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Business Formation, Private Limited Company

Out of 4 startups born every day in India, 75% register their startup. This blog is intended to remind the importance of incorporating the startup. Yes, they say, on incorporation, a company acquires legal entity shape, but it’s not just that. In this blog, we will look into the Top 7 reasons to incorporate the startup as Private Limited Company.  As entrepreneurs, it is wise to utilize the right information at our disposal reason being most of the time we are on our own.

 

  1. Corporate Personality: The Company is a distinct legal or juristic person independent of its members (directors). From the date of incorporation mentioned in the certificate of incorporation, subscribers to the memorandum and all other persons will be capable of exercising all the functions of an incorporated company under the Act and having perpetual succession and a common seal with power to acquire, hold and dispose of property, both movable and immovable, tangible and intangible, to contract and to sue and be sued, by the said name.
  2. Limited Liability: In the event of the company being wound-up, no member is bound to contribute anything more than the nominal value of the shares held by him which remains unpaid.
  3. Perpetual Succession: Irrespective any change in the board members, the company will be the same entity with the same privileges and immunities, estate and possessions. The death or insolvency of individual members does not affect the corporate entity, its existence or continuity. The company will continue to exist indefinitely till it is wound-up.
  4. Transferable Shares: Shares or other interest of any member of a company can be movable property, transferable in the manner provided by the articles of the company. This encourages investment of funds in the shares, so that the members may encash them at any time. Thus, it provides liquidity to the investors as shares could be sold on the open market and on the stock exchange. It also provides stability to the company.
  5. Separate Property: The property of the company is not the property of the shareholders, it is the property of the company. The company is the real person in which all the property is vested, and by which it is controlled, managed and disposed of. In the eyes of law, even a member holding majority of shares or a managing director of a company is held liable for criminal misappropriation of the funds or property of the company, if he unauthorized takes it away and uses it for his personal purposes.
  6. Capacity to Sue: A company can sue in its name and be sued by others. Neither the members of the board nor the team is liable for anything wrong.
  7. Flexibility and Autonomy: The Company has an autonomy and independence to form its own policies and implement them through Memorandum and Articles of Association.


As an end note, a quick comparison between available entities that a for-profit organization can choose to incorporate

Top 7 reasons to incorporate the startup as Private Limited Company

 

Relevant Blogs for your further reading:

 

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Partnership Firm

Indian Partnership Act, 1932 clearly states that there must be an agreement between the partners of a partnership firm by a contract, and the partnership agreement must comply with essentials of a valid contract, and the partners must be competent to contract and the object of partnership should not be forbidden. We at Wazzeer have received an ample number of questions on Counsel Application, where partners have shared some really critical issues faced by partners in their respective partnership firms, well I am going to add a snapshot of those conversations to the end of this blog. Coming to the essence of this blog, arm to help you Check if your Partnership Deed is Valid.


Partnership Deed may be oral but to avoid future disputes it is always advisable to have it in writing. Note, before the partnership is actually started Partnership Deed should be in place. Thus, the written document is a wise choice.


First and Foremost, the Partnership Deed must be properly drafted and stamped according to the provisions of the Indian Stamp Act. Each partner should be given a copy of the deed and if the firm is to be registered, a copy of the deed should be filed with the Registrar of Firms.


Entrepreneurs, in general, have little to no expertise to validate a contract (only document that would actually safeguard the dream venture and yourself). So, We at Wazzeer are providing you simple and easy tricks, just like correcting a 6th class going student test papers, you will now be able to validate the Partnership Agreement.


A typical partnership deed contains the following covenants, check if these are in place and order:


  1. The firm name and business to be carried on under that name.
  2. Names and addresses of partners.
  3. Nature and scope of business and address(s) of business place(s).
  4. Commencement and duration of the partnership.
  5. The capital and the contribution made by each partner.
  6. Provision for further capital and loans by partners to the firm.
  7. Partner’s drawings.
  8. Interest on capital, loans, drawings and current account.
  9. Salaries, commission, and remuneration to partners,
  10. Profit (or loss) sharing ratio of partners.
  11. The keeping of proper books of accounts, inspection, and audit, Bank Accounts, and their operation.
  12. The accounting period and the date on which that accounts are to be prepared.
  13. Rights, powers, and duties of the partners.
  14. Whether and in what circumstances, notice of retirement or dissolution can be given by a partner.
  15. Provision that death or retirement of a partner will not bring about dissolution of partnership,
  16. Valuation of goodwill on retirement, death, dissolution etc.
  17. The method of valuation of assets (and liabilities) on retirement or death of any partner.
  18. Provision for the expulsion of a partner.
  19. Provision regarding the allocation of business activities to be performed by individual partners
  20. The arbitration clause for the settlement of disputes. The terms contained in the partnership deed may be varied with the consent of all the parties, and such consent may be express or implied by a course of dealing. [Section 11(1)]



Actual queries regarding Partnership firm, Partnership Deed, and disputes between partners:

How to Check if your Partnership Deed is Valid?

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Business Formation

Whether it is laboratory services, clinical research or any other facet or practice that forms the part of the process of diagnosis of diseases, their treatment, observe and examine the response of the disease to the treatment prescribed, disease surveillance, clinical research, data management or statistical analysis in this field, it requires an exceptional amount of quality control in order to ensure absolute certainty of the results. In fact, clinical data management and statistical analysis are the keys to uncovering new diseases and finding treatments for them. In order to maintain high standards in terms of quality, a code called the Good Clinical Practices (“GCP”) regulates all aspects of this function from designing, collecting, recording, maintaining all the clinical data. This blogs talks about the authorizations and compliances should a clinical data management and Analytics Company is required to undertake.

