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Start up Lessons

There are about 23% of aspiring entrepreneurs who shy off from starting up due to legal complexities. In fact, on Wazzeer Counsel application, we have heard many war stories of startups that had to spend hugely to compensate for ignoring compliance. And with the growing idea of “any legal problems can be solved later”, some entrepreneurs decide to take a risk by not executing compliance works duly. Most entrepreneurs who do not give enough time to fundamental stuff like accounting and bookkeeping in place, have ended up spending thousands to go back and fix the issues. To give another example, any startup would agree that finding the right co-founders for the business is extremely difficult, there are quite a number of startups that do not vest equity for a reasonable duration of time and are forced to file lawsuits against that co-founder who drops out.

Through this series of blog, we at Wazzeer are trying to comfort young and aspiring entrepreneurs with legal, accounting, and compliance ecosystem. On a voyage to help entrepreneurs understand how law is also a tool that can help one to create and capture value. In this episode, we will do our learning from the friend of farmers, happily funded, and successfully growing – BigHaat.

BigHaat (2015), a fast-growing startup that has created an online marketplace that provides a wide choice of quality inputs to farmers at their doorstep.

Raj Kancham, Cofounder of BigHaat is here with us to share his experiences in dealing with one of the tough subjects in startup career. Raj, JNU Alum ever since his graduation has been directly or indirectly contributing to the society, and BigHaat is the dedicated one. He has over 19 years of experience in Operations, Business Development, and Software development.


What inspired you to start BigHaat?

To answer that, I need to go back to my college days, it was late 80s and early 90s, I studied in the rural part of Andhra Pradesh, I can say that the worry for rain persisted then too, but farmers had other serious problems like lack of seeds, pesticides availability, and accessibility. It was in 2012, that dots started to connect. I was working for Nokia Life as a Program Manager, Nokia Life – a platform which gives information on many domains. One of the main domains is agriculture. Farmers can subscribe to this service to get information on market price for the crops or other farm commodities and weather information. If you remember, Newspapers and TV channels used to provide this information across their platforms too, the very same information was a paid service in Nokia life. We think that everybody including Farmers read Newspaper and watches TV, but it doesn’t happen that way, reason is they go to work at 5 am come back by 8-8.30pm and go to sleep, news channels broadcast news after 9 pm in the night or after 6 am in the morning, though these channels provided accurate information that went of no use to farmers. This made me realize that this is a serious problem that nobody really cares about, with that thought I left to Singapore to carry my corporate job. My last corporate job was in Singapore, 2013 Dec to 2015 May, my thought process developed persistently in my mind, In the meantime, one of my classmates, Sateesh Nukala was trying to solve a problem in irrigation aspects of agriculture, we jointly started working on the research.

Sateesh and I were convinced that we had to do an extensive research, so we decided to go to the University of Agriculture and talked to professors. By last qtr. of 2014, we inferred that there are issues in the input space, starting from sowing to harvest. I was still in Singapore and had a team of 2 people. Every 3 months I used to come to India and visit rural Karnataka and did a lot of talking to farmers. With all the experience and learning that we were gaining, we decided to take the next big leap, startup.

Then we made a list of companies to whom we can talk to, we nailed down one. We thought digital platform may not be a complete solution, so we thought we will put up a missed call CRM system. Our missed call system seemed to be a hack for us, we had customers call us and the customer support team would call back to these farmers and arrange the inputs. People can reach us through direct phone, missed call and people can go to any internet center and they can order, they can even install the Android mobile app to place the order.  


In May 2015, within 4 months of launch, we did sales of around INR 6L. Profit was approximately in the range of 10%-12%. Our very first partner was Pioneers, they are number one in maize and hybrid rice seeds, likewise, one by one I started cracking. Ankur has invested around half a million and right now we are about to close CDCA funding of 3.5 million. As far as the growth is concerned, we could actually pull out a good growth which was essential for faster business expansion, in the last financial year we made a revenue of around INR 10 Crores. 


Can you describe the challenges you faced as the company grew big?

If you see the challenges, challenges are not less, it is more about the growth. Everybody thinks that agri-business is something that anybody can do. At one point of time in 2006 – 2007, everybody wanted to become a software engineer. Everybody thought that they can do software engineering, Similarly, every startup thinks that okay I don’t have any idea so let me do something in agriculture. That culture has started which is again a dangerous thing. But one important thing luckily I can say is, venture capitalist companies are scrutinizing startups, especially when it comes to agritech. There is a good number of entrepreneurs who think that sitting in the boardroom one can see entire India, which is not true. You have to make your hands dirty and you have to go talk to people, work on the ground. Until and unless you work with farmers, nothing really happens. Recently one of my companies got rated as the best value chain agri startup in India and we received the award from Mr. Suresh Prabhu, Minister of Commerce and industry.

One of my advice to entrepreneurs planning to start up in Agriculture sector is, spend time with farmers, stay with them for 4-5 days, and then if you think you can do something, then come back and put your business plan, otherwise, don’t do anything just go back and do your job. If you want to work on issues anything related to the bottom of the pyramid, you have to stretch it out. You have to know what the farmer thinks.

Did you ever think of a plan B or was there already a plan B when you started BigHaat?

