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Simplified Incorporation And Documentation Procedure

Simplified Incorporation And Documentation Procedure

Ministry of Corporate Affairs (MCA) has further simplified the ease of doing business in India by introducing SPICe forms to further digitize the company registration process. The form INC 29 was originally used to incorporate companies within a couple of days. Though this form simplified the process of incorporation, key stakeholders and professionals felt that this was a risky form because a rejection in a particular section or subsection would result in the entire form being rejected. It was because of this most promoters/founders (about 65%) used the INC 7 Form to file for incorporation. To fix this drawback, the MCA created Simplified Performa for Incorporating a Company Electronically or SPICe Form.

SPICe Forms

Simplified Performa for Incorporating a Company Electronically (SPICe) form is a single multi-purpose form that handles multiple applications such as reservation of the company name, allotment/application for Director Identification Number (DIN), incorporation of a company, etc. This was launched by the MCA to fast track the Incorporation process for companies in India.

The form INC 32 is similar to INC 29 because it helps fast track the incorporation of a company in India with the only exception, the former form has a provision for name approval, thereby assuring the name, while the latter has no such provision.

How to Incorporate a Company?

There are two ways to incorporate a company, namely:

  1. INC 7, DIR 12 and INC 22
  2. INC 32 or SPICe Form (replacing INC 29)

Types Of Companies That Can Apply Through SPICe

  1. Part 1 Company
  2. Producer Company
  3. Section 8 Company
  4. New Company – One Person Company (OPC), Private or Public Limited Company.

Step-By-Step Process

I. File INC Form 32

INC 32 is the eform used in electronic filing of the Memorandum of Association (MOA) and the Articles of Association (AOA). The Standard format to be followed is Form INC 33 (for MOA) and INC 34 (for AOA). Previously, a company applying for incorporation would use their own format and sent to the Registrar of Companies individually, but since the introduction of SPICe Form, one needs to apply for AOA and MOA with the standard format prescribed. This creates less confusion and a narrow scope for making errors.

Based on the type of company, the following standard templates are used:

Sr.No Type Of Company AOA MOA
1 Company Limited by Shares Table A Table F
2 Company Limited By Guarantee (not having share capital) Table B Table H
3 Company Limited By Guarantee (having share capital) Table C Table G
4 Unlimited Company (not having share capital) Table D Table J
5 Unlimited Company (having share capital) Table E Table I

II. INC 1 or Name Change
Only a single name for the company can be proposed in a form.

III. File DIN
DIN is automatically allocated to directors that do not have a DIN.

IV. Digital Signature Certificate (DSC) is an essential step in this process. Without a DSC, a company cannot file for incorporation through SPICe Form. The Directors, witness/es and a professional will be required to use their DSC on the SPICe Form. The limit is 7 subscribers and 1 witness per incorporation, though accommodation for certain cases that require more than 7 subscribers has been undertaken.

V. Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN) and Employee State Insurance Corporation (ESIC) registration can be done in a single step.

VI. Documents Required

  • Memorandum Of Association
  • Articles Of Association
  • A declaration and affidavit must be filed by the first subscriber/s and director/s.
  • Proof of Office Agreement – Rental Agreement, conveyance, lease deed and rent receipts.
  • A copy of Utility bills lesser than 2 months – phone bill, electricity bill, etc.
  • NOC from the sole proprietor, partners, other associates, etc.
  • Proof of identity and residential address of the subscribers and directors.

VII. Share Capital
The minimum share capital (authorized and subscribed) for a One Person company (OPC) is INR 1, for a Private company INR 2 and for a Public Limited Company is INR 7.

VIII. Declaration by a Professional
The DSC of a professional (Company Secretary, Chartered Accountant, advocate, Cost Accountant) along with the professional’s membership and certificate number is required to file SPICe Form (a declaration that all information provided is accurate and true).

IX. The Form is then processed at the Registrar’s office.

Conclusion

SPICe Form was introduced to replace eForm 29. While drafting the SPICe form, accommodation was made to changes that benefited the stakeholders by reducing timelines and multiplicity of several forms in the process of Incorporation. SPICe will become the standard form and format for all incorporation related purposes.

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How To File Patents In India?

A patent is a form of intellectual property defined as “a government authority or licence conferring a right or title for a set period, especially the sole right to exclude others from making, using, or selling an invention.” The purpose of a patent is to protect the intellectual property created by an inventor for a period of time so that the inventor has first rights over how he wishes to use his patent. A patent can be sold, leased, be used in exchange for royalties, equity, etc. A patent holder however, does not become the holder of the invention unless he has invented it first.

The then British Government of India, during the year 1856, tried to encourage and propagate new inventions termed as ‘exclusive privileges’ in the manufacturing sector. The first invention to be granted Intellectual Property Protection in India was by the Government of India under the petition special privileges to George Alfred DePenning for inventing the ‘Efficient Punkah (fan) Pulling Machine.’

The Indian Patents Act, 1970

Patentable Inventions

The list of inventions patentable are:

  • Process, manner, or method of manufacture or Art
  • Machine, apparatus or other articles
  • Product patent for medicines, food, drugs and chemicals
  • A substance should be produced by manufacturing
  • Computer software  used with hardware or with technical application to industry

Inventions Not Patentable (Sec 3)

The following is a list of inventions that cannot be patented:

  • Any invention obviously contradictory to established laws or that is superficial.
  • Any invention that could be used to exploit the population, contrary to morality, public order, or causes prejudice to life or health (of animals, plants, natural resources, humans,etc).
  • The discovery of a scientific principle, any substance occurring naturally (living or nonliving) or any abstract theory.
  • If no new product is formed nor a new reactant is formed using machines or apparatus. The discovery of a new property or new form of a substance.
  • Mere mixture of chemicals.
  • The duplication, rearrangement or arrangement of known devices.
  • A method of horticulture or agriculture.
  • Any surgical, medical, diagnostic, therapeutic, etc. process for the treatment of humans or animals (to render them free from disease).
  • Animals and plants in part or whole (other than microorganisms).
  • Algorithms, computer programmes, business or mathematical methods.
  • Musical, literary, artistic, dramatic, cinematographic (aesthetic productions or works), or television productions.
  • The mental strategy in playing a game, a mental act, rule, method or scheme.
  • Topography of integrated circuits
  • An invention that is traditional knowledge or which is a duplication or aggregate of known components properties.
  • Inventions related to atomic energy cannot be patentable under Sec 20 (1) of the Atomic Energy Act, 1962.

