Essentials contract required in the cosmetics business.

By

Sakshi Shairwal

Srijeeta Prasad

Today, there is a huge expansion in the startup sector. One of the major prospects around which these emerging businesses are revolving is the beauty, wellness, and cosmetic industry. And like for any other business, there are central provisions provided that are to be followed while divesting in the business. Further, similar to any other new company, incorporation of such company is also necessary.

Similar to that of any other new business, a cosmetic company also needs to be incorporated under the Companies Act. The new business may be a Sole Proprietorship, a Limited Liability Company, or it may be a big corporation.

Contracts supporting a business:

I.) The Trademark of the company helps keep the business authentic and original. A trademark generates a fiduciary relation between the company and the customer. A trademark should be the first step towards establishing a business, that id to secure its recognizing factor,

II.) Like every other business between two people, a shareholders agreement or a co-founder agreement is required, to regulate the business. The agreement maps out the contributions, duties and liabilities of the shareholders and provides for different in-house policies and dispute resolution methods. While a co-founders agreement only exists from the very beginning of the business, a shareholders agreement has to be performed at every transaction of share of the company. The shareholder's agreement is an additional agreement supplementary to every subscription and purchase of shares of the authorized shares of the company.

III.) An investment agreement is between a company and the investor. An emerging business always seeks investors to make investments and raise capital and expand business. The investment agreement between the company and the investors, an existing or new shareholder or an existing investor, details about the shares for which the investor is entitled to and liable. Investment in a business helps the business to expand by selling and reselling of the shares. Since the investors will have ownership of the shares, it is important to have a detailed and well-drafted investment agreement to have dispute free transactions and expansion.

IV.) A service agreement, and employment contract is also made for securing the rights and liabilities of the company and the party towards each other. The agreement mentions the terms of service, nature of services to be provided, the consideration to be given for such service unless there is irregular termination of contract, reimbursements of certain costs, billings, indemnification, liabilities and termination guidelines. An employment contract similarly mentions about the company agreeing for one to be its employee by defining the terms and conditions, position, duties to that position, time of work, place, compensation, leaves, benefits and termination of the same.

V.) In case one wants to avoid such legal relation to agency, partnership or any service condition, one can opt for the independent contractors. These are contractors hired for a specific job and based on an independent contractor agreement, which cease to exist once the job is done.

VI.) Letter of Intent (LoI) or a Memorandum of Understanding (MoU) is a non-binding agreement reflecting the details of the business transaction which is when agreed by both parties is followed by a formal binding agreement. The agreement includes a description of the business, contingencies to be met in case, due diligence, the validity of MoU, and any other necessary requirements.

VII.) Non-Disclosure Agreements (NDA) help keep the company’s secret to themselves by creating an obligation towards the parties to be faithful and true to the company. NDAs are legally binding documents that acknowledge a confidential relation between the parties to maintain the secrecy of information. The parties involved may be the partners, shareholders, employees, clients or any other person required. Primarily, there are two types of Non-Disclosure Agreements- Mutual Non-Disclosure Agreements and Non-Mutual Non-Disclosure Agreements. These are for where either only one party is at risk of sharing confidential information or where both the parties are equally at risk.

VIII.) A specified dispute resolution method is also an important aspect to be mentioned in any business agreement. This does not necessarily exist as an individual contract but one should surely incorporate such terms in its contracts.

IX.) Other documents that might be essential are contractor agreements, joint venture agreements, lease agreements and other prescribed agreements.

Cosmetic Regulations

Under section 3(aaa) of the Drugs and Cosmetics Act, 1940, Cosmetic has been defined as “any article intended to be rubbed, poured, sprinkled or sprayed on, or introduced into, or otherwise applied to, the human body or any part thereof for cleansing, beautifying, promoting attractiveness, or altering the appearance, and includes any article intended for use as a component of cosmetic”

Clause (c) of section 18 of the Act provides for the license to a person to deal in the cosmetic business, while section 18B of the Act mandates the maintenance of records and information.

A. The Drugs and Cosmetic Act, 1940

Cosmetic regulations are governed under The Drugs and Cosmetic Act, 1940. There also exists a Central Drugs Standard Control Organization, where a checklist for the necessities required to be fulfilled while establishing a drug or cosmetic business is mentioned.

B. Central Drugs Standard Control Organization

The organization is provided by the Drugs and Cosmetics Act and Drugs and Cosmetics Rules which regulates the registration and import of cosmetic products.

Functions of the organization:

1. Inspection of various applications for registration as directed,

2. Preparing and clarifying queries against the produce,

3. Hearing complaints and grievances, and

4. Replying to correspondences.

The following are the requirements as per the provided checklist for grant of Registration Certificate:

1. A cover letter- mentioning the purpose of the business.

2. The required application form (Form 42) for setting up a cosmetic business.

3. A Power of attorney- executed and authenticated mentioning the validity time period.

4. Label of the proposed products to be circulated- details about the products that has to be mentioned in the label. For example- name of cosmetic, Batch No., Expiry Date, Ingredients, etc.

5. Chemical Information related to the cosmetics- Test protocols followed for testing of cosmetics and its specifications. Testing of cosmetic products should be done as per the Bureau of Indian Standards (BIS) requirements, satisfying the manufacturer, buyer and consumer. The tests include physical, chemical analysis, microbiological quality check, stability check and others.

6. Fees as per requirement.

7. No objection certificate from Pollution Control Board,

8. A self-declaration that there are no changes in earlier shred information and all information to be correct.

9. Certificate of free sale, marketing authorization letter, rent agreement or lease agreement in case, list of laboratory equipment, etc.

10. Regulatory Certificates:-

i.) Authenticated copy of manufacturing licenses/registration/marketing authorization in respect of applied products issued by regulatory Authority from the country of origin, While the Act provides for the required licenses for the manufacturing of cosmetics, the State Government appoints a licensing authority for manufacturing the products. As per the Act, Form 31, 31A, 32, 32A, and 37 are required for the manufacture/ sale distribution of cosmetics, loan license, and grant or renewal of approval for carrying out tests of products. Before a license is granted or refused, an inspection is to be carried out for inspecting the process of operation. A detailed report has to be made for the same, which will decide the grant or refusal of the license.

ii.) Original Free Sale Certificate issued by National Regulatory Authority of Country of origin for the applied products.

iii.) In case if it is not issued by National Regulatory Authority from the country of origin then from other competent Associations/ organizations duly authenticated from the Indian embassy of the country of origin need to be submitted.

C. Food and Drug Administration

FDA provides for guidance on the current issues on the products related to it. They do not create or confer any rights for or on any person and do not operate to bind FDA or the public. The FDA provides for a Cosmetics Registration Program (VCRP), Cosmetics Labeling Guide and other guidelines to be followed by the business.

The FDA’s responsibility is similar to those of many other government agencies and there exists a number of products under its regulatory jurisdiction. Under cosmetics, it regulates the following:

i.) Color additives found in makeup and other personal care products,

ii.) Skin moisturizers and cleansers, and

iii.) Nail polish and perfume.

Whether it be any business, it requires for certain essentials to be fulfilled. While the detailed aspects of the control and regulations of a business are different from each other, the basics of each business is similar to each other. Since a contract is an agreement between two parties relating to certain aspects, it may be made for a number of things. Thus, all the different contracts put forward in a business cannot be specifically mentioned. Above mentioned contracts and documents are some of the basics required during establishing a new business and the specific regulations for setting up a new cosmetic business.

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