Honestly, I don’t believe in plan B. I do my risk assessment when I take up any job. If at all there was one, my plan B would have something to do in Agriculture. Maybe instead of doing it for too many people, I would have done something on a 500 acres farm because I know what is good.  I would have produced all organic and then export it.. You can say my plan B is also agriculture, nothing else.

While incorporating your business, what all legal challenges did you face?

In India, there is a misconception of single window or one day or two days kind of a thing, which is not true. I have exposure to compliance required to start companies in the US, Singapore, and Australia, in Singapore, if you have all the documents, if you apply for incorporation in the morning, by evening you’ll have all your papers. Next day you can even put up the board and start your business. In the US, it takes less than a week to have the company registered. In Australia, within 48 hours you can have the company registered. In India, there is no timeline like that, which really pinches.

Stating my own experience, a Retail wing of BigHaat is called as AgroHaat LLP. We tried to register this company in Rajasthan, the entire process took 65 days. I got fed up and moved to Bangalore, I hired a CA referred by a local friend of mine. The CA got the company registered in 4 days. On the 4th day, I had PAN number in my hand, I had paid only Rs. 4000/- extra when compared to Rajasthan, it was 14000, in fact, I paid him 2000 more because I was very happy with the professionalism he portrayed. These examples show that there is a huge difference in how same work is delivered by different people in different parts of the country. The entire ecosystem is unorganized.

People say the availability of information is abundant online, you can follow this or that and what not, but the fact is there is no reliable guidance at all. Every entrepreneur must reinvent a way. That is the bitter truth. Legality wise there are so many issues, say you can’t start a company in a day, to get a PAN card you have a hundred things to be done. Due to all the uncertainties involved, entrepreneurs are struggling to start their business as and when decided.


Do you think the CA that you hired in both the cases were very different, the approach, the way they handled the project?

Accountability is the biggest thing, which is something I observed to be missing in most cases. To give you an example, I had outsourced a work to a CA firm, the CA was a well-experienced one that had a team of interns working under him, he had given it to them. His objective was that the interns will learn out of the project, but I don’t agree with them doing at the cost of customer’s time, that’s lethargic, very lethargic. I might sound rational, maybe that’s the way things work in Rajasthan and in remote also, many things don’t work the way we thought.

I have noticed the same attitude with some lawyers, when they get a case they will enthusiastically collect take the first round of installment and they will be very happy, they will put 3-4 days effort and then their interest slowly it dilutes. I have seen the pain, every day I had to call and follow-up, most of the times I received something negative. Especially during the days of fundraising, there is a huge dependency on legal and accounting compliance part, because investors invest only if you have a legal entity to sign up with.  And if you say that I don’t have a legal entity, they reply to you saying things like ‘why did you initiate the discussion without having your compliance requirement met?’

Not just that, to give you another example, one of my very close friend, she was also my colleague in GE and went to Harvard to carry higher studies, wanted to something for the children in India. She and her husband who also holds an impeccable career – IIT, Harvard, and holds 6 patents, decided to teach people on STEM. In fact, they were the first one to think about it. In 2016, the couple came to India, leaving behind their handsome paying job and luxurious house in the US, they wanted to teach STEM to the people and because of all these legal tangles and local politics, they got fed up and gave up everything in 9 months and went back to US.


My next question is when you had all the funding flowing in did you have an idea of the list of compliances?

Over the years you generally get an idea of how things work, when it must be done and from whom it must be done.  During the first round of funding, though we were compliant with statutory compliance, we faced some big compliance hurdles due to these hurdles instead of getting funds in one month we got the money after four months. What really happened was, the way we maintained the books was different from what our investors wanted, So, we took lot of time. The due diligence needed 3 months. Finally, we could complete it the way they wanted, but it was tough.

I would advise young entrepreneurs, no matter what maintain your books, small amount or big amount, anything that’s going out from the firm and anything that’s coming into the firm, make an entry, proper entry of all the bank transactions that you do. When you are raising funding, you can’t tell investors that on 2016 November you paid 100 to somebody for whatever reason. So, you need to have a disciplined accounting entry made on a daily or weekly basis. Make sure that you update it. Don’t give a chance or room for a one-month update or two-month update, it will just not happen.

That was a lesson I learned, now, for my new company as soon as I registered first thing I did was to hire an HR and Finance personnel. So that all the statutory compliance is dealt with a continuity.


What is your message for aspiring entrepreneurs who shy off from starting due to legal hitches?

First thing is, if you believe in your idea, just go for it, it could be hundreds of things that come in the way that might demotivate you, but always remember the very reason why you started, why you are there. If you keep reminding yourself why you are there and why you started, many, many things will go off from your way.

Second thing is, always question yourself and use the theory of negation. Why can’t you? Why some other guy? When you ask these questions, you will find a way, or you’ll find a solution to yourself. Just ask yourself, the answer will be there within you and it’s like either you did a mistake and there is a systematic problem.