Application For Patents

The person applying for a patent should apply jointly with another person or alone and can be:

  • The first and true inventor of an invention.
  • An assignee can make an application on behalf of the first and true inventor of the invention.
  • The legal representative of a deceased applicant provided that before death, the applicant was entitled to make such an application.

Form Of Application

  • Every application made shall be for one patent only at the patent office in the prescribed form.
  • An international applicant applying for a patent in India under the Patent Cooperation Treaty must file a corresponding application before the Controller in India. No patent is valid for the entire world because patent law is territorial in nature. Filing an application in India enables a person to file for application at convention member countries which makes the application process easier when applying to multiple countries.

Amendments To The Patents Act And Rules

The Indian Patent Act was amended in 1999, 2002 and 2005. The need for patenting marks of patent agent examination, and chemicals and drugs under Trade Related Intellectual Property Rights (TRIPS) brought about the need for an amendment to the Patent Act.

The Indian Patent Rules were amended in 2003, 2005, 2006, 2012, 2013, 2014 and 2016. The rules were amended to include a fixed fee structure, patent agent exam qualification, appointment of the patent office as searching and examining authority, third category for applicants that are small entities.

The Indian Patents Office

The Office of the Controller General of Patents, Design and Trademarks (CGPDTM) administers the Indian Patent Office, which is an Office of the Government of India that is entitled with administering the laws of patents, trademarks and designs. It is important to note the distinction between patents, designs and trademarks.

Patent Duration

The duration of any patent filed in India is valid for a period of 20 years (irrespective of filing with complete or provisional specification) from the date of filing the application. If an applicant wishes to file an application under PCT, then the term of 20 years begins from the date of international patent filing. If an applicant wishes to file a patent in another country, then he must file the patent with the Patent Office of that respective country (through the conventional filing of an application or through the PCT route) since patents granted in India are valid only throughout the territory of India.

How To Get A Patent?

Get an Idea for a Patent

First get an idea of what has to be patented, and the same has to be presented on paper with a description, drawings and sketches (if necessary) explaining the work of the invention.

Patentability Search

Next, an individual must check the list of patentable inventions. The Patent Act (as mentioned above) entails what constitutes a patentable invention and what doesn’t. Only if an idea is patentable can an individual move forward to the next step. It also enables an individual to search for existing patents in case the idea or patent already exists.

Patent Application

If a patent is at the early stages of its development, then an inventor can file a provisional patent. This enables an inventor to secure a filing date (12 months of time to file complete specification) and it is also lower in cost to file a provisional patent as compared to the cost of filing a complete patent. If an inventor has complete specifications about the invention, then the individual can file for complete specification.

Publication of the Application

After an inventor has filed for complete specification, the application is published 18 months post first filing. If an inventor feels that they cannot wait for the period of 18 months from the date of filing the application, then s(he) can file for an early publication request along with the prescribed fees and the patent would take about a month to be published under an early publication request.

Request for Examination

The controller, upon receiving an RFE request from the applicant, hands over the patent to the patent examiner for examining criteria such as novelty, enabling, inventive step, patentable subject-matter and industrial application. All steps covered till now (from patent application till grant) is termed as patent prosecution. The patent examiner then submits a first examination report to the controller and the applicant which consists of documents of the claimed invention.

Response and Clearing of Objections

Based on the examination report, most patent applicants would receive objections. A patent agent can help create a response to the objections raised in the application. An inventor can communicate to the controller as to why his invention is patentable.

Grant of Patent

After all objects raised in the report are resolved and the patent is deemed to be in order of grant after meeting all criteria requirements, the patent is granted to the applicant as early as possible. The grant of a patent is published in the patent journal.

As we move towards becoming a Product Nation, it is important that companies and individuals own their IP. A Patent can become a competitive advantage in itself and is to be ignored at your own peril!

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Discussion On Digitisation Of The Indian Legal System

discussion-on-digitisation-of-the-indian-legal-system

Digitization surely acts as a catalyst for most of the flourished fields to prosper further. With the digital age revolutionizing all domains including law & legal services, it is important to study its impact within our fraternity. The foregoing Indian Legal System laid more emphasis on paperwork but less on technology while the current system strives to digitize the entire legal system.

LegalDesk.com, in collaboration with iSPIRT, hosted a Conference on ‘The Digitisation of The Indian Legal System’ on Wednesday, 9th November. The event was set up at KSCA auditorium in Bangalore.

In the presence of dignitaries including Shri Prabhuling K. Navadgi Additional Solicitor General of India, Shri Kishore Mandyam Co-Founder at DAKSH Society India and Shri Sanjay Khan Nagra, Policy Expert, iSPIRT Foundation, the conference drew a huge crowd which included technology & legal professionals, law students, and the media.

Despite all the hype around digitisation in India, legal sector still lags behind other sectors. There are thousands of courts, over a million advocates, lakhs of ongoing cases and lakhs of pending cases, an ever growing population, but above all, there is a lack of information made available to the concerned parties which should be addressed. There is a pressing need to speed up the legal sector which makes it mandatory to embark on digitisation of the system.

Only scanning documents isn’t digitisation, but the emphasis should be to make information available to future generations, said Mr. Kishore Mandyam while speaking at the conference. He pointed out the need for reducing pendency of cases in the Courts. He shared some valuable insights about the technology reforms needed for the Indian Judiciary and hypothesized that Government forms have to be made available online and every single document associated with legal formalities can be made electronically available, thus promoting paperless functioning of legal system. Using case management softwares to manage cases would be beneficial, he added.