Factors affecting the quality of data stored:

Various considerations and factors that immensely influence the quality of clinical data collected have been discussed below:

  • Case Report Form (CRF): The CRFs should be systematically and meticulously drawn in order to ensure that the data collected is complete in all aspects and also precise. Further, the CRF and the protocol drawn for a particular project should also be coherent and any inconsistencies between the two must be avoided.
  • Field monitoring guidelines: These guidelines should be carefully drafted so as to ensure that they completely fulfill their purpose as the quality of these guidelines and their effective implementation will directly affect the quality of the data that is presented to the clinical data management system.
  • Source Data Verification: This is a very key step in the process of validating the data to ascertain the authenticity of the data that has been presented in terms of its integrity and accuracy.
  • Data conventions: This factor is relatively more relevant to the multicentre clinical trials. Usually, in these centers, the conventions that are followed are not uniform and hence, their varied nature acts as a hindrance to entering the data in the database and thereafter also maintaining it.


Enforcement of the laws related to drugs and cosmetics in India:

The Drugs and Cosmetics Act, 1940 (“the Act”) was enacted by the Central Government under the flagship of the Ministry of Health and Family Welfare to regulate all matters pertaining to import, manufacture, distribution, and sale of drugs and cosmetics in India. The Act provides for standards of quality for all kinds of drugs being sold to the public- whether manufactured inside the country or imported, prohibition of drugs and cosmetics that may be adulterated or misbranded and also provides for the procedures that must be followed in obtaining registrations and compliances before circulating any kinds of drugs or cosmetics covered under the Act to the public.

More importantly, for the purpose of effective enforcement of the provisions of this law, the Act provides for setting up of the Drug Technical Advisory Board (“DTAB”). This body acts as an advisor to the Central Government and the State Governments on technical matters arising out of the administration of this Act and to carry out the other functions assigned to it by this Act. Being the highest technically constituted body under the Act, the DTAB recommended that the GCP guidelines must be followed for carrying out any activities related to clinical studies in India.

The Good Clinical Practices:

GCP is an ethical code on the level of quality that is to be maintained by the managers in these organizations. This code is one of the most integral and ancient codes that the practitioners of this field follow and was earlier called ‘the Hippocratic Oath’ based on the premise of causing no harm to the patient. Over time, with the development of medicine and need for induction of more modern and comparatively efficient methods, the antique code also required revisions in order to augment the efficiency of practitioners. Hence, the GCP. The Central Drugs Standard Control Organisation (“CDSCO”) of India, the national representative of the Government of India for all means and purposes regulates all matters related to drugs and cosmetics, set up to perform functions under the Drugs and Cosmetics Act, 1940 and the rules made thereunder. These guidelines were also formulated under the guidance of the CDSCO when this organization appointed an Expert Committee for this purpose.

This GCP is a set of guidelines for running tests, collecting the data and managing it with the fundamental objective of ensuring that the factors related to the research and the study undertaken related to the subject do not undermine the importance of human life being the subjects of these tests. Not only does this Code require that the study that is being done is scientifically sound but also ethically all-encompassing.

Compliance with international standards:

The GCP guidelines have been created and amended as and when required so as to keep then updated in line with the guidelines prescribed from time to time by World Health Organisation, International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use, United States Food and Drug Administration, the European GCP guidelines, and the ethical guidelines for biomedical research on human subjects issued by the Indian Council of Medical Research.

A brief summary of the provisions of the GCP guidelines:

The Code provides for provisions related to the audit of the data to avoid any source contradictions, quality assurance and quality control at the time of planning, conducting, monitoring, evaluating, data handling and reporting. In order to implement the same, it also provides for a mechanism for effectual data handling and management. It is provided therein that “A statement should be clearly made in the protocol that- The investigator(s) / institution(s) will permit study related monitoring, audits, ethics committee review and regulatory inspection(s) providing direct access to source data/documents and a copy of the CRF should be included in the protocol.  

Besides, the following details should be given:

  1. Procedures for handling and processing records of effects and adverse events to the product(s) under study
  2. Procedures for the keeping of patient lists and patient records for each individual taking part in the study.  Records should facilitate easy identification of the individual subjects. 

Conclusively, the GCP guidelines prescribe the practices that help in upholding the two cardinal principles of protecting the interests of the human subjects of the clinical research as well as warranting the reliability of the data and must be followed at all stages of data management, colleting, handling, maintaining etc.


Start-up process
 entails complex procedures and many bureaucratic hurdles, entrepreneurs are better off using professional services. Hiring a virtual lawyer and virtual accountant can save time and help ensure that the process goes smoothly.   For any Legal and Accounting support, Happy to help you. Let’s talk.

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Business Formation

Foreign direct investment up to 100% into a private limited company is under the automatic route, wherein no Central Government permission is required. Hence, incorporation of a private limited company as a wholly owned subsidiary of a foreign company or joint venture is allowed in India. This blog is pretty much written with an objective to bring in clarity on exactly what a foreign citizen planning to incorporate a Private Limited Company in India should know.

 

Foreign Direct Investment (FDI) into an Indian Private Limited Company:

 

FDI is allowed up to 100% in most sectors. Only a very few sectors require prior Central Government approval for investment by a foreign company or foreign national. The following sectors require Government Approval for investment by Foreign Company or Foreign National:

  1. Petroleum sector (except for private sector oil refining), Natural gas / LNG pipelines.
  2. Investing in companies in Infrastructure
  3. Defense and strategic industries
  4. Atomic minerals
  5. Print Media
  6. Broadcasting
  7. Postal Services
  8. Courier Services
  9. Establishment and operation of Satellite
  10. Development of Integrated Township
  11. Tea Sector
  12. Asset Reconstruction Companies

Incorporation of Private Limited Company by Foreign Nationals:

 

The following are the steps involved in the incorporation of an Indian Private Limited Company for foreign nationals:


Management and Shareholding Structure:


A private limited company must have a minimum of two Shareholders and two Directors. A shareholder can be a person or a corporate entity. Foreign nationals are allowed to become Directors of an Indian Private Limited Company.

The Board of Directors of the Indian Private Limited Company must have one Director who is both an Indian Citizen and Indian Resident. However, there is no requirement for the Indian Director to be a shareholder in the Company. Hence, most foreign companies or foreign nationals prefer to incorporate a company in India with three Directors – two Foreign National Directors and one Indian National Director.

