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Business Formation

As a freelancer, it is easy to put the legal and accounting compliance for freelancers on the backburner. However, being a freelancer is not just being free or independent self-employed worker, but it also means that you have a business running on you. In order to become a successful entrepreneur, it is very important to check the quality of the product or service you offer and most importantly how you organize it and what all you need to comply with.

Accounting and Taxation:

Not only Professionals working Under Trade Name, But Freelancers are also required to follow certain compliances. Most important of it is to File Income Tax Returns under Section 139 of IT ACT.

Section 44AA of Income Tax Act requires that every person who is into the profession of law, medicine, architecture, engineering, accountancy, technical consultancy, interior designing, authorized representative, film artist, company secretary and information technology, mandatorily needs to maintain proper books of accounts.

Rule 6F provides for documents necessarily maintained. As per it The books of accounts include the cash book, journal, ledger, carbon copies of serially numbered bills, original bills of expenses incurred and payment vouchers for petty expenses incurred during the year.

The others are required to maintain it only if their Income from the business/profession exceed Rs. 2.5 lakhs for Financial Year 2017-18 (Earlier it was1.2 Lakhs).

With the introduction of Negative List in Service Tax in Finance Act 2012, all the services included in the negative list are exempted from Service Tax. This has widened the scope of the Service tax net considerably since those services not included in the negative list are now taxable.

As for services not mentioned in Negative List as I.T. Services or engineering/ technical services are now taxable and, you are liable to

  • Register yourself if gross receipts or aggregate value of taxable service in a financial year exceeds 9 lakhs rupees.

  • Compulsorily charge service tax on bills raised on clients once the aggregate value of taxable service in a financial year exceeds 10 lakhs rupees.

A Freelancer may also claim deductions similar to those of professionals. To claim deductions and even to run a business you need to be incorporated.

Legal Entities a Freelancer can go for:

To help you decide which entity freelancers, here is a brief overview of common business entities in India. The laws of Each state are different, so it is recommended to consult a lawyer so he or she can advise on current rules and regulations of state before you make a decision.

  • Sole proprietorship

The simplest and most common entity most freelancers work under is a sole proprietorship. It is an individual running his/her own business. It requires few hassles and less paperwork. As a sole proprietor, you may give your business a different name for marketing purposes.

  • Partnership Firm / LLP

When two or more individuals go into business, they become a partnership. It may be registered or unregistered. Usually, no government filings ( apart from few tax registrations)are needed to form a partnership, but it is safer for partners to have a written agreement among themselves in order to avoid future complications or disputes on individuals roles and responsibilities or division of profits and losses LLP introduced in 2008, which is an improvement over general partnership.

This gives promoters an invaluable advantage of limited liability & the company can have continuous existence. The company has to be incorporated through Ministry of Corporate Affairs. Not even an audited annual returns need to be submitted to MCA.

  • One Person Company

OPC is a recently introduced improvement on sole proprietorship firm registration. This gives the promoter an invaluable advantage of limited liability & the company can have continuous existence. OPC has to be incorporated through Ministry of Corporate Affairs. Not even an audited annual returns need to be submitted to MCA. The company can nominate any other person as a director without executive powers.

Conclusion:

Potential threats revolve around for business not only from competitors but also government in the form of Penalties if Law is not abided by. Thus by complying with Legal and Accounting Compliance for Freelancers, you can save both money and time at the later stage. 

We at Wazzeer have developed a systematic process to get your legal and accounting compliance done seamlessly. We don’t talk jargon 🙂 we maintain a standard level of transparency in delivering our work. I think we should catch-up on a call, let’s connect!













 

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Business Formation
Special mention: This blog is dedicated to our beloved fans, you guys make our day better and better. 🙂

In India, you can register a Non-profit organization in three ways:
  1. Trust Registration
  2. Society Registration
  3. Section 8 Company Registration(NGO)
The type of registration you will need depends on the purpose you want to achieve. So, you should choose a model that suits your specific purpose. Please note that? Society and Trust registration in India?are different from?business registration, the reason being societies, trusts, and NGOs have charitable objectives. On the other hand, a business works only for profit. Therefore, separate laws govern Society and Trust registration.

