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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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Business Formation, Sole Proprietorship

There are 11 Crore Businesses in the unorganized sector, 75% of them registered as sole proprietors. But, why? You must have learned somewhere that, Sole proprietorship is a popular form of business organization and is the most suitable form for small businesses, especially in their initial years of operation. Well, that’s a fact, but the thing that might put you to surprise is even Coca Cola origin owes to a sole proprietorship.

In this article, I am going to jump deeper to help you uncover truths about Sole Proprietors.

The word “sole” implies “only”, and “proprietor” refers to “owner

Sole Proprietorship refers to a form of business organization which is owned, managed and controlled by an individual who is the recipient of all profits and bearer of all risks. This form of business is particularly common in areas of personalized services such as beauty parlors, hair salons, wholesalers, retailers, and small-scale activities like running a retail shop in a locality.

Salient characteristics of the sole proprietorship form of organization are as follows:

  • Ease in formation as well as the closure of business: There are no legal formalities like a business registration that is required to start a sole proprietary business. In some cases, one may require a license to start. There is no separate law that governs sole proprietorship. Closure of the business can also be done easily.
  • Sole proprietors have unlimited liability: This implies that the owner is personally responsible for payment of debts in case the assets of the business are not sufficient to meet all the debts. That is, in case run out of capital, your personal assets like car, an apartment may be liable for payment of debt.
  • Sole risk bearer and profit recipient: The proprietor borne all the risk and as well enjoys all the benefits too. He receives all the business profits which become a direct reward for his risk bearing.
  • Management Bandwidth: The right to run the business and make all decisions lies absolutely with the sole proprietor.
  • No distinction is made between the sole trader and his business: The owner is, therefore, held responsible for all the activities of the business.
  • Lack of business continuity: Since the owner and business are one and the same entity, death, insanity, imprisonment, physical ailment or bankruptcy of the sole proprietor will have a direct and detrimental effect on the business and may even cause closure of the business.

 

Talking of advantages in Sole proprietorship:

  • Decision making: There is no need to consult anyone to make decisions, a sole proprietor enjoys a considerable degree of freedom in making business decisions.
  • Confidentiality of information: A sole trader is also not bound by law to publish firm’s accounts. Sole decision-making authority enables the proprietor to keep all the information related to business operations confidential and maintain secrecy.
  • Only owner of benefits: A sole proprietor directly reaps the benefits of his/her efforts as he/she is the sole recipient of all the profit. The need to share profits does not arise as he/she is the single owner. This provides a maximum incentive to the sole trader to work hard.
  • Starting a business with minimal legal formalities: A sole proprietorship is the least regulated form of business, it is easy to start and close the business as per the wish of the owner.

Limitations that the sole proprietorship form of organization:

  • Limited resources: Resources of a sole proprietor are limited to his/her personal savings and borrowings from others. Banks and other lending institutions may hesitate to extend a long-term loan to a sole proprietor.
  • Limited life of a business concern: Death, insolvency or illness of a proprietor affects the business and can lead to its closure.
  • Unlimited liability: A major disadvantage of sole proprietorship is that the owner has unlimited liability. If the business fails, the creditors can recover their dues not merely from the business assets, but also from the personal assets of the proprietor.

Accounting compliance for sole proprietorship:

  • Bank account on your name or firm’s name.
  • Professional tax enrolment and registration
  • Personal Income tax filing
  • In case, you supply goods and services in Ecommerce platforms then you are subject to GST
  • In case, you are a supplier that does not have permanent office and your operations are seasonal like fire cracker business in Diwali, you will need GST
  • In case, you have an annual revenue of more than Rs. 18 Lakh (or Rs. 10 Lakh for businesses operating from special cities), you will need GST
  • In case you are an NRI and supplying goods and services in India, you will need GST
  • In case you are a distributor or broker supplying goods and services, you will need GST
  • In case you are suppling goods and services in states other than registered state, you will need GST
  • In case you are an operating on an Ecommerce model, you will need GST.

Though sole proprietorship suffers from various shortcomings, many entrepreneurs opt for this form of organisation because of its inherent advantages. It requires less amount of capital. It is best suited for businesses which are carried out on a small scale and where customers demand personalised services. 

Note, to maintain the health of your business, follow general accounting principles to monitor the actual cash inflow and outflow from your business.

We Wazzeerians are known to provide you the best reliable advice, we give you all options from economic to benchmark. ‘Get a Wazzeer’ to kick start your sole proprietorship!

 

 

 

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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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Business Registration, LLP, Partnership Firm, Start up Lessons, Trademark
Every business entity needs to be given some name and the functioning of the business is carried out in that name only. In the case of a company which enjoys the status of the separate legal entity, choosing business name in India is a must. Name approval from the Registrar of Companies is pre-requisite condition before incorporation of the company.