During his speech, Mandyam compared stats pertinent to legal system of India with that of the United States. He pointed out that, in India, there are 24 High Courts, 21,000-odd Lower Court Judges, while there are 50 State Supreme Courts and 37,000-odd Lower Court Judges in the U.S. While an average of 6,20,000 new cases are being added every month in India, around 7,20,000 cases are being disposed of. And currently, there are around 2.3 Crore cases pending. But in the U.S., for every 6.5 MN cases added/month, around 6.2 MN cases are being disposed, which leads to a significantly small number of cases pending which haven’t been disposed of for decades. So, at this speed, in India, it would take around 19 years to clear the pending cases, which is why it is highly important to speed up the entire system. Also, the number of average cases disposed per judge is significantly higher in U.S. compared to the same in India. Besides speeding up the process and aiding in paperless functioning, digitisation of legal system would save an estimated Rs 12,000 Crore in a year across all the Courts.

According to Mr. Navadgi, “Digitisation is the conversion of paper documents into electronic form, and Digitisation of the Legal system shall mean e-filing, e-records and a database of all case records.” He also pointed out that the process of Digitization of Legal System has already commenced.

Mr. Krupesh Bhat, Founder of LegalDesk.com, delivered a presentation on ‘Digitization of Legal System’ and threw some light on how eNotary would benefit citizens. Following this was a panel discussion by panelists Prabhuling K. Navadgi and Kishore Mandyam moderated by Sanjay Khan Nagra. Mr. Bhat insisted on the implementation of e-filing system in courts across the country, which is currently available in only a few states including Delhi, Haryana, Madhya Pradesh and Maharashtra. He also said that the judges, litigants, advocates and the registry across all courts can make use of Aadhar-based eSign, which upholds transparency in the system.

At the event, LegalDesk.com released a white paper on eNotary, which sets out a detailed framework for the proposed eNotary implementation. Here’s a glimpse of it.

dsc_0700

To sum up, there is a pressing need for digitisation of the legal system of our nation, to start using eNotary as well as E-evidence. In this regard, the Government can collaborate with various service providers to aim towards using technology to reduce pendency of courts and suitable softwares to manage and recognise the pending cases.

No doubt, it is the citizens who would reap benefits the most with the digitisation of Indian legal system. The conference was a huge success and the findings are also remarkable. The support of speakers, participants, iSPIRT members and not to mention LegalDesk.com team, made the event a huge success.

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Ease of Doing Business – Is India Game?

Conducting business in one’s own country is never easy, let alone conducting business overseas, where rules, regulations and business environments differ. ‘Ease of doing business’ is also an Index created by the World Bank. It ranks economies from high to low, with the former indicating easier, simpler and better conditions for business as compared to the latter, indicating difficulty in conducting business. This article aims at giving you a glimpse into the world of  investing in and conducting a business in India.

ease-of-doing-business-is-india-game

Economies are ranked based on parameters such as starting a business, dealing with construction permits, availability of electricity, registering property, availing credit, protection of minority investors, paying taxes, international trading, distance to frontier, entrepreneurship, good practices, transparency in business regulation, resolving insolvency and enforcing contracts. For any business, It is important to acknowledge these factors, or at least those that apply, as they decide how easy or difficult it is to conduct or start the business in a country.

For the year 2016 by World Bank’s records- India moved up from 134th to 130th rank in the Ease of doing business Index. Among the parameters mentioned earlier, India has best ranked in the protection of minority shareholders. It has also bettered its rank in availability of electricity, getting construction permits and starting a business. On the downside, paying taxes and accessing credit have been the most difficult for business. Additionally, two key parameters that India needs to work on are enforcing contracts and resolving insolvency, that have both been a hindrance in conducting business.

To give you an idea of how few other countries fare in the rankings; Singapore, New Zealand and Denmark occupy the first three spots in the world, whereas Eritrea, Central African Republic and Libya occupy the last three spots.

The Indian Government has taken several initiatives towards increasing the ease of doing business, here are some that deserve a mention:

Registration

  • The availability of www.ebiz.gov.in, a Government portal where services are provided such as employee registration, name availability, Director Identification Number, PAN, Certificate of Incorporation, TAN, RBI (Foreign Remittances), EPF, Importer-exporter code, Foreign currency – transfer of shares, etc. Making registering and running a business much easier than before.
  • Now Aadhaar eKYC and eSign are being used to grant Digital Certificates to directors (DSC) of the company. This process is now made paperless and takes only a few minutes.
  • The requirements for minimum paid-up capital and common seal for companies has been removed as per the Companies (Amendment) Act, 2015 and the process for starting a business is now streamlined.
  • The Indian Prime Minister has shown particular interest in building a positive entrepreneurial spirit. He launched MakeInIndia, a website helping young entrepreneurs set up, access information, and build a business of their own.
  • Employee Provident Fund Organisation (EPFO) and Employee State Insurance Corporation have online portals so that businesses have real-time registration, online application for clearances and payments be made through 56 partner banks.
  • An Investor Facilitation Cell has been introduced as a first in order to help investors and guide them through the course of their business.

Taxation

  • GST(Goods and Service Tax) will replace indirect-tax, to be implemented by 2017. That is the removal of several layers of multi-layered taxes and multiple tax rates into one uniform Goods and Service Tax. This will make India attractive to foreign Investors as well as boost India’s exports because of less regulatory and bureaucratic tangles.

Infrastructure

  • In cities like Delhi and Mumbai, online construction permits such as DPMS(Development Permissions Management Systems) are in the process of being launched. Since the permits are completely digitized, the biggest impact this will have is speeding up the process of getting a permit by 5-8 months. It will save one the trouble of meeting someone in person, which has a direct positive impact on reducing corruption, delayed work and human error to a large extent.
  • A business being affected by a cyber crime is every founder and investors’ nightmare. Training programmes for officers in the sensitization towards cyber crimes and related infringements is also a significant initiative taken by the Indian Government.
  • Special management teams have been set up to fast track and facilitate investments made to India from South Korea or Japan. The plans are coined ‘Japan Plus’ and ‘Korea Plus’.