Section 8 company, which is governed by the Companies Act, 2013. These entities receive some special tax exemptions and benefits and these benefits are not available to commercial business set ups.
  1. Procedure for Registration of Trust
A trust is a form of interest created in a property. This interest is created by one person for the benefit of another person. The interest in the property relates to its ownership. For instance, a father wants his daughter to enjoy the benefits of his property. Now he can either become a trustee himself and can also appoint his friend as one. Now the trustee will manage the property and look after it. The daughter will be the beneficiary. She will receive all benefits arising from the property.

1.1 Trust Registration

Trust registration procedure in India depends upon the type of trust. There are two types of trust:
  • Public trust
  • Private trust
Both are governed by separate laws. Registration of Private Trusts takes place under the Indian Trusts Act, 1882. But, there is no separate act for public trusts and they are governed by their respective state laws. These state laws usually appoint a commissioner who administers and carries all trust activities in that state. One example of such state laws is Rajasthan Public Trusts Act, 1959, It appoints a Devasthan Commissioner for administering trust activities in Rajasthan.


1.2 Difference between a Public Trust and Private Trust
  • Public trust is formed to benefit the public at large. Private trust is created for the benefit of one or more specific persons.
  • Creating a public trust does not call for a formal deed or any other document in respect of immovable property. However, private trusts do require the same.
  • Public trusts accept donations from the general public, but private trusts do not.
  • Private trusts do not receive the tax benefits that public trusts receive.


1.3 Validity of a Trust


Before proceeding to trust registration, you should know whether your trust is a valid trust. The state public trust laws do not state any essential ingredients of a valid trust. However, the Indian Trusts Act, 1882 which governs private trust states that a valid trust must:
  • Have a lawful purpose.
  • Be for a beneficiary.
  • Contain a property as its subject-matter.
  • Such property must be transferable to the beneficiary.
  • Be the creation of a person who is competent to contract.
  • Have a written and signed document for immovable property.
  • Appoint at least two trustees.
  • Have one settler.
  • Be for an object (religious or charitable).
  • Have two witnesses.


1.4 Documents Required for Trust Registration

Following are the list of documents you need for trust registration:
  • Trust deed on a stamp paper. The value of stamp paper varies from one state to another.
  • Passport size photographs of the settler, the witnesses, and the trustees.
  • ID proofs of the settler, the witnesses, and the trustees.
  • Proof of registered office. A document such as electricity bill, water bill, or house tax receipt.


1.5 Fees for Trust Registration

Trust registration fee depends upon the value of the property which is the subject-matter of trust. It is 1 % percent of the value of the property. Please note that you need to pay stamp duty as well as the registration fee for registration of your trust. 1.6 Timeline for Trust Registration On an average, trust registration takes anywhere between 3-6 months.

  1. Procedure for Society Registration

Society registration in India?takes place under?The Societies Registration Act, 1860. A society is an entity that works for promoting any of the below-mentioned activities or purposes.
  • Science
  • Art
  • Literature
  • Education
  • Charity
  • Public museums
  • Libraries
  • Creating military orphan funds

2.1 Difference between Society and Trust

Societies work in a manner similar to trusts. That is why these two terms are often used interchangeably. However, both entities are different from each other. The Societies Registration Act, 1860 governs societies in India. On the other hand, private trusts come under the purview of Indian Trust Act, 1882. Apart from the governing acts, here are some more key differences between the two.
  • Society needs a minimum of seven members, trust needs two.
  • Trusts don’t need a separate all-India registration, societies do.
  • Voting system governs a society, but one person can control a trust.
  • Amendments are easy in case of trusts, not so in the case of societies.
  • Trust may be revoked with ease, but it is more difficult in the case of societies.
  • A trust can have general objectives, but a society cannot. It needs to have specific objectives.
  • It is possible to make a family member the trustee. But, it is usually not possible in case of societies.
  • A trust works as per the trust deed. A society works as per its MoA and regulations.
Moreover, the society may have any other purpose if the state law allows it.


2.3 Registering a Society

State governments manage society registration. Therefore, an application for society registration is sent to the appropriate state government. Appropriate state government means the government of the state where the registered office of the society is located. To register a society, you need to take the below steps.
  • First, agree on a name with the consent of founding members.
  • Then prepare a MoA and regulations of the society.
  • Next, obtain signatures of founding members on the MoA.
  • Finally, get the MoA witnessed by an officer such as an advocate, CA, or notary public.