The 100% shares of the Indian Company can be held by a combination of Foreign Companies and/or Foreign Nationals. Indian private limited companies require a minimum of two shareholders mandatorily. Hence, one corporate entity or person cannot hold all the shares of an Indian Private Limited Company.

 

Obtaining Digital Signature for Foreign National Directors:

 

A digital signature is required for filing the incorporation documents and continued compliance documents for a company. Hence, Digital Signatures must be obtained for one or more Director(s) of the company.

The following are the documents and information required for obtaining Digital Signature for a foreign national:

  1. Foreign nationals residing in India

The following documents should be certified by Individual’s Embassy:

  • Resident Permit certificate issued by Assistant Foreigner Regional Registration. Officer, an officer of Bureau of Immigration India.
  • Passport
  • Visa
  • Application form with Photo(attested)
  1. Foreign national

The following documents should be certified by the local embassy of the country to which the person belongs:

  • Passport
  • Visa
  • Application form with Photo(attested)

 

Obtaining Director Identification Number and Name Approval:

 

Once Digital Signature(s) is obtained from the Director(s) of the proposed company, Director Identification Number (DIN) must be obtained for all the Directors. As per the Companies Act, 2013, a Director Identification Number is required for every individual intending to become a Director or a Company in India. Once, the digital signature is obtained, DIN can be obtained from the Director(s) quickly and easily by filling form DIR-3 with Registrar of companies.

Once, two DIN numbers are available, name approval can be obtained from the proposed Company in form INC-1.   

 

Filing for Incorporation of a Private Limited Company:

 

Once name approval is obtained, incorporation documents can be filed with the Ministry of Corporate Affairs to incorporate the Company through SPICe form (INC-32).  The incorporation documents to be filed includes affidavits & declarations from Directors, Memorandum of Association Subscriber Sheet, Articles of Association Subscriber Sheet and Registered Office Address proof.

The affidavit and declarations from the Directors contain a certain declaration from the Directors. Affidavit and Declaration would have to be executed independently for each of the Director and notarized (For Indian Director & Foreign Director).

 

Subscribing to the Memorandum of Association (MOA) & Articles of Association (AOA):

 

By subscribing to the MOA & AOA, the shareholders (either foreign companies or foreign nationals or Indian companies or Indian national) show their intention for becoming a shareholder in the company to be incorporated.

  • In case a foreign national is signing the subscriber sheet of the MOA & AOA in India: Then the signature of the foreign Director must be verified by the public notary of that country or by the Officers of the Embassy. A copy of a valid business visa to India must be attached.
  • In case the person is living in some other country: Then the signature of the Director, identity proof, and address proof must be notarized by a Notary of the country and the certificate of the Notary must be authenticated by a Diplomatic or Consular Officer.

 

In case a Foreign Company is a subscriber to the MOA & AOA of the proposed Indian Company:

 

The following documents pertaining to the foreign entity subscribing to the shares of the Indian Company must be submitted:

  • Board resolution of the Foreign Entity authorizing investment in shares of the Indian Company.
  • Copy of the certificate of incorporation of the foreign entity.
  • Copy of address proof for the foreign company.

On submitting the above documents along with the application for incorporation of a company, the Registrar would issue a Certificate of Incorporation for the Indian Private Limited Company, if the documents submitted are acceptable.

After obtaining the incorporation certificate, the Indian Company can apply for a PAN Card, TAN number and take the necessary steps for opening a bank account for the company in India.

Your Wazzeer has established nationwide well connected Wazzeer Professional Network, and structured procedure enabled by technology; we can serve this work completely online. Why don’t we get on a quick chat? Let’s connect.

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Business Formation

When you realize the company has to be converted into an NGO, it is never too late to roll out the conversion process, because the Indian government has room for you guys, it has set rules that is justified and equally viable. With just 2 steps process, you could have your XYZ Company convert into an XYZ Organization.


Conversion of existing limited company into Section 8 Company

A limited company registered under any previous company law or under the Companies Act, 2013, and which is desirous of being registered under section 8, without the addition to its name of the word “Limited” or as the case may be, the words “Private Limited”, can make an application in Form No. INC.12 (Part B) to the Registrar of Companies.

Step 1: Application to accompany certain documents. 

Following documents shall be attached to the application:

(a) the memorandum and articles of association of the company;

(b) the declaration as given in Form No. INC.14 by an Advocate, a Chartered accountant, cost accountant or Company Secretary in practice, that the memorandum and articles of association have been drawn up in conformity with the provisions of section 8 and rules made thereunder and that all the requirements of the Act and the rules made thereunder relating to registration of the company under section 8 and matters incidental or supplemental thereto have been complied with;

(c) For each of the two financial years immediately preceding the date of the application, or when the company has functioned only for one financial year, for such year

(i) the financial statements,

(ii) the Board’s reports, and

(iii) the audit reports relating to existing companies

(d) a statement showing in detail the assets (with the values thereof), and the liabilities of the company, as on the date of the application or within thirty days preceding that date;

(e) an estimate of the future annual income and expenditure of the company for next three years, specifying the sources of the income and the objects of the expenditure;

(f) the certified copy of the resolutions passed in general/ board meetings approving registration of the company under section 8; and

(g) a declaration by each of the persons making the application in Form No. INC.15.

Step 2: Give notice in newspapers:

Within a week from the date of making the application to the Registrar of Companies, the applicant shall publish a notice, in Form no. INC.26, at his own expense:
1. At least once in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the proposed company is to be situated, and circulating in that district, and
2. at least once in English language in an English newspaper circulating in that district; and
3. On the websites as may be notified by the Central Government.

Copy of such notice in newspapers shall be submitted to the Registrar of Companies immediately after their publication.

We at Wazzeer have been vouched by entrepreneurs as a reliable Legal and Accounting partner, may be because we strive harder everyday to transform the industry by enabling technology to simply things. 🙂 Let’s Connect!