Compliance

  • If your business deals with cross-border trading, you’re in luck. The Government has made the process highly efficient by reducing the time utilised at ports and airports. Necessary clearances for exporters and importers has also been prioritized. As a result of the improvements made, export and import clearance that once used to take nearly 5 and 11 days has reduced by more than half the time.
  • Minority shareholder’s Interests are well protected in India. Apart from ranking high on the ‘ease of doing business Index’, greater disclosure is now required of the board members on matters of ‘conflict of interest’.

Legislations

  • A National Company Law tribunal and appellate tribunal was set up to replace the existing Board for Industrial and Financial Reconstruction(BIFR) and Company Law Board(CLB). The National Company Law Tribunal was set up to resolve corporate disputes faster and efficiently, to examine existing laws that relate to winding up procedures and to suggest reforms regarding winding up and insolvency in an effort to match up to international standards and practice in this field.
  • The ease of doing Business in India is also about exiting a business efficiently as much as it is about starting and running one. Thankfully, the Government is soon to enact the ‘Bankruptcy Code’, which will make it easier for investors to exit a business in case of Insolvency.  At present, it takes 4 years to resolve an issue related to insolvency. With the new code, time taken to exit from a business will be reduced to a period of under a year.

Foreign companies that invest in Indian businesses have contributed heavily to India’s economic growth over the past years. The Government has set up FDI and FEMA measures to increase economic activity, set regulations and caps on sectors and generate employment opportunities.

  • Foreign Direct Investment (FDI)

Money that India receives from investors abroad is FDI. Foreign companies that invest in Indian businesses gain a monetary advantage in terms of labour wages and benefit from the high economic growth rate prevailing in India.

The Foreign Direct Investment allowed for an Entity based in another country is:

Sector FDI Allowed
Direct route Indirect route
Insurance and Pension 49%
Defence 49% above 49%
DTH, Cable, sky broadcasting 100%
Brownfield Airport Projects 100%
Scheduled Air Transport Services 49% 49%-100%
Foreign Airline Companies 49% of paid up capital Upto 49%
Marketplace Model of e-commerce 100%
Food products manufactured/produced in India 100%
Asset Reconstruction Companies 100%
Brownfield Pharmaceuticals 74% above 74%
Private Security Agencies 74%
Non ‘News and Current Affairs’ linking channel 100%
Mining and Mineral separation of Titanium Upto 100%
Publishing/Periodicals/Journals Upto 100%
Publication of foreign newspapers Upto 100%
Publication of Indian versions of foreign magazines Upto 26%
Satellites Upto 100%
Telecom 49% 49%-100%
Banking Private Sector 50%-Upto 74%
Banking Public Sector Upto 20%
FM Radio Upto 49%
NBFC 100%
Commodity Exchange 49%

(Figures as of August 2016)

Source: http://www.makeinindia.com/eodb

  • The Foreign Exchange Management Act, 1999 (FEMA)

The Foreign Exchange Management Act, 1999 was set up with the aim of Increasing foreign exchange through increasing external trade and promoting foreign exchange markets in India. All Offences relating to Foreign exchange are considered Civil offences.

Some of the revisions in regulations of FEMA to promote the ease of doing business are:

  • Acquisition and transfer of fixed/immovable property – several conditions for which RBI approval is no longer required to buy immovable property outside India by a company registered in India.
  • Possession and Retention of Foreign currency – an individual can have up to a maximum of USD 2000 in foreign currency at any time. This applies in all cases other than if the individual is not  a permanent resident of India, he obtained the foreign currency while being resident outside India or if such currency was brought in compliance with the laws applicable.
  • Export and Import of Foreign Currency – the upper limit of notes an individual can take outside the country or bring into India is INR 25000(currency notes or RBI notes).
  • Import of Foreign Exchange – foreign exchange sent to India has no upper limit except in the case of currency notes, traveler’s cheques and bank notes. The upper limit on these types is USD 10000.
  • Postal Order/Money Order – any person can buy foreign exchange from any Indian Post Office in the form of money order or postal order.
  • Declaration of exports – for businesses that are either engaged in exports or those that are set up in Special Economic Zones or Special Technological Parks need to declare their exports backed up with evidence.
  • Insurance – regulations that are stated for an individual resident in India that avails a general or a life insurance policy issued by an insurer outside India and vice-versa.

Routes to Invest in India

  • Automatic/ Direct Route – No permission from the Central Government required under this route.
  • Government Route – Applications that are considered by the Foreign Investment Promotion Board (FIPB) come under this route.

Who can Invest in India?

  • An Individual – FCVI, Pension/PF, Financial Institutions.
  • A Company – Non-Resident Indians, Foreign Trusts, Wealth Fund.
  • Foreign Institutional Investors – Private Equity Funds, Partnership Firm, Proprietorship Firm.

Note: Investors from Pakistan and Bangladesh can Invest only through the Government of India. Residents from Pakistan cannot invest in Defence, Atomic, Space and other select sectors of the economy.

Foreign Investors can invest in India in the following ways:

  • Incorporating a company – Either a ‘Private limited’ or a ‘Public Limited’ Company.
  • Sole Proprietorship/Partnership – Under RBI approval.
  • Limited Liability Partnerships – Allowed under Government Route in sectors that have 100% FDI.
  • Other Structures – Non for Profit entities, etc. are subject to FCRA regulations.

The steps an Investor should follow before investing are:

  1. Identify Sector
  2. Obtain Central Government approval if required for that sector
  3. Transfer Funds through eligible financial instruments
  4. Meet the stipulated requirements of the RBI Act
  5. Registration and Document Filing (PAN, TIN)
  6. Find Ideal Space and obtain clearances, if any
  7. Obtain Licence/s if required
  8. Finding staff, paying taxes, etc

Taxation

  • An individual – Is taxed on the net income earned based on the tax bracket.
  • A company – 30% tax + surcharge + education cess. Profits withdrawn are Taxed.
  • Branch Office or Permanent Establishment – 40% + surcharge + cess.