2.4 Documents for Society Registration
  • To complete the registration process smoothly, keep the following documents ready.
  • A cover letter that requests society registration. All members must sign this letter.
  • MoA of the society. You need three copies of the MoA. One certified copy and two ordinary copies.
  • Two copies of Rules and Regulations of the society. Founding members must sign both copies.
  • An Affidavit by the president or secretary. It must state the relationship between subscribers.
  • Address proof for the registered office.
  • No objection certificate from the landlord.

2.5 Timeline for Society Registration

Society registration can take anywhere between 30-60 days.

  1. Procedure for Registration of Section 8 Company
A Section 8 company is a company with charitable objects and Section 8 of the Companies Act, 2013 governs its registration. This is why it is known as section 8 company. However, earlier section 25 of the Companies Act, 1956 governed the same. Therefore, it is still commonly known as Section 25 company.


3.1 Who Can Form a Section 8 Company Anyone who is either:
  • A person (including a partnership firm)
  • An association of persons
  • Any existing company
may form a section 8 company.


3.2 Conditions for a Section 8

A section 8 company should make sure that: Its aim is to promote a certain cause. This cause relates to:
  • commerce
  • art
  • science,
  • sports
  • education
  • research
  • social welfare
  • religion
  • charity
  • protection of the environment or
  • any other such object which is like above objects.
  • It uses profits and other incomes only for promoting the above cause.
  • Does not pay a dividend to its members.
If the company fulfills all these conditions, the Central government will issue it the license to carry business. Moreover, along with the license, it will also receive the benefit of not having to add?private limited?or?limited?after its name.


3.3 Features of a Section 8 Company
  • It gets all the benefits of a limited company.
  • But, all the limitations of a limited company also apply to it.
  • It cannot make changes to its MOA or AOA without taking government’s permission first.
  • It can convert into any other form of the company but only if it meets the necessary conditions.
  • The central government can cancel its license if it either does not fulfill its aims or fails to meet other necessary conditions.
  • It can merge with another company only if the other company has a similar object.
  • It does not need any minimum capital.
  • There must be at least two directors.
  • At least one director must be an Indian resident.

3.4 Documents for Registration of Section 8 Company

Before registering your company as a section 8/section 25 company, keep the below documents and details ready.
  • Memorandum of Association in Form INC 13.
  • Articles of Association.
  • Details of directors as well as promoters.
  • A declaration by a professional such as a Chartered Accountant in Form INC 14.
  • Declaration by subscribers in form INC 15.
  • Application form in Form INC 12.
  • A statement which lists the grounds for the application.
  • A statement of annual income and expenditure of the company for next 3 years, as well as the sources of income.
  • Digital Signature Certificate (DSC) of the director, manager, or the secretary.
  • Director Identification Number (DIN) of the directors.
  • Proof of address such as electricity bill or phone bill, NOC from the landlord, rent receipts etc.
  • A copy of PAN card.
  • Passport, in case any of the directors is a foreign national.
  • Proof of ownership. However, you will need this only if the director or promoter also owns the business premises.

Moreover, an existing company also needs some extra documents such as:
  • Board reports and auditor’s reports.
  • A true copy of the resolution approving its registration as a section 8/section 25 company.
  • A statement of its assets as well as liabilities.
  • A notice in Form INC 26.
  • Approval from the relevant authority.

3.5 Timeline for Registering a Section 8 Company

It usually takes around 20-30 days to register a section 8. But, this time period depends on the government processing time and therefore may vary further because of it. Wazzeerians have been helping organizations like yours to get in touch with best lawyers and Accountants for years now, we would be glad to help you, let us know.  🙂
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Business Formation
The concept of One Person Companies was introduced in India through the Companies Act, 2013 to support entrepreneurs who are capable of starting ventures on their own. It allows them to create a single person economic entity. Like a Company, an OPC is a separate legal entity from its promoter, offering limited liability protection to its sole shareholder, while having continuity of business and being easy to incorporate.

Who is eligible?

As per the Companies (Incorporation) Rules, 2014, the following persons can be eligible to incorporate an OPC in India Only a natural person who is an Indian citizen and a resident of India
  1. Shall be eligible to incorporate a One Person Company;
  2. Shall be a nominee for the sole member of a One Person Company
Further, the rules have explained the term of a resident in India as follows: The term ?resident in India? means a person who has stayed in India for a period of not less than one hundred and eighty-two days during the immediately preceding one calendar year.

