The 12 important legal jargons that will come handy while registering a business in India are listed below:

1. Company Incorporation:

The process by which company files required documents with the Registrar of Companies detailing the particulars of a proposed business entity.

2. Digital Signature:

A digital code (generated and authenticated by public key encryption) which is attached to an electronically transmitted document to verify its contents and the sender’s identity.

3. Registrar Of Companies:

The Registrar of Companies India is the official agency that deals with the administration of Companies Act 1956 & Companies Act, 2013. It falls under Ministry of Corporate Affairs. It has offices in all major states of India. The Registrar of Companies is the primary regulator for company- related matters in India.

4. Director Identification Number:

Director Identification Number (DIN) is a unique identification number for an existing director or a person intending to become the director of a company.

5. Book Keeping & Accounting:

Bookkeeping is the recording of financial transactions and is part of the process of accounting in business.

Transactions include purchases, sales, receipts, and payments by an individual person or an organization/corporation.

6. Patents & Trademark:

A patent for an invention or a business idea is the grant of a property right to the inventor. Patents are granted for new, useful and non-obvious inventions for a period of 20 years from the filing date of a patent application, and provide the right to exclude others from exploiting the invention during that period.

7. Memorandum of association (MOA):

Memorandum of Association is a legal document that explains why the organization was founded. It establishes the company’s authority and the terms under which it works. It is a manual that includes all of a company’s laws and regulations for its interactions with the outside world.

8. Articles Of Association (AOA):

Articles of association form a document that specifies the regulations for a company’s operations and defines the company’s purpose. The document lays out how tasks are to be accomplished within the organization, including the process for appointing directors and the handling of financial records.

9.  Corporate Identification Number (CIN):

CIN means Corporate Identification Number, and it is used by the Registrar of Companies for all companies registered in India. It is a unique identification number provided to you at the same time as your registration certificate.

10. Shareholders:

Any person, company or other institution that owns at least one share of a company’s stock is called a shareholder. Shareholders are a company’s owners. They have the potential to profit if the company does well, but that comes with the potential to lose if the company does poorly. A shareholder may also be referred to as a “stockholder”.

11. Company Secretary:

A company secretary is an officer appointed by the directors of a firm as responsible for ensuring that firm’s legal obligations under the corporate legislation are complied with.

12. Some Tax glossary

IT Returns:

Income tax return is a document you file with the Internal Revenue Service or the state tax board reporting your income, profits and losses of your business and other deductions as well as details about your tax refund or tax liability.

Goods and Services Tax

In simple words, GST is a tax applicable to the value added to goods and services at each stage in the supply chain. There are four types of GST, namely, CGST, SGST, IGST, and UTGST. Each type features different taxation rates applicable at the buyer’s end.

Professional Tax:

Professional tax is the tax by the state governments in India. Anyone earning an income from salary or anyone practicing a profession such as a chartered accountant, lawyer, doctor etc. are required to pay this professional tax.

Import Export Code:

An Importer -Exporter Code (IEC) is a key business identification number which mandatory for export from India or Import to India. No export or import shall be made by any person without obtaining an IEC unless specifical

Shop & Establishment Act:

The Shops and Establishment Act is a state legislation act and each state has framed its own rules for the Act. The object of this Act is to provide statutory obligation and rights to employees and employers in the unauthorized sector of employment, i.e., shops and establishments. This Act is applicable to all persons employed in an establishment with or without wages, except the members of the employers’ family.

The above legal jargon will give a heads up about the important terminologies that are used while setting up a business. You can also refer to the previous blog about important facts on business registration for more information.

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Ease of Setup:

It normally a Private Limited 10-12 working days, LLP 8-10 working days and OPC 10 to 12 working days to setup.

One Person Company Or Private Limited Company. The Government of India plans to reduce this to about a day by this April.

Who is it for?

One Person Company is meant for small entrepreneur who would otherwise start sole proprietorship like grocery shopkeepers, jewelers, medical shop owners, small food joints etc.  Individual consultants or technical professionals can start a One Person Company.

Limited liability Partnership is meant for startup technology and software companies, services companies with the low business volume lower than 1 Crore. Consultants, legal professional’s activities and architects etc. Prefer this while starting a new practice with a peer group.