Incentives provided by the Government

  • Special Economic Zones (SEZ), Export Oriented Units (EOU) and National Investment and Manufacturing Zones (NIMZ) offer incentives such as tax reduction and tax holidays for businesses set up in such zones. Manyata Tech Park and Eco-Space are examples of SEZ’s.
  • Incentives on exports such as duty remission/exemption scheme, market schemes, focus products, duty drawback, etc.  to increase exports.
  • Area based Incentives for operating in particular areas of India such as Uttarakhand, Assam, Jammu and Kashmir, etc.
  • Apart from these Incentives, each State Government has its own incentive policy.

It is safe to say that with the Governments several acts and initiatives to stimulate increased investment and growth, India has truly built favourable all-round business conditions. India emerged as the top destination for foreign direct investment (FD) by capital investment in 2015, attracting $65 billion worth of investments, overtaking China and USA. Business in India? Absolutely.

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Implications of GST Bill on Startups

The much-hyped Goods and Services Tax (GST), after years of stagnation and lack of political consensus, was finally passed in the upper house of the Parliament, the Rajya Sabha, on 4th August this year, almost a decade after it was first introduced in the Lok Sabha in the year 2006-07. It is the biggest indirect tax reform post economic liberalization of 1991.

implications-of-gst-bill-on-startups

The economists say, a double-digit growth in GDP, which seemed too surreal, will now be a reality. This law aims to give a boost to the new age start-ups and make India a conducive place to conduct business. Currently, India is home to around 4,200 startups growing at an exponential rate of 40% yearly. It is predicted that, with further relaxation of rules, India will be home to around 11,000 startups by 2020. This can be corroborated by the fact that India was ranked poorly at 142nd in the ‘Ease of Doing Business’ survey conducted by the World Bank in 2015. With relaxation in the rules and regulations of setting up a business and lucrative schemes like ‘Start-up India, Stand up India’, India went twelve places up and ranked at 130 in 2016.

Before getting into the nitty-gritty of how beneficial will the new law be for startups, it is important that the basics of this law are first looked into. GST, as mentioned above, is an indirect tax reform also known by the moniker – ‘One India, One Tax’. Different states have different tax structures which make the taxation structure very cumbersome and complex. This is a major reason why many start-ups are hesitant to expand their businesses to different states leaving the state concerned with little industrialization and low creation of jobs. GST aims to bridge the gap by integrating all taxes, making only one tax to be paid by everyone. As a result, the tax calculations will be simpler, saving time and energy for entrepreneurs and start-ups to focus on their respective businesses instead of investing time and energy on compliance and paperwork. However, just passing the bill is not the end of the story – there are rules to be framed, tax rates to be fixed, the central and state governments must reach a consensus, and proper infrastructure needs to be put in place. Hence, the implementation of GST still has a long way to go and is likely to happen in mid-2017.
Implications Of GST Bill On Startups

How Does the GST Help?

The Act is deemed to benefit all types of businesses but start-ups and SMEs are to benefit the most. It has been structured in a way keeping in mind the concerns of the small businesses. This is elaborately explained in points mentioned below –

Simple Taxation – Instead of adhering to different tax regulations in different states, GST simplifies the process by making it simpler and clear by integrating all taxes into one so that not only money on taxes are saved but time on compliances are saved too.

Ease of Conducting Business – Registration of VAT from the sales tax department of the state concerned is an imperative to start a new business. A business intending to establish in different states has to apply for VAT registration separately. Not only this, the VAT fees in different states is not uniform, making this one among the many other issues regarding the problems faced by startups and existing businesses in India. To fix this anomaly, the GST Act has provisions which will make VAT registration centralized, uniform and simple for companies. The concerned company/business would just need to get a single license valid pan India and pay taxes regularly. This will further help startups to establish, expand their business hassle-free.

Integration of Multiple Taxes – In addition to the VAT and service tax, there are other tax regulations that must be complied by the businesses like Central Sales Tax, Luxury Tax, Purchase Tax, Additional Customs Duty etc. Upon the implementation of the GST, all such taxes will be combined into one.

Lower Tax Rates for Small Businesses – At present, VAT is applied to businesses having an annual turnover of INR 5 lacs and above. GST aims to cap this limit to INR 10 lacs only and businesses with turnover between INR 10-50 lacs will be taxed at low rates. This move will not only bring respite to the start-ups but also help them invest the money saved on taxes back in their business.

Improvement in Logistics efficiency – Seamless movement of goods is currently a problem with border taxes and checks at state borders which delay the movement of goods which, in turn, results in delayed deliveries and enhances the product cost. GST aims to eliminate such inefficiencies making the inter-state trade less time consuming. With an uninterrupted movement of goods across the border, the costs associated with maintaining the goods will significantly reduce. According to a CRISIL analysis, the logistics cost of non-bulk goods can go down by as much as 20% once GST is implemented.

Other Side of GST: The Cons

While there are other advantages for the start-ups as well other than the ones mentioned above, the new Act also comes with implications, not necessarily for the start-ups. Start-ups in the manufacturing sector with lesser turnovers might have to bear the brunt of paying duty. As per the existing excise laws, any manufacturing business with an annual turnover of less than INR 1.5 crores is exempted from paying duties. But when the GST comes into force, the chances are, this limit could be reduced by six times to INR 25 lacs. This can have a detrimental effect on the growth of start-ups.

There are high chances that the inflation might rise after GST implementation. Also, whether ‘mandi tax’ would be included or not in the GST is ambiguous. Such causes can adversely affect the food startups.

Critics also say, the implementation of GST would also affect the real estate business and add up to 8% of the cost in new homes and as a ramification thereof, reduce the demand by 12%.

Despite its implications, GST is the most important and business friendly tax reform in India which will lead to a double-digit growth. It seeks to unify, integrate different tax structures so that there will be transparency and efficiency in the way businesses operate and the government levies taxes. This won’t just reduce the cost of the products but also create employment opportunities as more startups rise and India becomes the startup capital of the world!

Guest post by LegalDesk.com, a Do-It-Yourself legal platform for making legal documents online. LegalDesk helps startups with incorporation and legal documentation services. It also provides Aadhaar-based eSign service to businesses.

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Ease of Doing Business – Is India Game?