What are the benefits of choosing this entity type?
  1. It is a legal entity separate from its members
  2. Member liability is limited.
  3. Being a private company, an OPC encourages entrepreneurs to set up their own businesses without the help of a second member.
  4. The statutory requirement of appointment of Statutory Auditor and re-appointment of the auditor is not applicable.
  5. The provisions of Sections 98, 100 to 111 of the Act relating to the holding of general meetings shall not apply.
  6. Section 173 for holding and conducting a minimum number of 4 board meetings shall not apply.
Hey, are there any restrictions?
  1. The person who is already a member or nominee of 1 OPC, cannot incorporate more than 1 OPC or become a nominee in more than one such company.
  2. No minor shall become a member or nominee of the One Person Company or hold shares with beneficial interest.
  3. OPC cannot be incorporated or converted into a Company under Section 8 of the Act.
  4. OPC cannot carry out Non-Banking Financial Investment activities including investment in securities of any corporate body.
  5. No such company can 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).
Alrighty, what are the minimum requirements to form one?
  • Minimum one Director
  • Minimum one Member
  • Minimum share capital shall be INR Rs. 1,00,000/-.
  • Application for allotment of Director Identification Number (DIN).
  • Digital Signature Certificate (DSC).
What is the Pre-Registration compliance?
  1. Director Identification Number:
This is a unique identification number issued by the Ministry of Corporate Affairs., for an existing Director or a person intending to become the Director of a Company. Documents required:
  1. Identity Proof: Copy of PAN Card for this is mandatory.
  2. Address Proof: Copy of Passport/Voter/Election ID/Driving License/Aadhar Card/Electricity/Telephone (Utilities) Bills. Address proof must be in the name of the applicant only and utility bill must not be older than 2 months from the date of filing of the e-form.
  3. Passport size Photo: 1 soft copy or photocopy of the applicant?s latest photo in JPEG format.
  4. Current Occupation
  5. Email Address of the Applicant
  6. Contact Number
  7. Educational Qualification
  8. Verification to be signed by the applicant. For this purpose, there is a DIR4 form.
  9. Digital Signature Certificate:
This is the digital equivalent (electronic format) of physical or paper certificates. Examples of physical or paper certificates are driver’s license, passport. A digital certificate can be presented electronically to prove your identity, to access information or services on the Internet or to sign certain documents digitally. Since the MCA accepts electronic submission of Forms on its website, the DSC is mandatory for all users. Documents required:
  1. Digital Signature Certificate application Form (duly signed by an applicant). An applicant is required to sign across the photo.
Download the DSC Application Form (Class II Individual Certificate).
  1. All other documents are same as required for the DIR-3 Application.
So, after Registration compliance? The following are the requirements to be followed mandatorily,
  1. To apply for ShLicenselicense, PAN TAN.
  2. To open Current Bank account.
  3. To pay subscription money with Current Bank account.
  4. To issue share certificate to subscriber by company.
What about the Annual Return Filing for OPC? Every company shall prepare an annual return in the prescribed form containing the particulars:
  1. Its registered office, principal business activities, particulars of its holding, subsidiary and associate companies.
  2. Its shares, debentures and other securities and holding patterns.
  3. Its indebtedness
  4. Its members and debenture-holders
  5. Its promoters, directors, key managerial personnel along with changes therein since the close of the previous financial year.
  6. Meetings of members or a class thereof, board and its various committees along with attendance details.
  7. Remuneration of directors and key managerial personnel.
  8. Penalty or punishment imposed on the company.
  9. Matters relating to certification of compliances.
  10. Details, as may be prescribed, in respect of shares held by or on behalf of the Foreign Institutional Investors indicating their names, addresses, countries of incorporation, registration, and percentage of shareholding held by them; and
  11. Such other matters as may be prescribed,
The annual return shall be signed by the company secretary, or where there is no company secretary, by the director of the company.

Should you be generating Financial Statements for Annual Returns Filing of an OPC?

Financial statements of a one-person company need to be filed with the Registrar, after they are duly adopted by the member, within 180 days of closure of financial year along with all necessary documents.
  • The financial statement, signed by one director, for submission to the auditor for his report thereon.
  • The report of the Board of Directors to be attached to the financial statement.
  • Board of Directors Report of OPC means a report containing explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report.
  • Filed with ROC within 180 days from the closure of the financial year.
  • Financial statement, may not include the cash flow statement.
Startup 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 us talk at Wazzeer.

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