If there is a systematic problem, head down, try to solve it and go. If it’s your problem, you fix it fast. But find it out if it is controllable or not controllable. Say today central government comes with a rule that startups should have Aadhar card. This situation is uncontrollable, it is a compliance issue. You may think that why I need Aadhar card for my company, I am giving my directors’ card. You might crib, cry for it, because you know how much effort you had put to get your own card, waiting in a long queue, but there is no point thinking over it that’s what I want to tell. The takeaway from this example is very simple, things that you can control and what matters is only 4%. You work only on that. That 4% will account for you to be successful. And when you are working on it, keep your focus and persistence up. That’s it.

 

Thanks for your valuable time, Raj. Starting from the story, though the experiences you shared, and the advice you offered. I am sure the objective behind these interviews is justified.

Absolutely, I am with you. Let me know if you need any other details also I don’t mind contributing to this cause. I like this. I know this. As I told you, many guys who are capable are shying away for this main reason. Let me know if you need any further help or something. Sure, may the best happen to you and your startup. 

 

 

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Compliance

“Failure to implement good governance procedures has a cost beyond mere – regulatory problems. Companies that do not employ meaningful governance procedures will have to pay significant risk premium when competing for scarce capital in today’s public markets…” – Chairman Committee on Corporate Governance, SEBI

Can businesses focus on value creation by taking care of compliance obligations? Well, the answer is yes, every move with a strategy is the best foot forward – formal compliance frameworks with well structured, documented and demonstrable compliance structures. In this blog, we will be looking into mandatory compliances that businesses, based on the entity type should adhere to.


Private Limited Company:

  1. Audit of Accounts: Every Private Limited Company is required to prepare its accounts and get it audited by a Chartered Accountant at the end of the Financial Year. The auditor will provide an Audit Report and the Audited Financial Statements which is supposed to be filed with a registrar.

 

  1. Filing of Annual Return (Form MGT-7): Every Private Limited Company is required to file its Annual Return within 60 days of holding of Annual General Meeting(AGM). Annual Return will be for the period 1st April to 31st

 

  1. Filing of Financial Statements (Form AOC-4): Every Private Limited Company must file its Financial Statements (Balance Sheet and statement of Profit and Loss Account) and Director Report in Form AOC-4 within 30 days of holding of Annual General Meeting.

 

  1. Tax Audit: Audit is required in case of the Private Limited Companies having turnover more than 2 Crore.

 

  1. Income Tax Returns: The due date for filing income tax return in case of a company where an audit is required is September 30th, 2018 and where the audit is not required, the due date is July 31st

Limited Liability Partnership (LLP):

  1. Filing of Annual Return in Form 11: Every LLP must file its Annual Return to ROC by 30th May of every year. If the firm fails to file the same, it will have to pay a penalty of INR 100 per day until it is filed.

 

  1. Filing of Annual Accounts and Solvency in Form 8: Every LLP must file its Annual Accounts with ROC by 30th Oct 2018. If the firm fails to file the Annual Accounts, it will have to pay a penalty of INR 100 per day until it is filed.

 

  1. Tax Audit: A LLP is not required to get its accounts audited unless in case of an LLP whose annual turnover exceeds INR 40 lakhs or whose contribution exceeds INR 25 lakhs. In this case, the accounts must be audited by a Chartered Accountant.

 

  1. Income Tax Returns: The due date for filing income tax return in case of an LLP where an audit is required is September 30th, 2018 and where the audit is not required the due date is July 31st

 

One Person Company (OPC):

  1. The Annual Return in Form MGT-7: Just like a Private Limited Company, an OPC is also required to file Form MGT-7. This form contains current information about the directors and shareholders of the OPC. The due date of filing the annual return with the relevant ROC is within 60 days from the date of Annual General Meeting.

 

  1. The Financial Statements in Form AOC-4: This is to be filed with relevant ROC, on or before 30th October 2018. This form contains information about all monetary transactions and finances made by the OPC in that particular financial year. The annual financial reports contain only the following particulars in case of OPC – Balance Sheet, Profit and Loss Account, Auditor’s Report, and the Consolidated Financial Statement.

 

  1. Income Tax Returns in Form ITR-VI: This is to be filed with the Income Tax Department, on or before 30th September2018. Tax audit will be required if the annual turnover of the OPC is more than INR 1 Crore.

Partnership Firm:

 

  1. Tax Audit: In case of partnership firm that has a sales turnover exceeding INR 2 Crore, a tax audit is required and it should be performed by a practicing Charted Accountant.

 

  1. Income Tax Returns: Income tax return should be filed by a partnership firm by 31st July 2018 if the audit is not required and by 30th Sep 2018 if the audit is required.

 

Sole Proprietorship:

 

  1. Tax Audit: Even for Sole Proprietorship tax audit is required if the firm’s turnover exceeds INR 2 Crore.

 

  1. Income Tax Returns: Sole proprietorship must file income tax return before 31st July 2018(where the audit is not required) and before 30th Sep 2018(where the audit is required).

 

 

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Business Formation, Partnership Firm

We at Wazzeer, have written several blogs tied up to Partnership Firm, this time we thought we will take a strategic approach, to provide all information at one place. A master blog that will guide you and partners to start a partnership firm with confidence. 

 

Definition

A partnership is an association of persons carrying business. The partners are the individuals who have agreed to share the profits of the business carried on by all or any of them acting for all.