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Business Formation

To Start FMCG products manufacturing business in India will invite certain scrutiny that comes under policies in fast moving consumer good (FMCG) segment and is having huge scope in the market as an essential product used daily by billions of people. Taking the example of Soap as a product, the soap industry is divided into various segments – personal use, veterinary use and laundry use. Personal care soap segment is dominated by large consumer goods companies, whereas the veterinary use and laundry use segment is fragmented or dominated by a few large players. In this blog we will be looking as an overview on the necessary compliance. The major two:

License & Registration

If you want to start the manufacturing, you need to obtain different registrations and licenses. However, it depends on the location where you are establishing the plant. It is advisable to check the local state laws. Here we put some of the basic considerations.

  • First of all, determine the form of your business. And accordingly, register the business. Like Private Limited company or LLP.
  • Apply for the Trade License from the Municipal Authority.
  • Additionally, apply for MSME Udyog Aadhaar online registration.
  • Apply for the ‘Consent to Establish’ from the Pollution Control Board
  • Obtain the GST registration.
  • Apply for BIS certification.
  • Choose a catchy brand name of the product and secure the name with Trademark

 

Investment Required

The investment required for starting a small soap manufacturing business is minimal. A soap manufacturing unit setup with an investment of about Rs.15 lakhs can generate revenues of up to Rs.50 lakhs and a profit of Rs.8 lakhs, if operated successfully. The breakup of the investment required and the assumptions for revenue are as under:

Land & Building Requirement

A small soap manufacturing unit requires a space of about 750 square feet of which around 500 square feet must be constructed. For the financial model, we have assumed that such a place can be obtained with an investment of about INR 5L with the necessary power and water supply.

Machinery Required

A small detergent soap making business minimal investment in machinery. Typical list of soap making machinery required for soap manufacturing are plodder machine, miller machine, sap stamping machine and soap cutting machine. Based on the type of product to be manufactured and the scale, the type and investment required in machinery would vary. Investment in a small soap manufacturing unit can vary between INR 2L and INR 10L. The typical time for setting up of a unit is about 3 to 6 months for obtaining the necessary licenses, equipment, raw material, act.,

Working Capital

The main working capital expenditure for a soap manufacturing unit is raw material, salaries and wages, power cost and receivables. Raw material to the tune of INR 3L- 4L must be on-stock for operating a soap manufacturing unit smoothly, with additional working capital requirement of INR 1L – 2L required for other expenditures like salaries, power and receivable. Hence, taking into a three month working capital cycle, the promoters must have about Rs.8 to INR 12L of working capital funds to operate smoothly.

Bank Loan for Soap Manufacturing

Bank loan can be obtained for soap manufacturing from various banks in India. Since, the amount of investment required would be less than INR 1C, loan can be obtained under the CGTMSE scheme without any collateral.

Wazzeer is vouched by entrepreneurs as the reliable legal and accounting partner for years now. We are happy that we could be a chapter in your success stories. Let’s connect a get your business takes off. 🙂

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Business Formation, Subsidiary in Dubai

Dubai in the UAE has proved to be one of the most attractive places to businessmen from all over the world. Dubai’s law expresses its leniency for free and fair trade with other countries and therefore the procedure for setting up a business, compliance mechanisms etc. are relatively simpler than in other countries. The Department of Economic Development (“DED”) has laid down a vision whereby the business owners are actively assisted by the good administration and simple procedural requirements. On this blog we will look into major stuffs that would resolve a simple question on “How to start a business in Dubai?”

Branch office v. Subsidiary:

A business in Dubai may be set up by a parent company located outside the territory of Dubai either as a Branch office or as a Subsidiary Company. While the former is related to the parent company and cannot function independently, the latter is an arm of the parent company but functions as an independent unit. The branch office of the company in Dubai will have to register itself with the Ministry of Economic Affairs and will be allowed to perform only limited activities as per the law of the country and that are similar to those of its parent company.

A subsidiary on the other hand is a separate legal entity than its parent company. The parent company will not be liable for any functions or actions of the subsidiary in Dubai and will be free to practice any business activities independent of its parent provided that all the rules and regulations of the country are complied with.

Free Zone v. outside free zone:

A subsidiary company in Dubai may be set up either in the mainland of Dubai or in the Free Zones. The location of the business may be chosen depending upon the nature of the business, the activities to be undertaken, the scale of these activities, capital requirements, capital structure etc. Setting up a company in the free zone of Dubai entails various benefits. Some of these include:

  • Ownership by a foreign national to the extent allowed by the law.
  • A complete exemption from all kinds of corporate taxes, duties imposed on import and export of goods and services for a period of fifteen years from the year of establishment.
  • The laws of Dubai also allow repatriation of all the 100% invested capital and profits.

However, on the contrary, it must be noted that though the benefits of setting up a unit in the free zone is plenty, it comes with its own drawbacks. Such a unit is not allowed to transact and indulge in any business activities with the companies statute on the Dubai mainland, involves extensively high translation and notarization costs, and mandatory presence of the office in the free zone that has been chose.

If you set up an office in the mainland, the permission of the DED authorities by way of a license to carry out business activities in the territory will have to be obtained.

Below is an account of all the requirements that must be fulfilled in order to establish a subsidiary in Dubai:

Choosing an area of business: The business activities that a subsidiary company may choose have been categories under tourism, commercial, professional and industrial. The list encompasses a total of about 2,100 business activities under the above stated heads. In case the activity that you wish for your business to undertake is not listed under any of these, you may write to the concerned authorities by emailing at info@dubaided.gov.ae for seeking a clarification for this purpose.

Pre-application requirements


Prior to a formal application having been made, a subsidiary under the company law of Dubai is set up as a limited liability company. For this purpose, a company must choose a unique name that has not already been registered and also not the intellectual property of any other entity. In addition to this, an approval from the DED authorities may also be applied for, Memorandum and Articles of Association are required to be drafted and notarized etc.

Documents required:


Along with the application to the Ministry of Economic and Commerce, the parent company shall also submit the following documents:

  • Certificate of Incorporation of the company
  • Memorandum and Articles of Association drafted and notarized according to the laws of Dubai.
  • Board Resolution of the parent company approving the establishment of the subsidiary company.
  • Audited Financial Accounts for the previous financial years.
  • Power of Attorney in favour of a locally appointed agent to carry out functions on behalf of the parent company.
  • A ‘Service Agreement’ for this purpose may also be entered with any UAE national.
  • Approval for the location of the office must also be obtained.
  • Bank Guarantee of AED 50,000 drawn in favour of the Minister of Economy and Planning, renewable annually.