Private Limited Company fits your requirements well if your company is growing fast.

Relaxed Compliance:

Limited Liability Partnership and One Person Company has far fewer legal and compliance requirements. This relaxed framework gives business owners some breathing space.

Private Limited Company is bound by law to keep records of their shareholder meetings and is expected to notify Registrar of Companies (RoR) if an operational structure or share holding pattern is changed.

Funding and Expansion:

A Private Limited Company is best supports rapid business expansion. Because it allows use of secured or unsecured financial instruments to compensate venture capitalists, banks or other creditors.

Limited Liability Partnership and One Person Company isn’t well suited to tackle rapid business expansion

Better Brand Value

Private Companies are more credible due to statutory audit compliance because external auditors perform the audit of business accounts.

This is not true for Limited Liability Partnership or a One Person Company. For more information about how to register your business. Talk to our customer champions.

Risk factor:

Private Limited, OPC, and LLP have the feature of Limited Liability and hence all the 3 options gives you peace of mind in business in terms of protection from legal-statutory liabilities.

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Apart from the many benefits, fewer compliances to abide by in a one person company is a big game changer for single entrepreneurs in India.

Introduced by The Companies Act, 2013 (No.18 of 2013), an OPC form of business aims to support small time entrepreneurs who may be carrying on a business as a sole proprietorship firm to enter the corporate framework of any industry.

If you are a single owner of the firm, there are certain compliance to check off before registering a one person company. A few important ones are listed below:

1. An OPC should have a minimum of one director and a maximum of fifteen directors.

2. It is compulsory for the registrar to be a citizen of India in order to form an OPC.

3. A person cannot incorporate more than five OPCs.

4. An OPC cannot convert itself to any form of the company unless two years have been expired from the date of incorporation of an OPC.

And in case the company revenue hits more than 2 crores or has a paid-up capital of over fifty Lakhs, it must be turned into a public or Private Limited Company within six months.

5. An OPC has perpetual existence, although to make this possible, there must be a nominee director to take charge in case of death or disability of the sole member.

6. An OPC is not allowed to carry out Non-Banking Financial Investment activities such as investment in securities of any corporate body.

7. A requirement of Annual General Meeting (AGM) and Extra-Ordinary General Meetings do not apply to an OPC.

8. An OPC must pay 30% of tax on profits. A minor cannot be a member or nominee of the OPC or can hold.

9. A minor cannot be a member or nominee of the OPC or can’t be the shareholder.

It is true that an OPC offers a suitable company form for a rising entrepreneur; it still has important requirements that need to be looked into well before opting to form a One Person Company.

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The platform would be a liaison between the entrepreneurs and various stakeholders like incubators, financial institutions, and Venture funds. It also would act as a single point of contact to government departments to solve various regulatory or compliance, technical and bureaucratic hurdle.

Such social initiatives are in vogue, recently Railways had introduced such a system like this to support customers and redress complaints. To escalate the process to a full steam, Minster Nirmala Sitaraman is actively looking at tweets; the process is expected to take off after an automated system for swift Twitter management kicks in.

A Top Commerce Ministry official clarified that:

“Twitter is a very active grievance redressal mechanism because most of the entrepreneurs that the ministry caters to are already online, so using Twitter to solve their problems makes sense.’’

‘’And through this initiative with Twitter, a full blown software will be developed which will automate the whole process, working out a mechanism where grievances are automatically routed in real time to the concerned person, who works on it and feeds it back to the person.”

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With the Modi wave driving the Indian economy, India has witnessed a copious amount of FDIs in the recent past. A recent economic survey confirmed that; there has been a 40% increase in FDI inflows since October 2014 to June 2015.

The Make in India initiative has been adding to the success of the FDI drive. All this and more goes to establish the fact that NRIs and Foreign Nationals see a huge opportunity in the Indian market.

For an NRI or foreign national looking to invest in India, there are two entry options:

Automatic Route: It means that a person can invest in India without taking any approval subject to the limit specified and go on to form a company. In this case, it is usually the Private Limited Company that opts.

Approval Route: It means investment can be made only with the prior approval from the RBI.

India provides foreign investors a well-proportioned set of fiscal incentive for exports and industrials investments that comprise of:

Investment incentives provided by both Central and state government in which the unit is located.