Partnership firms have an option to register their firm with the Registrar or not, but if the partners do not have a legal contract – Partnership Deed in place, the firm is considered as Partnership at Will. If there is Partnership Deed in place, then it is called Particular Partnership.

 

Relationship of Partners

Major features:

  1. Every partner shall indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm.
  2. Duties and rights of partners are determined by the contract between the partners
  3. In absence of a Contract, all the partners are entitled & liable for an equal share in loss & profit in absence of any agreement
  4. A partner cannot transfer any part of the property of firm till the continuation of the partnership.

 

Relationship of Partners to Third Parties

Major features:

  1. A partner is the agent of the firm for the purposes of the business of the firm.
  2. The partners in a firm w.r.t contract between the partners, extend or restrict the implied authority of any partner.
  3. To bind a firm, a partner or other person on behalf of the firm shall be done or executed in the firm name or
  4. A partner has authority, in an emergency, to take up actions for protecting the firm
  5. Joint liability of partners for acts of the firm
  6. Measures to take when the act of fraud takes place

 

Incoming and Outgoing Partners

Main features:

  1. With respect to the Contract binding the partners, provisions regarding retirement and appointment are laid out.
  2. A retired partner is not liable to any third party who deals with the firm without knowing that he was a partner.
  3. A partner may not be expelled from a firm by any majority of the partners, it could differ only if there are respective clauses covered in the contract.
  4. An outgoing partner may carry on a business competing with that of the firm subject to contract
  5. The right of an outgoing partner in certain cases to share subsequent profits

 

 

Dissolution of Firm

Main features:

  1. Voluntary Dissolution by agreement: A firm can be dissolved with the consent of all the partners or in accordance with a contract between the partners.
  2. Compulsory Dissolution: A firm is dissolved if,
    1. by the adjudication of all the partners or of all partners but one as insolvent or,
    2. by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the partners to carry it on in partnership.
  3. Dissolution on the happening of certain contingencies: Subject to contract between the partners a firm is dissolved
  4. Dissolution by notice of partnership at will: The firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm.
  5. Dissolution by the Court. At the suit of a partner, the Court may dissolve a firm.
  6. Rights of partners post-dissolution of the firm
  7. Mode of settlement of accounts between partners
  8. Payment of firm debts and of separate debts
  9. Return of premium on premature dissolution
  10. Other restraints

 

 

Registration of Firm

Main features:

  1. Registering of the partnership firm requires the Partnership Deed
  2. Registrar if satisfied that the provision of section 58 have been duly complied with he will record an entry of the statement in a register called the Register of firms,
  3. Recording of alterations in firm name and principal place of business
  4. Noting of closing and opening of branches
  5. Noting of changes in names and addresses of partners
  6. Recording of changes in and dissolution of a firm
  7. Recording of withdrawal of a minor
  8. Effect of non-registration

 

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IP, Patent

Software patenting has been a point of discussion for long. There have been three amendments in CRI (Computer Related Inventions) guidelines in the past three years and still, the government hasn’t given a nod to software patents in India. Why is that so? Does this mean that one cannot safeguard software at all? Keep reading to find out the answers to these questions.

 

The CRI guidelines were last amended in June 2017. The most significant amendment involved deletion of the condition that patents for software could only be claimed in conjunction with novel hardware. This change was made to ensure that the focus is on the underlying substance and the not in the form that the contribution is claimed.

 

According to the latest amendment while processing software patent application, following tests are applied by the examiner:

  • If the software is claimed for patent including hardware then it would go through other proceedings to determine the patentability of the contribution.
  • If the contribution lies solely in the computer programme i.e. “computer programme per se” then it is not considered as an invention as per the Patents Act, 1970 and is hence not patentable.

 

According to the Patents (Amendment) Act, 2002 these contributions are excluded from patentability under section 3 for Computer Related Inventions (CRIs):

  • A mathematical or business method or a computer programme per se or algorithms
  • A literary, dramatic, musical or artistic work or any other aesthetic creation whatsoever including cinematographic works and television productions
  • A mere scheme or rule or method of performing mental act or method of playing the game
  • A presentation of information
  • The topography of integrated circuits

 

The following procedures are followed to examine the patentability of an invention: 

  • Novelty: The subject matter must be new and original, and should not have been revealed before the date of filing (priority date). The invention would not be patentable otherwise.
  • Inventive Step: It means that the features of an invention should involve technical advancement as compared to the existing knowledge or have economic significance or both. Also, the invention must not be obvious to a person skilled in that particular art.
  • Industrial Applicability: According to the Indian Patent Act, a patent can only be given for an invention which is capable of industrial application, i.e. for an invention which can be made or used in some kind of industry.
  • Sufficiency of Disclosure: Sufficiency of disclosure is a patent requirement which means that the patent application must disclose the invention by providing sufficient details The Patents Act, 1970 requires the applicant to specify “what” the invention is and “how” to perform it.

 

Following people are entitled to apply for a patent:

  • Any person claiming to be the true and first inventor of the invention
  • Any person being the assignee of the person claiming to be the true and first inventor in respect of the right to make such an application
  • The legal representative of any deceased person who immediately before his death was entitled to make such an application

 

Alternative ways to safeguard software:

One best solution to this problem is to get a copyright for your software under the Section 2(o) of the Copyright Act, 1957 by registering it as a literary work. Literary work includes computer programmes.