An application for a license to carry out business activities in the chosen area shall be filed with the Ministry of Economy and Commerce with the required documents such as the executed and signed Service Agreement. The Ministry classifies the application depending upon the business activity that the subsidiary proposes to undertake. This application is then forwarded to the concerned department and the local government’s approval is sought.

It is also then sent for approval to the Federal Foreign Companies Committee after which, the license is issued by the Ministry of Economy and Commerce after entering it in the register of Economic Department. It also specifies the kind of activities that may be undertaken by the subsidiary company in the chosen area of functioning.

Last but not the least, this office is registered with the Dubai Chamber of Commerce and Industry.

Applying for a license


Once the area of business activity is chosen, the next step is to file an application with the relevant authority according to your chosen area of practice. For example, for the purpose of starting a road transport activities business- the permission of the Road and Transport Authority must be taken. Similarly, for Oil related and legal services to be rendered- by His Highness the Ruler’s Court’s authority must be taken, for telecommunications- the Telecommunications Regulatory Authority must be obtained etc.

Hence, the process of the registering and starting a business in the form of a subsidiary company in Dubai. In case of a need for any assistance, our associates and affiliates from Wazzeer will be happy to guide you through the process.

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Business Formation, One Person Company

When Ministry of Corporate Affairs introduced 5 entity types as options to incorporate one’s business under ‘for profit organization’, they sure knew the players very well. One such player is the single entrepreneurs; these guys are the ones who just don’t find the right match for a co-founder post.  You think they did not try enough? I have personally seen some of these guys having sleepless nights, by hunting where not places, for the right match, it wouldn’t hurt if I would say it was tougher job than finding a date. There are still over 17% of entity types that are registering themselves as One Person Company. In this blog let’s unleash the answer to Is OPC still in fashion?


One Person Company, commonly known as OPC, is a kind company which has only one person as member. It is a type of Private Company, this concept of company came into force under companies act, 2013. It is mixture of sole proprietor and private company. It enjoys the complete ownership like sole proprietor and has limited liability like a company. It has been provided with concessional/relaxed requirements under the Act. It is one of the emerging concept for those people who have a great idea but do not want to share it with anyone. It can be incorporated for any kind of business like a private company but having one director. After the death of sole proprietor the business profit and loss transfer to his legal hire while in case of OPC, the nominee will get the business irrespective of legal hire of the person.

Incorporation of OPC:

Now, there is a Single Application for Incorporation of Company, Form INC-32 (SPICe), which shall be filed with the Registrar of Company, along with consent of nominee obtained in Form INC – 3 and fee as provided in the Companies (Registration offices and fees) Rules, 2014, at the time of incorporation of the company along with its memorandum and articles of association. Form DIR-12 shall be filed after INC-32.

The company shall file form INC-22 within 30 days if in case the address of correspondence and registered office address are not same.

Features of OPC:

  1. Only One Shareholder: 

    Only a natural person, who is an Indian citizen or resident in India shall be eligible to incorporate a One Person Company. Explanation: The term “Resident in India” means a person who has stayed in India for a period of not less than 182 days during the immediately preceding one calendar year.

  2. Nominee for the Shareholder:  
    The Shareholder can nominate another person who shall become the shareholders in case of death/incapacity of the original shareholder.  Such nominee can give his/her consent and such consent for being appointed as the Nominee for the sole Shareholder. Only a natural person, who is an Indian citizen and resident in India, can be a nominee for the sole member of a One Person Company.
  3. Director:
    Must have a minimum of One Director, the Sole Shareholder can himself be the Sole Director. The Company may have a maximum number of 15 directors.

Restrictions on OPC:

  1. A person shall not be eligible to incorporate more than a One Person Company or become nominee in more than one such company.
  2. Minor cannot become member or nominee of the One Person Company or can hold share with beneficial interest.
  3. An OPC cannot be incorporated or converted into a ‘not profit company’ of the Act.
  4. An OPC cannot carry out Non-Banking Financial Investment activities including investment in securities of any corporate. 
  5. An OPC cannot convert voluntarily into any kind of company unless two years have expired from the date of incorporation of One Person Company, except threshold limit (paid up share capital) is increased beyond Rs.50 Lakhs or its average annual turnover during the relevant period exceeds Rs.2 Crores i.e., if the Paid-up capital of the Company crosses Rs.50 Lakhs or the average annual turnover during the relevant period exceeds Rs.2 Crores, then the OPC has to invariably file forms with the ROC for conversion in to a Private or Public Company, with in a period of Six Months on breaching the above threshold limits.
  6. Requirement to appoint a nominee for incorporating a One Person Company.

Relaxation to OPC:

  1. No need to prepare a cash-flow statement,
  2. The annual return can be signed by the Director and not necessarily a Company Secretary,
  3. There is no necessity for an Annual General Meeting (AGM) to be held,  
  4. Specific provisions related to general meetings and extraordinary general meetings would not apply,
  5. Compliance can be said to have been done if the resolutions are entered in the minute’s book of the company,
  6. It would be sufficient if one director signs the audited financial statements,
  7. OPC gets six months from the close of the financial year to file its financial statements,
  8. One meeting of the Board of Directors has to be conducted in each half of a calendar year and the gap between the two meetings should not be less than ninety days.
  9. Where the OPC is limited by shares or by guarantee enters into a contract with the sole member of the company who is also the director of the company, the company shall, unless the contract is in writing, ensure that the terms of the contract or offer are contained in a memorandum or are recorded in the minutes of the first meeting of the Board of Directors of the company held next after entering into contract.

Benefits of OPC:

  1. Limited Liability Protection to Directors and Shareholder

All unfortunate events in business are not always under an entrepreneur’s control and hence it is important to secure the personal assets of the owner, if the business lands up in crises.