Conducting business in one’s own country is never easy, let alone conducting business overseas, where rules, regulations and business environments differ. ‘Ease of doing business’ is also an Index created by the World Bank. It ranks economies from high to low, with the former indicating easier, simpler and better conditions for business as compared to the latter, indicating difficulty in conducting business. This article aims at giving you a glimpse into the world of investing in and conducting a business in India.

Economies are ranked based on parameters such as starting a business, dealing with construction permits, availability of electricity, registering property, availing credit, protection of minority investors, paying taxes, international trading, distance to frontier, entrepreneurship, good practices, transparency in business regulation, resolving insolvency and enforcing contracts. For any business, it is important to acknowledge these factors, or at least those that apply, as they decide how easy or difficult it is to conduct or start the business in a country.

For the year 2016 by World Bank’s records- India moved up from 134th to 130th rank in the Ease of doing business Index. Among the parameters mentioned earlier, India has best ranked in the protection of minority shareholders. It has also bettered its rank in the availability of electricity, getting construction permits and starting a business. On the downside, paying taxes and accessing credit have been the most difficult for business. Additionally, two key parameters that India needs to work on are enforcing contracts and resolving insolvency, that have both been a hindrance in conducting business.

To give you an idea of how few other countries fare in the rankings; Singapore, New Zealand and Denmark occupy the first three spots in the world, whereas Eritrea, Central African Republic and Libya occupy the last three spots.

The Indian Government has taken several initiatives towards increasing the ease of doing business, here are some that deserve a mention:

Ease of Doing Business.png

Registration

  • The availability of www.ebiz.gov.in, a Government portal where services are provided such as employee registration, name availability, Director Identification Number, PAN, Certificate of Incorporation, TAN, RBI (Foreign Remittances), EPF, Importer-exporter code, Foreign currency – transfer of shares, etc. Making registering and running a business much easier than before.

  • Now Aadhaar eKYC and eSign are being used to grant Digital Certificates to directors (DSC) of the company. This process is now made paperless and takes only a few minutes.

  • The requirements for minimum paid-up capital and common seal for companies has been removed as per the Companies (Amendment) Act, 2015 and the process for starting a business is now streamlined.

  • The Indian Prime Minister has shown particular interest in building a positive entrepreneurial spirit. He launched MakeInIndia, a website helping young entrepreneurs set up, access information, and build a business of their own.

  • Employee Provident Fund Organisation (EPFO) and Employee State Insurance Corporation have online portals so that businesses have real-time registration, online application for clearances and payments be made through 56 partner banks.

  • An Investor Facilitation Cell has been introduced as a first in order to help investors and guide them through the course of their business.

Taxation

  • GST (Goods and Service Tax) will replace indirect-tax, to be implemented by 2017. That is the removal of several layers of multi-layered taxes and multiple tax rates into one uniform Goods and Service Tax. This will make India attractive to foreign Investors as well as boost India’s exports because of less regulatory and bureaucratic tangles.

Infrastructure

  • In cities like Delhi and Mumbai, online construction permits such as DPMS (Development Permissions Management Systems) are in the process of being launched. Since the permits are completely digitized, the biggest impact this will have is speeding up the process of getting a permit by 5-8 months. It will save one the trouble of meeting someone in person, which has a direct positive impact on reducing corruption, delayed work and human error to a large extent.

  • A business being affected by a cyber crime is every founder and investors’ nightmare. Training programmes for officers in the sensitization towards cyber crimes and related infringements is also a significant initiative taken by the Indian Government.

  • Special management teams have been set up to fast track and facilitate investments made to India from South Korea or Japan. The plans are coined ‘Japan Plus’ and ‘Korea Plus’.

Compliance

  • If your business deals with cross-border trading, you’re in luck. The Government has made the process highly efficient by reducing the time utilised at ports and airports. Necessary clearances for exporters and importers has also been prioritized. As a result of the improvements made, export and import clearance that once used to take nearly 5 and 11 days has reduced by more than half the time.

  • Minority shareholder’s Interests are well protected in India. Apart from ranking high on the ‘ease of doing business Index’, a greater disclosure is now required of the board members on matters of ‘conflict of interest’.

Legislations

  • A National Company Law tribunal and an appellate tribunal was set up to replace the existing Board for Industrial and Financial Reconstruction (BIFR) and Company Law Board (CLB). The National Company Law Tribunal was set up to resolve corporate disputes faster and efficiently, to examine existing laws that relate to winding up procedures and to suggest reforms regarding winding up and insolvency in an effort to match up to international standards and practice in this field.

  • The ease of doing Business in India is also about exiting a business efficiently as much as it is about starting and running one. Thankfully, the Government is soon to enact the ‘Bankruptcy Code’, which will make it easier for investors to exit a business in case of Insolvency.  At present, it takes 4 years to resolve an issue related to insolvency. With the new code, time taken to exit from a business will be reduced to a period of under a year.

Foreign companies that invest in Indian businesses have contributed heavily to India’s economic growth over the past years. The Government has set up FDI and FEMA measures to increase economic activity, set regulations and caps on sectors and generate employment opportunities.

Foreign Direct Investment (FDI)

Money that India receives from investors abroad is FDI. Foreign companies that invest in Indian businesses gain a monetary advantage in terms of labour wages and benefit from the high economic growth rate prevailing in India.

The Foreign Direct Investment allowed for an entity based in another country is:

Sector FDI Allowed
Direct route Indirect route
Insurance and Pension 49%
Defence 49% above 49%
DTH, Cable, sky broadcasting 100%
Brownfield Airport Projects 100%
Scheduled Air Transport Services 49% 49%-100%
Foreign Airline Companies 49% of paid up capital Upto 49%
Marketplace Model of e-commerce 100%
Food products manufactured/produced in India 100%
Asset Reconstruction Companies 100%
Brownfield Pharmaceuticals 74% above 74%
Private Security Agencies 74%
Non ‘News and Current Affairs’ linking channel 100%
Mining and Mineral separation of Titanium Upto 100%
Publishing/Periodicals/Journals Upto 100%
Publication of foreign newspapers Upto 100%
Publication of Indian versions of foreign magazines Upto 26%
Satellites Upto 100%
Telecom 49% 49%-100%
Banking Private Sector 50%-Upto 74%
Banking Public Sector Upto 20%
FM Radio Upto 49%
NBFC 100%
Commodity Exchange 49%

(Figures as of August 2016)
Source: http://www.makeinindia.com/eodb

The Foreign Exchange Management Act, 1999 (FEMA)

The Foreign Exchange Management Act, 1999, was set up with the aim of Increasing foreign exchange through increasing external trade and promoting foreign exchange markets in India. All Offences relating to Foreign exchange are considered Civil offences.