 

There are a number of compelling reasons for not patenting software. Software is a program that includes algorithms which are nothing but mathematical functions. Math cannot be patented and therefore software too. Another reason is that it leads to patent thickets. Patent thicket is a web of overlapping patents. If software is patented, a software developer must decipher patent thickets in order to develop new software. Finally, the patent system leads to a monopoly of powerful companies and it is a hindrance to technological growth and R&D.

 

 

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FDI, Funding Compliance

Attracting large-scale Foreign Direct Investment (FDI) and improving India’s world ranking for ‘Ease of Doing Business’ were the driving force behind continual amendments to FDI policy of India. Precisely speaking, DIPP has liberalized the rules such as – startups have been highlighted with specific policies. To know how these amendments could favor your business, stay tuned!


FDI in E-commerce Sectors

Marketplace model of e-commerce can accept 100% FDI, whereas inventory-based model of e-commerce businesses are not allowed.

Restriction of auditing

Foreign investors wanting to get auditing of the Indian investee company by a particular audit firm cannot proceed to do so unless and until a joint audit is conducted wherein one of the auditors is not from that particular audit firm.


FDI in NBFC

Foreign investment in investing companies registered as Non-Banking Financial Companies with the RBI, if overall regulated, then 100% FDI through automatic route is allowed.


FDI on Core Investment Companies (CICs)

Investing companies engaged in the activity of investing in the capital of other Indian companies or LLPs, is permitted to receive FDI under Government approval route, under RBI’s regulatory framework.


FDI in Real Estate Broking Services

Real estate broking service does not come under real estate business, and these service businesses are eligible for 100% FDI via automatic route.


FDI in Single Brand Product Retail Trading

100% FDI is allowed via automatic route. Subject to the following conditions:
  • Products to be sold should be of a ‘Single Brand’ only.
  • Products should be sold under the same brand internationally
  • A nonresident entity is allowed to undertake ‘Single Brand’ product retail trading. The owner can either trade by himself or mandatorily enter a legal tenable agreement executed between the Indian entity undertaking trading of the brand.
  • FDI beyond 51%, and sourcing 30% of the value of good purchased will be frequently checked by statutory auditors from the duly certified accounts which the company will be required to maintain. The relevant entity would be an Indian company.
  • A Single Brand Trading entity operating through Brick and Mortar stores is permitted to undertake retail trading through e-commerce
  • Indian brands should be owned and controlled by resident Indian citizens

FDI on medical devices

The definition of medical devices has been changed, which has brought implications on the type of companies or LLPs that can accept FDI. There are accounting procedures that have been listed out, like – pre-operative/pre-incorporation expenses, Pricing guidelines, issuance of equity shares, import-export etc.,


FDI in Multi Brand Retail Trading

Is permitted if the products are fresh agriculture produce, fishery and meat products, may be unbranded too. A minimum FDI of US $ 100M is a threshold to be met by foreign investors. Out of the investment, at least 50% of total FDI should be invested in back-end infrastructure within 3 years. At least 30% of the value of procurement purchased should be sourced from Indian MSME industries.


FDI in Duty-Free Shops

100% FDI is permitted via automatic route is the shop complies with conditions stipulated under the Customs Act, 1962


FDI in LLPs

  • FDI is permitted via the automatic route in LLPs operating in sectors where 100% FDI is allowed.
  • LLP having foreign investment is permitted to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed
  • Companies or LLPs with foreign investment can convert to an LLP or Companies provided they fall in sectors in which 100% FDI is allowed.
  • FDI in LLP is subject to the compliance of the conditions of LLP Act, 2008.

FDI in Startups

A startup company means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956
  • Startups can issue equity or debt instruments to FVCI against receipt of foreign remittance, as per the FEMA regulations.
  • Foreigners other than citizens of Pakistan and Bangladesh can purchase convertible notes issued by an Indian Startup Company for an amount of INR 20L or more in a single tranche.
  • Startup company engaged in a sector where acceptance of FDI requires Government approval has to get approval from Government to issue convertible notes to a non-resident.
  • Startup Company issuing convertible notes outside India should receive remittance through banking channels or by debit to the NRE/FCNR/Escrow account.
  • Transfer of convertible notes should comply with the pricing guidelines as prescribed by RBI
  • The Startup Company issuing convertible notes should furnish reports as prescribed by RBI

 

 

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TAXATION

Did you know that not until 2009 a defined rules set was established to govern LLP Taxation? It was Budget 2009 that realized the importance of laying down taxation policies for LLP as an entity type. In this blog, we will quickly look into the major takeaways for LLP’s in terms of Tax planning.

 

Income tax policy for a Limited Liability Partnership

 

  1. Income tax rate of 30% is applicable for LLP registered in India on the total income earned during a financial year. If the income is more than Rs 1 Crore in any financial year, the firm would also have to pay 10% surcharge.

 

  1. All LLPs have to pay Education Cess of 2% and Secondary and Higher Education Cess(SHEC) of 1% on the amount of income and applicable surcharge.

Note,

  • If the firm is making a profit by selling an asset, then it will be taxable.