While doing business as a proprietorship firm, the personal assets of the proprietor can be at risk in the event of failure, but this is not the case for a One Person Private Limited Company, as the shareholder liability is limited to his shareholding. This means any loss or debts which is purely of business nature will not impact, personal savings or wealth of an entrepreneur.

  1. Legal Status and Social Recognition for Your Business

One Person Company is of Private Limited Structure, this is the most popular business structure in the world. Large organizations prefer to deal with private limited companies instead of proprietorship firms.

Pvt. Ltd. business structure enjoys corporate status in society which helps the entrepreneur to attract quality workforce and helps to retain them by giving corporate designations, like directorship. These designations cannot be used by proprietorship firms.

  1. Complete Control of the Company with the Single Owner

This leads to fast decision making and execution. Yet he/she can appoint as many as 15 directors in the OPC for administrative functions, without giving any share to them.

  1. Helps for Testing of business model and enables Funding

The OPC business helps Startup Entrepreneurs to easily test the business model, a prototype and upon building a marketable product approach Angel investors, Venture capitalists for funding and easily convert into multi shareholder Private Limited company.

  1. Easy to Get Loan from Banks

Banking and financial institutions prefer to lend money to the company rather than proprietary firms. In most of the situations Banks insist the entrepreneurs to convert their firm into a Private Limited company before sanctioning funds. So it is better to register your startup as a One Person private limited rather than proprietary firm.

  1. Tax Flexibility and Savings

In an OPC, it is possible for a company to make a valid contract with its shareholder or directors. This means as a director you can receive remuneration, as a lessor you can receive rent, as a creditor you can lend money to your own company and earn interest. Directors’ remuneration, rent and interest are deductible expenses which reduces the profitability of the Company and ultimately brings down taxable income of your business.

  1. Adequate safeguards:

In case of death/disability of the sole person should be provided through appointment of another individual as nominee director. On the demise of the original director, the nominee director will manage the affairs of the company till the date of transmission of shares to legal heirs of the demised member.

  1. Easy To Manage:
  • No requirement to hold annual or Extra Ordinary General Meetings: Only the resolution shall be communicated by the member of the company and entered in the minutes book and signed and dated by the member and such date shall be deemed to be the date of meeting.
  • Board Meeting: A One Person Company may conduct at least one meeting of the Board of Directors in each half of a calendar year and the gap between the two meetings shall not be less than ninety days.
  • Quorum: The provisions of Section 174 (Quorum for meetings of Board) will not apply to One Person Company in which there is only one director on its Board of Directors.
  • Minutes: Where the company is having only one director, all the businesses to be at the transacted meeting of the Board shall be entered into minutes book maintained under section 118. No need to hold Board Meeting in this case.
  1. Filling with ROC:
  • Very few ROC filing is to be filed with the Registrar of Companies (ROC).
  • Mandatory rotation of auditor after expiry of maximum term is not applicable.
  • The provisions of Section 98 and Sections 100 to 111 (both inclusive), relating to holding of general meetings, shall not apply to a One Person Company. 
  1. Perpetual Succession:

An OPC being an incorporated entity will also have the feature of perpetual succession and will make it easier for entrepreneurs to raise capital for business. The OPC is an artificial entity distinct from its owner. Creditors should therefore be warned that their claims against the business cannot be pressed against the owner.

  1. Middlemen eliminated: 

One Person Companies enable small entrepreneurs to set up a company by allowing the shareholders to directly access the target market and avail credit facilities, bank loan rather than being forced to share their profits with middlemen. Thus, such companies will provide an opportunity to various small entrepreneurs like weavers, artisans etc. to start their own ventures with a formal business structure.

Disadvantages of OPC:

  1. Members:
  • One person Company can have Minimum or Maximum no. of 1 Member.
  • A minor shall not be eligible to become a member or nominee of the One Person Company or can hold share with beneficial interest.
  • Only a natural person who is an Indian citizen and resident in India shall be eligible to incorporate a One Person Company and shall be a nominee for the sole member of a One Person Company.
  1. Suitable only for small business:

OPC is suitable only for small business. OPC can have maximum Paid up share capital of Rs.50Lakhs or Turnover of Rs.2 Crores. Otherwise OPC need to be converted into Private Ltd Company.

  1. Business Activities:
  • One Person Company cannot carry out Non – Banking Financial Investment activities including investment in securities of anybody corporates.
  • One Person Company cannot be incorporated or converted into a company under Section 8 of the Act.
  1. Tax Liability:

The concept of One Person Company is not a recognized concept under IT Act and hence such companies will be put in the same tax slab as other private companies for taxation purposes. As per the Income Tax Act, 1961, private companies have been placed under the tax bracket of 30% on total income. On the other hand, sole proprietors are taxed at the rates applicable to individuals, which mean that different tax rates are applicable for different income slabs. Thus, from taxation point of view this concept seems to be a less lucrative concept as it imposes heavy financial burden as compared to a sole proprietorship.

The basic income tax rate for a one person company is 30% which may result in a higher tax as compared to the income tax slab rates of an individual (i.e. 10% to 30%).

(Proprietorships have a clear advantage here in that a proprietor is subject to individual income tax slab rates from 10% to 30% and get benefits of basic exemptions. Hence, if you select a one person company over a proprietorship you will have to give up these advantages.)

  1. Perpetual Succession:

This is Very concept of a separate legal entity being created for a perpetual succession that is continuation of the company even after the death or retirement of a member is also challenged. Because the nominee whose name has been mentioned in the memorandum of association will become the member of the company in the event of death of the existing member. However it is doubtful that it would do any good for the company because the person is not being a member of the company and also not involved in the day to day operation of the company, would not be able to succeed the business after the death of the member.

  1. Higher incorporation costs:

As compared to proprietorships: One person companies need to be registered with the registrar of companies under the Companies Act, 2013. This would entail upfront expenditure on government charges and professional fees which you will have to pay your CA or CS. Proprietorships don’t need to register with the government and hence don’t incur these incorporation charges.