Some of the revisions in regulations of FEMA to promote the ease of doing business are:

  • Acquisition and transfer of fixed/immovable property – several conditions for which RBI approval is no longer required to buy immovable property outside India by a company registered in India.
  • Possession and Retention of Foreign currency – an individual can have up to a maximum of USD 2000 in foreign currency at any time. This applies in all cases other than if the individual is not  a permanent resident of India, he obtained the foreign currency while being resident outside India or if such currency was brought in compliance with the laws applicable.
  • Export and Import of Foreign Currency – the upper limit of notes an individual can take outside the country or bring into India is INR 25000 (currency notes or RBI notes).
  • Import of Foreign Exchange – foreign exchange sent to India has no upper limit except in the case of currency notes, traveler’s cheques and bank notes. The upper limit on these types is USD 10000.
  • Postal Order/Money Order – any person can buy foreign exchange from any Indian Post Office in the form of money order or postal order.
  • Declaration of exports – for businesses that are either engaged in exports or those that are set up in Special Economic Zones or Special Technological Parks need to declare their exports backed up with evidence.
  • Insurance – regulations that are stated for an individual resident in India that avails a general or a life insurance policy issued by an insurer outside India and vice-versa.

Routes to Invest in India

Automatic/ Direct Route – No permission from the Central Government required under this route.

Government Route – Applications that are considered by the Foreign Investment Promotion Board (FIPB) come under this route.

Who can Invest in India?

  1. An Individual – FCVI, Pension/PF, Financial Institutions

  2. A Company – Non-Resident Indians, Foreign Trusts, Wealth Fund

  3. Foreign Institutional Investors – Private Equity Funds, Partnership Firm, Proprietorship Firm

Note: Investors from Pakistan and Bangladesh can Invest only through the Government of India. Residents from Pakistan cannot invest in Defence, Atomic, Space and other select sectors of the economy.

How to Invest?

Foreign Investors can invest in India in the following ways:

  • Incorporating a company – Either a ‘Private limited’ or a ‘Public Limited’ Company.
  • Sole Proprietorship/Partnership – Under RBI approval.
  • Limited Liability Partnerships – Allowed under Government Route in sectors that have 100% FDI.
  • Other Structures – Not for Profit entities, etc. are subject to FCRA regulations.

The steps an Investor should follow before investing are:

  1. Identify Sector
  2. Obtain Central Government approval if required for that sector
  3. Transfer Funds through eligible financial instruments
  4. Meet the stipulated requirements of the RBI Act
  5. Registration and Document Filing (PAN, TIN)
  6. Find Ideal Space and obtain clearances, if any
  7. Obtain Licence(s) if required
  8. Finding staff, paying taxes, etc

Taxation

An individual – Is taxed on the net income earned based on the tax bracket

A company – 30% tax + surcharge + education cess. Profits withdrawn are Taxed

Branch Office or Permanent Establishment – 40% + surcharge + cess

Incentives provided by the Government

  • Special Economic Zones (SEZ), Export Oriented Units (EOU) and National Investment and Manufacturing Zones (NIMZ) offer incentives such as tax reduction and tax holidays for businesses set up in such zones. Manyata Tech Park and Eco-Space are examples of SEZ’s.
  • Incentives on exports such as duty remission/exemption scheme, market schemes, focus products, duty drawback, etc.  to increase exports.
  • Area based Incentives for operating in particular areas of India such as Uttarakhand, Assam, Jammu and Kashmir, etc.
  • Apart from these Incentives, each State Government has its own incentive policy.

It is safe to say that with the Governments several acts and initiatives to stimulate increased investment and growth, India has truly built favourable all-round business conditions. India emerged as the top destination for foreign direct investment (FDI) by capital investment in 2015, attracting $65 billion worth of investments, overtaking China and USA. Business in India? Absolutely.

Guest post by LegalDesk.com, a Do-It-Yourself legal platform for making legal documents online. LegalDesk.com helps startups with incorporation and legal documentation services. It also provides Aadhaar-based eSign service to businesses.

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How To Choose The Name For Your Startup?

A Company name is the identity of a company and what people use to refer to it. Picking a company name at times can be harder than finding a business opportunity, and on several occasions, people have gone ahead and started their company without an apt name. This can damage the value of the company or the business itself because you are losing customers who don’t understand what your company does, too many similar companies or it’s just difficult for them to find you because of the company name.choose a name for company
The different company types are (based on name):
Private Limited – include the words ‘Private Limited’ or ‘Pvt Ltd.’ following the name of the company.
Public Limited – include the words ‘Public Limited’ or just ‘Ltd.’ following the name of the company.

Here are few things you can do to help choose the right name for your company:

Identify what your business does and which industry it belongs to

Once you have an understanding of what your company does and whom it is trying to serve, it will give you a platform for names to choose or a starting point. Remember your target audience should be able to associate with the name. Did you know Lumia didn’t sell well in Spanish countries? This is because Lumia means …..well…..err……umm prostitute in Spanish. Go figure, Nokia.

Chubbybrain is a company that funds other companies, but because of its name, ‘Chubbybrain’, no one knew what they did as they couldn’t relate the name to fundraising. ‘Xobni’ is another such example. Xobni sold email-related products until the company shut down. Xobni is literally inbox spelt backwards. Again, the market didn’t get it and that’s why no one now uses Xobni.