  • In case of sale of shares and mutual funds, if selling within a year of purchase of the securities, a tax rate of 15% would be applicable to the earned profit.

  • In case the securities are being sold after a year of purchase and exceed INR 1 lakh in amount, then a tax rate of 10% would be applied according to Union Budget 2018.

 

  1. LLP is subject to minimum alternate tax which is the minimum tax rate that is applicable to any firm. Hence, the income tax paid by a LLP having profits must be equal to or more than 18.5% of the total income of the LLP.

 

  1. Tax deductions are allowed for the portion of the total income of the firm which is used for donations.

 

  1. LLPs are also liable to advance tax payments if the tax payable exceeds INR 10,000. The due dates for advance tax payment are as follows:

 

 

Due Date  –  Advance Tax Payable

  1. 15th June – 15% of advance tax

  1. 15th September – 45% of advance tax

  1. 15th December – 75% of advance tax

  1. 15th March – 100% of advance tax

 

Deadline for LLP tax filing for 2018

 

  1. In case there is no mandatory audit requirement, the deadline to file an income tax return for an LLP is 31st July of the current year.

 

  1. LLP whose revenue exceeded INR 40L are must get their accounts audited by a practicing Chartered Accountant. The tax filing for LLP, which requires obtaining audit, should be done before September 30th of current year.

 

  1. LLPs that are involved in international transactions with associated enterprises or have undertaken certain Specified Domestic Transactionsare required to file Form 3CEB. The form must be certified by a CA. The deadline for tax filing for LLPs that are required to file Form 3CEB is 30th November.

 

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Export Import Registration

Export from India requires special documentation depending upon the type of product and destination to be exported. These documents not only give details about the product and its destination port but are also used for the purpose of taxation and quality control inspection certification. In this blog, we will look into the documents required to export goods in general:

Please note, the list is an extensive one, some documents are applicable to a specific category of goods.

  1. Shipping Bill: This is the main document required by the Customs Authority for allowing shipment. A shipping bill is issued by the shipping agent and represents some kind of certificate for all parties, including ship’s owner, seller, buyer and some other parties.
  2. Customs Declaration Form: It is prescribed by the Universal Postal Union (UPU) to be prepared in quadruplicate and signed by the sender.
  3. Dispatch Note: It is filled by the exporter to specify the action to be taken by the postal department at the destination in case the address is non-traceable or the parcel is refused to be accepted.
  4. Commercial Invoice: Issued by the exporter for the full realizable amount of goods as per trade terms. 
  5. Consular Invoice: It is prepared in the prescribed format and is signed/ certified by the counsel of the importing country located in the country of export. 
  6. Customs Invoice: Mainly needed for countries like USA, Canada, etc. It is prepared on a special form presented by the Customs authorities of the importing country. It facilitates entry of goods in the importing country at preferential tariff rate.
  7. Legalized Invoice: This shows the seller’s genuineness before the appropriate consulate/chamber of commerce/embassy.
  8. Certified Invoice: It is required when the exporter needs to certify on the invoice that the goods are of a particular origin or manufactured/ packed at a particular place and in accordance with the specific contract.
  9. Packing List: It shows the details of goods contained in each parcel/shipment.
  10. Certificate of Inspection: It is a type of document describing the condition of goods and confirming that they have been inspected.
  11. Black List Certificate: It is required for countries which have strained political relation. It certifies that the ship or the aircraft carrying the goods has not touched those country(s).
  12. Certificate of Chemical Analysis: It is required to ensure the quality and grade of certain items such as metallic ores, pigments, etc.
  13. Certificate of Shipment: It signifies that a certain lot of goods have been shipped.
  14. Health/ Veterinary/ Sanitary Certification: Required for export of foodstuffs, marine products, hides, livestock etc. 
  15. Certificate of Conditioning: It is issued by the competent office to certify compliance of humidity factor, dry weight, etc.
  16. Antiquity Measurement: It is issued by Archaeological Survey of India in case of antiques.
  17. Shipping Order: Issued by the Shipping (Conference) Line which intimates the exporter about the reservation of space of shipment of cargo through the specific vessel from a specified port and on a specified date.
  18. Cart/ Lorry Ticket: It is prepared for admittance of the cargo through the port gate and includes the shipper’s name, cart/ lorry No., marks on packages, quantity, etc. 
  19. Shut Out Advice: It is a statement of packages which are shut out by a ship and is prepared by the concerned shed and is sent to the exporter. 
  20. Short Shipment Form: It is an application to the customs authorities at a port which advises short shipment of goods and required for claiming the return.

 

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GDPR

The safety of the people shall be the highest law

                                     -Marcus Tullius Cicero

The European Union’s General Data Protection Regulation (GDPR) just goes without a saying a perfect example of above quote. The regulation will be in effect from 25 May 2018.

 

To give you a brief story:

 

The GDPR attempts to give EU citizens a complete control over what data (data that is used to identify a person) companies collect, store, and use. This means any business that transacts with EU citizen will have to deal with GDPR.

If a business violates GDPR, it can be fined up to 4% of company’s global turnover or 20 million Euros.