Though the Act extends slew of exemptions to a One Person company in terms of conducting AGM, EGM, Quorum of meetings, restriction on voting rights or filing its financial statements, yet the incorporation of such a company requires lots of paper work as compared to a sole proprietorship. These procedural complexities with respect to incorporation of One Person Company might make this concept less attractive for sole entrepreneurs

  1. Higher compliance costs:

Compared to proprietorships, a one person company would have recurring compliance costs yearly, as it will need to get its accounts audited and will need to file returns every year with the registrar of companies like any other company.

  1. Separation of Owner and Control:

This is one of the characteristics of the company, which is seriously challenged by the new Companies Act, 2013, where the line between the ownership and control is blurred.


Conclusion:

The concept of One Person Company is advantageous both for the regulators and the market players. From regulators perspective, One Person Companies by organizing the unorganized sector of proprietorship will make the regulation of these entities convenient and effective.

Wait! we can get your venture registered as a OPC in 7 working days, project powered by technology and delivered by a qualified CA, let’s connect any time soon to figure out the best for your business, happy to help, with Best regards, Wazzeer.

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Business Formation, Partnership Firm

This article will talk about the Top 10 Features that Partners of Partnership Firm should know:

  1. Two or more Members – At least two members are required to start a partnership business. But the number of members should not exceed 10 in case of banking business and 20 in case of other business. If the number of members exceeds this maximum limit then that business cannot be termed as partnership business.

 

  1. Agreement: Partnership Agreement is what that will constitute each partner’s role towards running the partnership firm. This agreement contains:

 

  • the amount of capital contributed by each partner;
  • profit or loss sharing ratio; o salary or commission payable to the partner, if any; o duration of business, if any ; o name and address of the partners and the firm; o duties and powers of each partner; o nature and place of business; and o any other terms and conditions to run the business.

 

  1. Competence of Partners – Since individuals join hands to become the partners, it is necessary that they must be competent to enter into a partnership contract. Thus, minors, lunatics, and insolvent persons are not eligible to become the partners. However, a minor can be admitted to the benefits of partnership i.e., he can have a share in the profits only.

 

  1. Sharing of Profit – The main objective of every partnership firm is sharing of profits of the business amongst the partners in the agreed proportion. In the absence of any agreement for the profit sharing, it should be shared equally among the partners. Suppose, there are two partners in the business and they earn a profit of Rs. 20,000. They may share the profits equally i.e., Rs. 10,000 each or in any other agreed proportion, say one forth and three fourth i.e. Rs 5,000/- and Rs. 15000/-.

 

 

  1. Unlimited Liability – Just like the sole proprietor the liability of partners is also unlimited. That means if the assets of the firm are insufficient to meet the liabilities, the personal properties of the partners, if any, can also be utilized to meet the business liabilities. Suppose, the firm has to make payment of Rs. 25,000/- to the suppliers of goods. The partners are able to arrange only Rs. 19,000/- from the business. The balance amount of Rs. 6,000/- will have to be arranged from the personal properties of the partners.

 

  1. Voluntary Registration – It is not compulsory that you register your partnership firm. However, if you don’t get your firm registered, you will be deprived of certain benefits, therefore it is desirable. The effects of non-registration are:

 

  • Your firm cannot take any action in a court of law against any other parties for settlement of claims.
  • In case there is any dispute among partners, it is not possible to settle the disputes through a court of law.
  • Your firm cannot claim adjustments for the amount payable to or receivable from any other parties.

 

  1. No Separate Legal Existence – Just like a sole proprietorship, partnership firm also has no separate legal existence from that of it owners. Partnership firm is just a name for the business as a whole. The firm means the partners and the partners collectively mean the firm.

 

  1. Principal Agent Relationship – All the partners of the firm are the joint owners of the business. They all have an equal right to actively participate in its management. Every partner has a right to act on behalf of the firm. When a partner deals with other parties in business transactions, he/she acts as an agent of the others and at the same time the others become the principal. So there always exists a principal agent relationship in every partnership firm.

 

  1. Restriction on Transfer of Interest – No partner can sell or transfer his interest to anyone without the consent of other partners. For example – A, B, and C are three partners. A wants to sell his share to D as his health does not permit him to work any more. He can not do so until B and C both agree.

 

  1. Continuity of Business – A partnership firm comes to an end in the event of death, lunacy or bankruptcy of any partner. Even otherwise, it can discontinue its business at the will of the partners. At any time, they may take a decision to end their relationship.

 

Wazzeer is vouched by Entrepreneurs as the most reliable Legal and Accounting Partner. We would be super excited to help you. Let’s Connect! 🙂

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Business Formation, Business Registration

This year is seeing the most remarkable changes, be it GST, AADHAR, RoC Filing penalties etc. One thing that we all can agree upon is our nation is shifting towards transparency, which is great. Founders this is the right time to take the right decision by asking the right question, without any due, bring you the Top 15 Business Registration Questions this Year.

 1. How do I start a business in India?

  • The first step to starting a business in India is the registration of a business entity. Any form of the entity can be chosen and registered with the relevant government department.
  • Once the entity is registered, the applicable tax and other registrations need to be done in the name of the entity.
  • Exceptional cases, Sole Proprietorship and Partnership firm do not have business registration.

2. What are the different types of business entities?
For a for-profit business, there are primarily five types of business entities in India:
  • Public Limited Company
  • Private Limited Company
  • Limited Liability Partnership (LLP)
  • Partnership
  • One Person Company (OPC)
  • Proprietorship
  • While the first four types (Public Limited, Private Limited, LLP, and Partnership) require more than one promoter, OPC and Proprietorship are the types of entity applicable when there is only one promoter.
  • Non-Profit Organizations (Sec. 25 Companies)

3. Which entity is best suited for me?

The nature of the entity depends on your future plans, scale, and nature of the business. In the list below, we have shared a general guideline for the types of business the different entities are best suited for.