Foreign exchange controls have been reduced on the account of trade.

Comprehensive tax exemption

Foreign investors can remit earnings from Indian operations.

Foreign trade is mostly free from regulations, and other tariffs have reduced drastically in the past few years.

While the trend is on, we are here to discuss an ideal form of business for an NRI or foreign national and its registration process.

A Private Limited Company is ideal for FDI in India for many reasons, although a few compliance must be met:

A minimum of two shareholders and two directors are compulsory in a Private Limited Company, in which foreign nationals or NRIs are allowed to be the Director of the firm for Private Limited Company Registration. Although to become a director, the person must have Director Identification Number (DIN) followed by acquiring a Digital Signature Certificate.

Private Limited Companies can have up to 200 shareholders. RBI allows 100% FDI in many sectors in India under the automatic route. The process of ownership of shares for a foreign investor is also simple.

NRIs and Indians do share many common company registration procedures. The only difference for a foreign national is that if the present address of the NRI is outside India then each document of theirs must be notarized by the Indian embassy of the country where the person currently resides. He/she must submit an identity proof, address proof, and other documents all attested and notarized.

Having mentioned the above compliances, there are a few recent solutions brought about to ease the company registration process for foreign national/NRIs:

Although the virtual office concept is new in India, many company incorporation firms themselves provide this service. A foreign national/NRI can solve the issue of a registered office by opting for a virtual office space for a nominal fee.

There are plenty of companies in India who are willingly ready to introduce an NRI as a director to their company which can resolve the issue of, one resident Indian in the company.

Therefore, as the foreign nationals or NRIs are showing interest in the Indian markets, the Indian Government to is broadening options and ways for them to do business in India.

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About a 45 percent of manufacturing output and 40 percent share industrial exports come from MSME sector. Thus contributing to about 8 percent of India’s Gross Domestic product. Archaic regulations have been hindered the growth in this sector for a long time.

The Government of India is playing the best of its cards to reduce business bottlenecks faced by small industrial ventures. Small and micro level industries can act open a new paradigm of employment creation.

Micro and Small industries are expected to create huge opportunity skilled and semi-skilled labour under the auspices of Make in India.

Amendments in the new bill are as follows:

The latest revision proposed are simplified penal provisions in the labour laws for the small scale sector. Merging laws into groups so as to remove multiple provisions in different laws.

Ministry of Law and Justice has already scrutinised this act that regulates employment and other service conditions of employees of small factories.

The law simplifies formation and exit procedure for factory owners, they can register and even close down their factories by an e-notification to the authorities concerned.

Also, mandatory registration micro or small factory must be done within 60 days of operation startup after paying the prescribed fees. For factory closure owner/ employer needs to electronically notify the chief inspector within 15 days of closing the factory.

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A Preview into The Deen Dayal Upadhyaya Swaniyojana

Best in class vocational skill training and funding to rural youth. The scheme supports rural development through proactively funding, training and developing rural businessmen and cooperative self-help groups.

Swaniyojan Yojana wants to foster rural entrepreneurship by encouraging agro and allied industries, animal husbandry, dairy, textiles, leather etc. Swaniyojan action plan strives to be the key driver of rural employment.

Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDU-GKY) is the template for the Vocational skill development regime. Courses in driving, plumbing, agriculture, dairy farming, grafting, horticulture etc. are taught to young people.

Deen Dayal Upadhyaya Swaniyojana is funded by Mudra bank under Pradhan Mantri’s Micro Units Development Refinance Agency (MUDRA) Yojana. Ministry of Rural Development (MoRD) is supporting Swaniyojana because it aims to enhance the employability of rural youth.

The government has asked private sector and startups to cash in on the opportunities the scheme brings.  Make in India campaign will get a boost from wide adoption of such a scheme. Electronic, automotive, green energy, clinical manufacturing units in India are expected to drive demand for people with specific skills. Thus, skill development is a golden opportunity for much vocational training.

We feel that Swaniyojan Yojana is stepped in the right direction to develop vocational skill thus boosting the quality of life of rural India.