Businesses that want to collect, store, and use EU Citizen cum customer data, have to get explicit permission via legally enforceable contracts that are written in clear language, it has to be intuitive enough for the EU citizen to understand, and withdraw consent or give consent.

 

The types of data that GDPR protects:

 

 

  • Basic identity information such as name, address and ID numbers
  • Web data such as location, IP address, cookie data and RFID tags
  • Health and genetic data
  • Biometric data
  • Racial or ethnic data
  • Political opinions
  • Sexual orientation

 

Throwing light on how businesses (both data controllers and data processors) can play by the rules laid down by GDPR:

 

  1. Appointment of Data Protection Officer (DPO) – Microsoft is doing this. Precisely speaking any businesses meeting at least one of these criteria has to appoint a (DPO)
    1. Business is a listed one
    2. Business with over 250 employees
    3. Business that process personal data of more than 5,000 subjects in a 12 month period
  2. Implementation of legally enforceable contracts for collecting data at every touch point, note, the contract has to be intuitive and in clear language. Small businesses like Bloggers can implement this under the guidance of an experienced lawyer.
  3. Third party compliance contract – Say if you are a data controller and are complied with GDPR, now there is a third party that processes the data. If the third party processor does not comply with GDPR, then that means even your organization is not in compliance. Cloud providers, SAAS Vendors, or Payroll service providers etc. are good examples of the third party that processes data.

 

Jumping into deeper meanings of 9 major topics:

 

 

  1. Taking Consent from customers :
    • Must be specific, informed and unambiguous
    • Customer should be given choice to take clear affirmative action
    • Consent cannot be inferred from silence
    • Consent cannot be inferred from pre-ticked boxes
    • Consent must b different from ‘Terms and Conditions’
    • Businesses should provide simple ways to withdraw consent
    • Consent has to be verifiable

 

  1. Taking Children’s personal data:
    • Privacy Notice is written in a clean an plain way that a child can understand
    • Businesses offering ‘information society service’ to children, you may need to obtain consent from a parent or guardian.

 

  1. Individual’s rights :
    • The right to be informed
    • The right of access
    • The right to rectification
    • The right to erasure
    • The right to restrict processing
    • The right to data portability
    • The right to object
    • Rights in relation to automated decision making and profiling

 

  1. Information to be covered in Privacy Notice Contract or other legal bases:
    • Identity and contact details of the controller and the DPO
    • Purpose of the processing and the lawful basis for the processing
    • The legitimate interests of the controller or third party
    • Categories of personal data
    • Details of transfers to third country and safeguards
    • Any recipient or categories of recipients of the personal data
    • Details of transfers to third country and safeguards
    • Criteria used to determine the retention period
    • The existence of each of data subject’s rights
    • The right to withdraw consent at any time
    • The right to lodge a complaint with a supervisory authority
    • The source the personal data originates from whether it came from publicly accessible sources
    • Whether the provision of the personal data part of a statutory or contractual requirement or obligation and possible consequences of failing to provide the personal data.
    • The existence of automated decision making, including profiling and information about how decisions are made, the significance and consequence.
    • Confirmation that their data is being processed, per say
    • Access to their personal data free of charge, you can charge a reasonable fee if accessed multiple times
    • Individuals can have personal data rectified if it is inaccurate
    • Details about the processing of the request to erase data

 

  1. Information should be shared by:
    • At the time data are obtained, if acquired by the controller, or else
    • Within a reasonable period of having obtained
    • If the data are used to communicate with the individual, at the latest, when the first communication takes place
    • If disclosure to another recipient is envisaged, at the latest

 

  1. Businesses should demonstrate accountability by:
    1. Implement internal data protection policies such as staff training, internal audits etc
    2. Maintain relevant documentation on processing activities
    3. If appropriate, appoint a data protection officer
    4. Implement measures that meet the principles of data protection by design and data protection by default.
    5. Adhere to approved codes of conduct and or certification schemes
    6. DPIA if required

 

  1. Breach notification:
    1. GDPR will introduce a duty on all businesses to report certain types of data breach to the relevant supervisory authority, and in some cases to individuals affected
    2. Breach notification should contain details of data that got breached

 

  1. Before Transfer of data outside EU:
    1. Should comply with the conditions for transfer set out in chapter v of the GDPR
    2. Transfer may happen only if the international organization ensures an adequate level of protection
    3. A legally binding agreement between parties
    4. Binding corporate rules
    5. Standard data protection clauses in the form of template transfer clauses adopted by the commission
    6. Compliance with an approved code of conduct
    7. Certification under an approved certification mechanism
    8. Contractual clauses agreed authorized by the competent supervisory authority

 

  1. Transfer of data outside EU can happen if:
    1. Made with individuals consent
    2. Under a contract between individuals and business or for pre-contractual steps taken at the individual’s request
    3. Contract made between individual and controller
    4. Necessary for important reasons of public interest
    5. Necessary for the establishment, exercise or defense of legal claims

 

 

 

 

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Funding Compliance, Secretarial Compliance

Credit goes to Companies (Amendment) Act, 2015 issued by the Ministry of Corporate Affairs (MCA) that made borrowing funds in form of loans from directors, shareholders, subsidiaries etc., easy. Addressing the fact that raising external funds, especially for early-stage startups, is like moving mountains, we at Wazzeer decided to write this blog on how private limited companies in India can accept loans from its stakeholders, with a view to help those in need of one.