  • Sole Proprietorship
    1. Small Traders & Merchants where there is only single founder in unorganized sector
    2. Single founder testing the market
  • Partnership Firm
    1. Small Traders & Merchants where there are 2 or more in unorganized sector
    2. Has lost the relevance otherwise after introduction by LLP
  • One Person Company
    1. Single Promoter who wishes to take advantage of Limited Liability
    2. Suitable only for small businesses
  • Limited Liability Partnership
    1. For businesses started by 2 or more founders
    2. If there is no need of equity investment for the company
  • Private Limited Company
    1. Scalable Businesses started by 2 or more founders
    2. If Funds are to be raised in lieu of Equity shares of the company

4. What are the advantages and disadvantages of a Private Limited Company?

Advantages
  • Very easy to issue fresh shares and raise equity funding
  • Easy to offer and manage equity to the new promoters or ESOP to the employees
  • Easy for investors or shareholders to exit the company by selling their shares
  • More Credibility in the market
  • Limited liability of the promoters or shareholders

Disadvantages
  • Compliances are relatively higher than the other entity types
  • Low Tax Benefits
  • In case the business needs to be closed down, a cumbersome process has to be completed

5. What are the advantages and disadvantages of a Limited Liability Partnership (LLP)?

Advantages
  • Lesser compliances since the working is governed by the Partnership deed
  • Tax benefits like no dividend distribution tax and no tax on loans to partners
  • Limited liability for the partners
Disadvantages
  • Very difficult to raise funding on fresh equity
  • Extremely difficult to offer Shares/ ESOPs to employees or other stakeholders
  • Selling of the shares of one of the Partners is not possible

6. What are the advantages and disadvantages of a Partnership?

Advantages
  • Easy to incorporate
  • Legal way for group of individuals to conduct business

Disadvantages

  • Unlimited Liability among partners
  • The firm does not have separate legal existence
  • Extremely unlikely to raise equity capital or offer equity to any other stakeholder

7. What are the advantages and disadvantages of a One-Person Company (OPC)?

Advantages
  • Limited Liability
  • Allows to have only one promoter
  • Name recognized by MCA
Disadvantages
  • Impossible to issue fresh equity and get funding in lieu of Equity
  • Once the transaction crosses INR 2 Crores, it is compulsory to convert the company to Pvt Ltd Company or Public Company
  • Compliance similar to that of a Private Limited Company


8. What are the advantages and disadvantages of a Proprietorship

Advantages
  • Easiest way to start a business
  • No separate registration of the company is required. Only the applicable tax and other registrations, as applicable will be needed to operate the business.
Disadvantages
  • No Legal difference between the Proprietor and the company
  • Unlimited personal liability
  • Impossible to accept equity investment

9. What is a Public Limited Company?

A Public Limited Company is a Company which is limited by shared and has no restrictions on the maximum numbers of shareholders. It can be formed with a minimum of seven members and three Directors. It should be registered with the Registrar of Companies of the particular State under the Companies Act, 1956.

Such type of Company can offer its shares to the Public, accept deposits from it and there is no restriction on the transference of shares.However, minimum share capital requirement for such a Company is Rs.50, 000.


10. I want to start a venture with my friends. Which type of business entity is best suited for me?

In case you are looking to raise equity capital or offer ESOP to your employees in the future, Private Limited Company will be the best-suited entity for you. However, if you do not wish to raise equity capital or offer ESOP to the employees, you can opt for a Limited Liability Partnership or a simple Partnership depending on the financial liability or the nature of the business.


11. I am looking at starting my business. I do not have any cofounders. Which is the best suited entity for me?

In case you want to limit your personal liability and secure the name with the MCA, you should opt for a One Person Company. However, you are more interested in keeping the registration and compliance processes similar; you can opt for Proprietorship firm.


12. Three of us are looking at starting a business. We will be funding it ourselves and not raising any external funding. Which is the best suited entity for us?

You can opt for either a Private Limited Company or a Limited Liability Partnership or a Partnership firm. The choice should depend on the following factors:

  • Exposure to liabilities the shareholders want to take
  • Whether you want to offer ESOP to employees or not
  • Extent of regulatory compliance you want to expose your entity to
  • Whether you want to make the business a going concern or have the existence of entity dependent on the partners. A Private Limited Company is a going concern.

 13. Can I register as one entity and change it to another later?

Presently, following conversions are available by various clauses of Companies Act

  • A Partnership firm registered according to Indian Partnership Act – 1932, can be converted to an LLP
  • A Private Limited Company can be converted to an LLP
  • Please note that the name will now start ending with LLP instead of Pvt Ltd. For e.g., your present ABC Pvt Ltd., should be renamed ABC LLP.
  • OPC has to be compulsorily converted to a Pvt Ltd Company, either if Paid up Capital is increased beyond Rs.50 Lac or if Annual Turnover of immediately preceding three consecutive financial years exceeds two crore Rupees.

14. I am testing waters with an idea right now and am not sure if this is something that will work. What kind of entity suits me the best?

Though this will depend on the nature of your business and the tax and other license registrations that need to be done, you can explore starting with a Partnership or Proprietorship (depending on the number of promoters). Once you have made up your mind and want to raise capital to invest further in the business, you can either convert it or register a new entity.

Please note that in case you decide to start a new entity, you will have to get all the registrations done again and the financial track record cannot be carried from the earlier entity, unless a conversion or acquisition happens.

15. What are the differences between the types of entities – Private Limited, Limited Liability Partnership (LLP), Partnership, One Person Company and Proprietorship?


 

Sole Proprietorship

Partnership Firm

One Person Company

Limited Liability Partnership

Private Limited Company

Limited Liability

No

No

Yes

Yes

Yes

Multiple Partners

No

Yes

No

Yes

Yes

Ease of Incorporation

Very Easy. No separate Registration

Easy. Registered under Indian Firms Act – 1936

Difficult. Registered under Indian Companies Act – 2013

Moderate. Registered under Indian Companies Act – 1956

Difficult. Registered under Indian Companies Act – 1956

Compliance

Very Less Compliance

Very Less Compliance

Moderately Simple Compliance

Moderately Complex Compliance

Complex Compliance

Ease of allotting shares

Not Possible

Not Possible

Not Possible

Very Difficult. Almost impossible

Very Easy.



Wazzeer
is vouched by Entrepreneurs as the most reliable Legal and Accounting Partner. We would be super excited to see your startup kick starts seamlessly. Let’s Connect! 🙂
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