Procedure for Business Name approval in India

Application to concerned Registrar of Companies to ascertain the availability of name in eForm-INC1 need to be made. Maximum 6 suitable business or company names can be submitted in order of preference and name must indicate main objects of the company.

While choosing business name in India, make note of following:

  • The proposed business names must not be similar or resemble the name of any other already registered company, or
  • Proposed business name should not violate the provisions of emblems and names (Prevention of Improper Use Act, 1950), or
  • Proposed business or company name(s) should not constitute an offense under any law.
  • Last word Limited need to be used in the case of a public limited Company, or Private Limited, in the case of a private limited Company and LLP needs to be used for Limited liability Partnerships.
Along with government fee and complete form, the digital signature of the applicant proposing the company needs to be attached. For filling this form Digital Signature of one of the Promoters is mandatory.

The details need to be provided in eForm INC1 are:-
  • Authorized capital for the proposed company
  • Main objectives of the proposed company
  • State (location) of the proposed company
  • Personal details of all Promoter?s
  • Copy of trademark application/certificate (if applicable)
  • In case, there is a logo associated with trademark then image of logo
  • Balance sheet (if applicable) and Income tax returns for last 2 years

If the name is approved by Registrar of Companies, letter of acceptance is issued for the proposed name. If proposed name(s) are not available, fresh names can be applied through the same application.


We will be glad to help you in choosing a business name, let’s connect.

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Business Registration, Uncategorized
In Limited Liability Partnership or LLP under LLP Act 2008, where all or some of the partners have limited liability as per the shares and offers them protection from misdeeds, negligence, and incompetence of other partners. However, the liability of partners is unlimited in case of fraud committed by LLP. The LLP Agreement regulates the conduct of business. Section 56 of LLP Act 2008 provides that Private Companies convert into LLP. Due to the benefits listed down, Companies are converting themselves into LLP because of:
  1. Tax benefits:
by converting into LLP, the company saves Dividend Distribution Tax, Minimum Alternative Tax, and Income Tax because interest and remuneration are paid to partners as a salary that is payable to directors.
Earlier there was no capital gains tax when existing entity converted into LLP but after the amendment of 2016, a company having assets in excess of Rs 5 crore in any of three preceding years has to pay capital gains tax.
  1. Less Statutory Compliance:
compared to statutory compliance of a private limited company as per Companies Act 2013 an LLP gets relief in the form of
  • No requirement to maintain statutory record registers.
  • No requirement to pass resolutions for addition or deletion of Directors, increasing capital.
  • No such requirement to hold a Compulsory annual meeting.
  • No conditions or cap for loans except what is stated in LLP Agreement.
  • Compulsory Audit only if Turnover is above 40 lakhs.

One of the areas where the company had an upper hand over the LLP was that the LLP was not an eligible entity for claiming tax incentives (100% deduction for 3 years) offered to startups as provided by the draft Finance Bill, 2016. However, the Finance Act, 2016 has eliminated this disparity by extending this benefit to LLPs. Thus, where startups do not intend to raise funds from the public, LLP seems a good start for the initial setup.

Conditions for conversion of Private Companies into Limited Liability Partnership:

A company is converted into LLP by complying with the provision of Schedule 3 of LLP Act 2008 and can do so only if (a) There is no security interest in its assets subsisting or in force at the time of application; and (b) The partners of the limited liability partnership to which it converts comprise all the shareholders of the company and no one else.

The procedure of conversion:
  • In order to get converted into LLP, every designated partner must possess Director Identification Number. A meeting of Board of Directors must pass a resolution for conversion of Company into LLP as well as to authorize a director to apply for the name of LLP. A copy of this resolution is to be attached with e-form LLP-1 with Registrar of Companies (ROC).
  • Once registrar issues name approval Certificate, Incorporation Documents as the address of registered office of LLP, notice of consent of Designated Partners, Details of LLP(s) or companies in which designated partner is a director are filed using E-form 2 with ROC.
  • E- Form 18 is filed with ROC for application of Conversion along with certain attachments as a statement of shareholders, assets and liabilities of the company, NOC from IT authorities and list of all secured creditor along with their consent.
  • Registrar of LLP issues a Certificate of Registration as per the provisions of this act and may refuse if not satisfied with the particulars or other information.
  • After all above formalities are complied with and approved by Ministry, LLP Agreement is to be submitted within 30 days of incorporation using E- form 3
  • Once Registration Certificate is issued, information of conversion is to be intimated to concerned Registrar of Companies with which it was registered under the provisions of Companies Act 2013 within 15 days of such conversion using E-form 14.
Should You Really Go for Conversion?