 

 

Firstly, to borrow loan from any stakeholder of any amount, board resolution must be passed.

 

 

Secondly, let’s look at the different stakeholders that can loan a private limited company:

 

 

#1: Directors

Directors of the company can loan the private limited company. The director has to provide a declaration that the amount has not been given out of funds acquired by him borrowing or accepting loans or deposits from others.

 

 

#2: Shareholders

  • If the money accepted from members exceeds 100% of the paid-up capital and free reserves, then such shareholders cannot loan.
  • If the money accepted from members does not exceed 100% of paid up capital and free reserve, then the shareholder can loan.

 

#3: Director cum Shareholder

This person can loan, he/she has to provide a declaration that the amount has not been given out of funds acquired by him by borrowing or accepting loans or deposits from others.

 

 

#4: Subsidiary or Any other company

  • Not allowed if any director of the lending company is a director or member of the borrowing company
  • Not allowed if, the director of the lending company, individually, or along with one or more of its directors, exercises or controls not less than 25% of voting rights of the borrowing company
  • Not allowed, if the board of directors, MD or manager of the borrowing company is accustomed to act in accordance with the directions or instructions of the board, or any director or directors of the lending company.
  • If the lending and borrowing company are both private limited companies, then it can give loan irrespective of common directors if in the lending company no other body corporate has invested any money
  • If the lending and borrowing company are both private limited companies, then it can give loan irrespective of common directors if the borrowing of the lending company from banks or financial institutions or anybody corporate is less than twice its paid-up capital or INR 50C
  • If the lending and borrowing company are both private limited companies, then it can give loan irrespective of common directors if the lending company is not in default in repayment of such borrowings subsisting at the time of giving such loan.

 

#5: Employee

Yes, allowed to lend loan, the amount borrowed must not exceed the employee’s annual salary in the nature of interest-free security deposit.

 

 

 

 

 

 

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License

It has come to our notice that businesses that are operating from office premises or shops in Bangalore have been encountering uninvited visits from inspectors from Labor Department. The inspectors had come down to these office premises checking for Shops and Establishment License, if not found, inspectors shut down the premises or penalize the firms with huge fines. Throwing light on this situation, let’s look into the Shops and Establishment License as a subject.

In 1962, Shops and Establishment Act was introduced to regulate conditions of work and employment in shops and commercial establishments.

To those of you wondering how the act defines “Commercial Establishment”– A commercial or trading or banking or insurance establishment where the persons employed are mainly engaged in office work, a hotel, restaurant, boarding or eating house, a café or any other refreshment house, a theatre or any other place of public amusement or entertainment.

To those of you wondering how the act defines “Shop” – Any premises where any trade or business is carried on or where services are rendered to customers, and includes offices, storerooms, godowns, or warehouses, whether in the same premises or otherwise, used in connection with such trade or business, but does not include a commercial establishment or a shop attached to a factory where the persons employed in the shop fall within the scope of the factories.

Who are exempt from this Act:

  • Offices under Central or State Governments or local authorities.
  • Establishments for the treatment or care of the sick, infirm, or the mentally unfit.
  • Offices of legal practitioners and medical practitioners in which not more than three persons are employed.
  • Offices of a banking company
  • Persons occupying positions of management in any establishment
  • Shops dealing in medicines or medical or surgical requisites or appliances
  • Clubs, residential hotels, boarding houses, hostels attached to schools or colleges, and establishments maintained in boarding schools in connection with the boarding and lodging of pupils
  • Stalls and refreshment rooms at railway stations, bus stands, ports
  • Shops of barbers and hairdressers
  • Shops dealing mainly in meat, fish, poultry, eggs, dairy produce, bread, confectionery, sweets, chocolates, ice, ice cream, cooked food, fruits, flowers, vegetables or green fodder.
  • Shops dealing in articles required for funerals, burials or cremations
  • Shops dealing in pan (betel leaf), pan with beedies or cigarettes
  • Shops dealing in newspapers or periodicals, editing sections of newspaper offices
  • Cinemas, theaters, and other places of public entertainment and stalls and refreshment rooms attached to such cinemas, theaters and places of public entertainment.
  • Establishments for the retail sale of petrol
  • Shops in cantonments
  • Retail trade carried on at an exhibition or show with main purpose of the exhibition
  • Oil mills and flour mills
  • Brick and lime kilns
  • Information Technology Establishments
  • Information Technology enabling services or establishments

 

 

Registration of establishments:

Step 1: Send to the inspector of the area in a concerned form mentioning the following details with fees:

  • Name of the employer and the manager
  • Postal address of the establishment
  • Name of the establishment

Step 2: On receipt of the statement and the fees, inspector if satisfied, registers the establishments and provide registration certificate to the employer

Step 3: The registration certificate has to be prominently displayed at the establishment.

 

Note:

  • Establishment closing should be notified: Employer, within 15 days of the closing establishment should notify the inspector in writing
  • The license has to be renewed every year
  • In case you wish to make changes to the certificate, by paying additional fees the changes can be made.

 

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