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Limited Liability

No single partner is responsible for the negligence or misconduct of another partner; this means that every partner will have a form of limited liability. Therefore, the personal liability of an individual partner arising from omissions, errors, negligence or incompetence limited to cash/kind contributions made by that partner.

Reasonable Formation Costs

One of the advantages of forming an LLP is the cost involved. The cost of incorporating an LLP is lesser compared to a private or public company.

Relaxed statutory compliances

The statutory compliance is much relaxed compared to a Private Limited Company, which makes it easier for entrepreneurs to concentrate on their business rather than on compliance formalities.

Relaxed auditing norms

LLP auditing norms are relaxed compared to Private Limited companies. Limited Liability Partnership Firm is not legally required to audit their books unless its turnover is beyond Rs. 40 lakhs.

No Minimum Capital Contribution Norms:

There are no specific requirements for the minimum capital contribution by partners. The minimum contribution in case of Public Company is Rs. 5 lakhs and in a case of Private Company is Rs. 1 lakh, this mandatory requirement does not apply to an LLP.

Any number of registered partners

There is no limit to the maximum number of partners in an LLP, as in the case of Private concern, where the number of members should be not more than 200. This helps in a division of liabilities, wherein each partner has to carry a limited burden. Public companies can also be partners in an LLP.

Relaxed Government Regulations

A Private Company has to deal with a lot of Government interventions and regulations. From forming a company to maintaining records, to holding meetings, a Private Company needs to follow certain rules. But this is not the case in an LLP, as there is minimal compliances and Government intervention.

Simple to dissolve or wind-up:

The winding up or dissolution of an LLP is easier as compared to a Public Company or Partnership Firm due to fewer procedures involved. There are two ways to dissolve an LLP i.e. voluntarily and by a tribunal (Order of National Company Law Tribunal).

Given below is an infographic reflecting benefits of registering an LLP.

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The proposed law will help potential entrepreneurs to start or exit from the startup business hassle free. This law combine with the 1 day Incorporation proposal of Ministry Of External Affairs is expected to revamp ease of doing business in India.

‘’Entrepreneurs should find it easy to start-up a business as much as to get out of startups because if you are not doing well there shouldn’t be a taboo.’’ Nirmala Sitaraman, Commerce and Industries Minister

Fact # 2

Given that the US insolvency law contributes to cutting-edge innovation and risk taking among entrepreneurs in America. Such a law is also essential for India startup ecosystem to blossom because when their ventures fail law should support those brave businessmen.

The government should communicate that failing is ok and it must support the risk-taking girth of entrepreneurs. Supporting business expansion is one viable way to employ the burgeoning Indian young population.

The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB) this law helped lenders to recover loans briskly from a failed businesses. It focused on prorate allotment of properties of defaulting party. It didn’t really lessen the pain of the entrepreneur.

Fact # 3

Too many formalities to exit a business has hampered ease in doing business here. It isn’t really reasonable to ask business owners to pay more legal and compliance fees for exiting an unprofitable business. Such laws will reduce risk taking the mentality of entrepreneurs will, in turn, demotivate job creators in India.

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This portal will provide the single window for clearances, approval, and registration related compliances.  DIPP business registration allows companies to get registered and then be approved as eligible startups.

This portal plans to be an aggregator of all stakeholders in the Indian startup ecosystem like entrepreneurs, ventures, accelerators, venture capital funds, incubators, angel investment funds, seed capital funds and government functionaries. This portal helps startups to get the new policy or scheme updates and also apply for tax benefits that various schemes bring.

The government of India is trying to improve ease of doing business in India. Government plans to make India rank at least 50 on 189 member index within next 4 years. So, the government is concentrating on smart policing to improve business environment with such action as:

Fast issuance, power connections to industrial units and ensuring round the clock power supply.

Ease of access to land banks’ for industrial use.

Digitized land records at village or municipal levels

E-filing for commercial disputes at district courts etc.

The government is encouraging a form of competitive federalism wherein states are continuously creating a great ambience for doing business.  Gujarat and Andra Pradesh are ranked at the 1st and 2nd positions respectively, in this year’s ease of doing business.

The government wants to support startups movement through the use of digital resources to provide a business owners legal and compliance framework to do business smartly. Digital India fosters ease in doing business when it will enable grassroots information integration resulting in the faster solution for business challenges.

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