sector • Largest segment in the Indian education sector • Expected to grow to USD 30 billion by 2012 • Run as ‘not-for-profit’ ventures

5. NOC/Recognition from State Education Department • Requires affiliation & approval of curriculum/syllabus from education boards viz. CBSE, ICSE, IB, SSC and HSC

6. 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

7. 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.

8. Preferred Entity for entering the K12 Segment • Trust • unregulated entity in most States • lesser regulatory compliances • lesser transparency • Section 25 Company • entitled to benefits of incorporation and privileges of limited liability • requires statutory compliances and filings • offers transparency

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. K12 Segment Higher Education Pre-School Segment Vocational Education

16. Key Highlights • 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

17. Regulated by Ministry of Human Resource Development through: • At the central level, by University Grants Commission • Technical, legal, medical education is regulated by : • All India Council of Technical Education (“AICTE”), • Bar Council of India (“BCI”), • Medical Council of India (“MCI”), etc. • State Governments through private university regulations

18. 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

19. 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.

20. 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 • -

21. 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

22. 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

23. 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.

24. 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

25. Latest Business Models in Higher Education • Private University: • State Government approval (constituted by state enactment) • Minimum 2 years gestation period

26. Collaboration Model: Foreign education providers partnering with Indian education institutions: • Introduction of curriculum of foreign universities in the Indian institutions • Prior approval by foreign university from AICTE • Setting up Education Services Companies • Offer management and other services to ‘not-for-profit’ entities running the institution

27. K12 Segment Higher Education Pre-School Segment Vocational Education

28. Key Highlights • 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

29. FAQs • 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

30. 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

31. Pre-School Segment K12 Segment Higher Education Vocational Education

32. Key Highlights • 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.

33. 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.)

34. Latest Business Models in Vocational Education • Public Private Partnerships (“PPPs”):Government has been encouraging PPP Models • Information and communications technology contracts from Government • JV with NSDC to promote skill development • Franchising Model: • Typically with brand license

35. 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

36. Provisions to be included in a Franchise Agreement • Franchisors Perspective: • Protection of IP rights • Limitation on scope of license and know-how • Non-compete obligation • Franchisee’s Perspective: • Continuity of arrangement • Right to use brand name and technologies with updates

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