Now it’s time to brainstorm

Come up with a list of apt names that the company could use and check for its availability online. If another company has the same name, then you can’t use it. If the name is similar, then people will get confused again. If you come up with a name that will be difficult in communicating what the company does, then you will have to spend on marketing to help your audience identify your name with what you do. Accenture and Verizon spent millions on marketing after they had changed their Company names in an effort to rebrand themselves.

Think big, don’t get tied down

Your company has the potential to become international and cater to several markets in different economies. If you name your company after something local, it will be difficult to market it internationally. For example, if you choose a company name in a regional language or name the company after a particular region, it will be difficult to market outside those regions. One exception could be Cisco, named after San Francisco, that operates globally.

Your company name builds goodwill in time

The name has to be memorable, creative and distinctive from the rest. Apart from goodwill, it has the possibility of attracting customers, clients and several other business opportunities. Kingfisher has been declared bankrupt and some of their listed assets for sale was the company name and logo for around 330 crores. Goodwill increases the value of your company.

Sample study. Don’t be overconfident, test it out

Once you have a list of desired names, do a sample study with your friends, relatives and colleagues. Find out what they associate the name with when they first hear it. If they can zero in on what you are trying to convey, then you are pretty close to finding your company name. Don’t just go around asking people “Is this name alright for my company”?

Trademarks

A trademark is a visual symbol of the company which could be a combination of words, signature, colour, image, logo, brand name, tagline, etc. Any individual or company can apply for a ™ registration which would take 6-24 months along with a validity of 10 years, upon expiry, can be extended. A business can protect itself with the use of trademarks on its products the way Apple or Nike does.

  • Trademark Search: both online and offline have to be done. It can be done through a trademark agent or by checking the trademark office (INR 0-500).
  • Create Application: If your business or logo is unique, the trademark attorney will draft the trademark application, as long as there are no infringements with someone else possessing or using the same trademark.
  • Trademark Registration: The office will check if any objections arise from the application. If not, then it will be published in Trade-marks Journal. The approximate government fee is INR 4,000 and Attorney fee INR 3,000.

Check Domain Availability. In this age, you NEED a Domain

Your domain name is your IP address online so people can search for you and find you on the internet. You cannot use a name that someone else is already using. Leandomainsearch and bust name are just a couple of sites that can help you look for your domain name. Once you enter the names you want, it will give you what all options or combination of options that are available from which you can choose to name your domain name/company name.

Registering the Domain

One of the most common and marketed sites is GoDaddy, that offers domain names at reasonable prices. Another one is BigRock. You enter the names you want and it will give you the availability of those names which you can purchase for 1-10 years. Once the term is over, you can repurchase it, or if you choose not to, someone else can.

You will be given the option to buy .net, .web, .org. Or all three in a bundle, apart from which are info, .asia, .in, etc which can be bought separately or in a bundle.

Should you change your company’s name? Don’t be shy to fix a bad name choice

If you have chosen a company name and people still find it hard to identify you, then you should probably change the name. Rebranding your company name will also help build a good image. In the case of Anderson Accounting, the company was guilty of fraud and manipulating their books of accounts. Anderson Accounting then changed their company name to Accenture, in order to rebrand themselves and have been doing good ever since. Another example, Cadabra was the original name of Amazon. People couldn’t spell it nor did they identify with the name which was abracadabra, shortened. And the name was changed to Amazon, what we all know it by today.

Guidelines for naming a Company

Companies Act, 2013 and Company Incorporation Rules, 2014 stipulates the guidelines for naming companies. Some of these guidelines are:

  • The name should be in resonance with the company’s principal object.
  • Companies engaged in financial activities must have a name indicative of such financial activity being carried out, included in the company name.
  • Names that include the words ‘Bank’, ‘Insurance’, ‘Mutual Fund’, ‘Venture Capital’, etc., should get regulatory compliance from the respected regulatory body (RBI, SEBI, IRDA, etc).
  • Certain names require the Central Government’s approval if the company’s name includes ‘National’, ‘Union’, ‘Small-scale’, ‘Prime Minister’, ‘Federal’, ‘Statutory’, ‘Judiciary’, ‘Scheme/s’, (that may resemble ones offered by the central or state government) ‘Governor’, etc.
  • In order to name the company after the promoter or the promoter’s relatives, a non-objection form is required to be signed by the person who will share the company’s name.
  • The company needs to declare whether they have been using the name in the past 5 years in other forms of business such as sole proprietorship.
  • Every company incorporated as a Nidhi, shall have the words ‘Nidhi Limited’, towards the end of the name.
  • Once a name change has been made, only after three years can anyone avail that name.

Some of the limitations on naming your company are:

  • The name shall not be identical to the name of an existing company, nor a plural of an existing name, nor translation of an existing name in another language.
  • Generic names that have the names of places, or really general names are not allowed. For example, names like ‘Corporate Technology’, ‘Karnataka Business’ or ‘Solar Power’ will not be allowed.
  • An abbreviated name of the founders is not allowed in India. For example, ‘KPMG’ is named after all their founders. This would not be allowed as per the Companies Act, 2013.
  • A proposed name should not violate trademarks, or the Emblems and Name Act, nor include offensive words.
  • Names of patriots or people still in office or government cannot be used in a company’s name.
  • A name cannot imply any association with a foreign government or foreign embassy.
  • The term ‘State’, can only be used by a Government Company in its name. Examples are ‘Karnataka State Construction Corporation Limited’ and ‘Karnataka State Tourism Development Limited’.
  • The proposed name is identical to the name of a company dissolved as a result of the liquidation. Post 2 years, a company can then apply for the name of the dissolved company.
  • The name cannot be used if it is too similar to the name of a limited liability partnership
  • Using different spellings, spelling variations or phonetic spellings does not differentiate a company’s name from an existing name.

Don’t rush it. To some, it might be the easiest thing in the world. A random word simply popping into your head, sounding just right at just the right time. To others, the process may end up being rather gruesome. The result is all the same, though, you’ve got a match. A company name that will be just as important to you as it may be to the world.

Guest post by Krupesh Bhat, LegalDesk.com, a Do-It-Yourself legal platform for making legal documents online. LegalDesk.com helps startups with incorporation and legal documentation services. It also provides Aadhaar-based eSign service to businesses.