In case you are a small entrepreneur and want your business to be internally driven, LLP is the best option to run your business. But the company surely provides much better opportunities for large business as evolved laws are there for bringing capital and diluting or liquidating stakes.

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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Contracts and Agreement, Contracts and Agreements, Contracts and Agreements, Start up Lessons
Basically, vendor is someone who provides you with a service or goods. For instance, a person providing house cleaning services is a vendor, a person supplying raw material for renovating your office is a vendor. The Vendor Agreement is therefore an agreement between you and a vendor that you have selected for the services that such vendor has to provide to you or goods that such vendor has to supply to you.

An SLA, i.e. service level agreement is a contract between a vendor and the end user that defines the standard level or quality of service expected from such a vendor. An SLA or Service Level Agreement will define the service levels that have to be achieved by a vendor and may also provide for remedies and penalties in the event of non-fulfilment of such service levels. Let me explain a bit more with a day to day example. For instance, an EduTech startup (say XYZ), that is outsourcing the textbooks production to a service provider, gets an vendor agreement with SLA included in it, then the SLA ( Service Level Agreement) related clauses would involve the following:
  • Delivery timelines
  • Minimum quantity of delivery within a mentioned duration of time
  • Critical delivery items (as in threshold meeting)
  • Meet the Standard of packaging
  • Monitoring and measurement of timelines and delivery thresholds.
  • Penalties and remedies for default items is mentioned
  • Termination right of XYZ for a continued breach/default of SLAs
With the above example, now you would be in a better position to decide whether or not you require SLAs (Service Level Agreement) to be included in your Vendor Agreement or Service Agreement.

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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Business Registration, GST, GST, TAXATION

Did you know, VAT or the famous Value Added Tax was originally called as Sales Tax? This is an indirect applicable whenever there is goods and services sold by the company. This Tax is paid by the customer via producer to the state government. Business owner earning an annual turnover of more than Rs.5 lacs by supplying goods and services are liable for VAT registration.

VAT is levied both on local as well as imported goods. Similar goods and services are taxed equally and VAT is applicable at different stages of production. VAT made the game much fairer because now you will be taxed based on the type of goods and service rather than uniform rates. With VAT Registration, you will be saving on revenue which with previous sales tax regulations you possibly wouldn’t have.

Hey, but why should consumer pay for VAT?

VAT is a tax on consumption which is borne by consumers. It is applicable on 554 goods. VAT protects consumer from the cascading effect of the turnover tax which is tax on each sale with no credit for the tax paid at earlier stages.

Will I be taxed on capital input that I invest in my firm?

Look basically you have three tax variants:

1. Consumption variant-(not the capital that you invest is taxed, but the use of capital goods which produce consumer goods is taxed);

2. Income variant (depreciation on the goods is excluded);

3. Gross Product Variant (no exclusion, only goods that are used up currently are subtracted from the firm’s sale) And hence VAT payable = VAT on output (total value of sales) – VAT on input (purchases any paid by firm to produce)

Does the VAT in India differ from one state to another?

  • 0% VAT Rate:
For essential commodities like some of the goods like salt, Sugar etc.,
  • 1% VAT Rate:
For items, which tend to be highly expensive, like Gold, silver precious jewellery fall under this category of goods. Most Indian states have fixed VAT for these items at 1% of the amount.
  • 4-5% VAT Rate:
Most of the FMCG goods come under this category of VAT, like oil, coffee, medicines etc. is around 4-5% for most states in India.
  • General VAT Rate:
General VAT rates apply to goods which cannot be segregated and put under any of the above listed VAT categories. For goods like liquor, cigarettes etc. many governments charge high VAT rates of 12.5% or 14-15%.

When to file VAT Returns?

VAT Returns are filed every month or every quarter depending on the amount of VAT you pay. The normal rule is that if you pay less than Rs 15,000 for VAT every month, a VAT Return is to be filed every quarter. If your Input Tax is greater than your Output Tax you can carry over the difference as a credit to your next VAT Return. In certain circumstances, the VAT Commissioner may pay you any excess if he is satisfied that excess is a regular feature of your business.

What kind of proof do I have to show to the commissioner?

Haven’t you seen situations where, a small notice at billing counter at pizza hut stating that take food for free if no bill given?
Yep! That’s the best example, the seller should always have a copy of the bills to claim. For starting entrepreneurs, a Simplified Tax Invoice would be good enough that must include the following information:
  • Your name, address and TIN
  • Serial number of the invoice
  • Date of the invoice
  • Brief description of the goods and services supplied.
  • Total amount charged to the customer including VAT and
  • A clear statement that the price includes VAT.
To Read about the Process of VAT registration click here

To know the documents required for VAT registration click here

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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