/ IBC

Reasons & Consequences of a company become struck off

1

Reasons & Consequences of a company become struck off

  • There are many ways for a company to go out of existence. One of them is having its name removed from the list of company names. This approach may be used by a business that has ceased operations and wants to have its name removed from the registrar’s records.
  • Let’s first describe striking off and liquidation before moving on to the next section of this discussion. Striking off is the phrase we use to describe when a firm is about to be struck off. In contrast, the procedure is finished at the liquidation or dissolution step. When the name is struck from the records, a company is considered liquidated.
  • A company that has been “struck off” the official Registrar of Companies (RoC) is no longer regarded by the law as a legitimate business structure. This may occur for a variety of reasons, including failing to submit necessary paperwork or pay fees to the appropriate regulating body, stopping operations, or ceasing to be active for a lengthy period of time.
  • Being struck off can have major repercussions for a business, such as losing its legal standing, having its assets seized, having its directors potentially held personally liable, having its reputation damaged, and having trouble getting back on its feet.

Reasons a company become struck off:

Striking-off-a-Company.

There are various reasons may lead a company may be struck-off, including:

  • The Company may be struck-off if it Being inactive for an extended period of time:
  • A company may be struck-off if it is found to be conducting fraudulent or illegal activities.
  • In case Company failure to submit required documentsor pay fees to the relevant regulatory agency:
  • Company may be struck-off if it Ceasing to carry on business and has no assets or liabilities,

The process for striking off a company is depending on the jurisdiction in which the company was incorporated and the particular circumstances surrounding the striking off,

Procedure will often begin with the relevant regulatory body sending a notice to the company, giving it a chance to address any problems or provide justifications for why it shouldn’t be deregistered. If the problems are not fixed, the agency may proceed with suspending the company’s operations.

It is important for Directors and shareholders of a company must be aware of their responsibilities and make sure the business complies with all applicable rules and regulations. Failure to do so may result in the company being struck off, which could have detrimental effects on the business

Ministry of Corporate Affairs plans to further intensify Crackdown on Shell Companies : 

According to the report the Ministry of Corporate Affairs is an Indian government ministry primarily concerned with administration of the Companies Act 2013,  is planning to rake up the physical verification of non-functional or non-compliant firms by the Registrar of Companies (ROC). 

Company being struck off- Various Consequences?

reason Striking-off-a-Company

A company being struck off has lots of consequences, including:

· Asset seizure: If a struck-off company has any assets, they may be taken and sold to settle any unpaid liabilities or debts. The business and its stockholders may suffer a large financial loss as a result of this.

·  Reputation damage: Being struck off can damage the reputation of a company and may make it difficult for the company to regain the trust of suppliers, customers & other stakeholders. This could significantly impair the company’s capacity to conduct business and cause a loss of revenue and profit.

· Personal liability for directors: Directors of a company that has been struck off may occasionally be held personally accountable for the company’s debts and liabilities. This is referred to as “lifting the corporate veil.” It is crucial for directors to be aware of their potential personal liabilities and to take the required precautions to safeguard their assets.

· Legal recognition Loss: A company that has been struck off is no longer allowed to run businesses or sign contracts since it is no longer recognised by the law as an authorised structure. This could have negative effects on the business operations and make it difficult for the organisation to stay in business.

· Difficulty restoring the company: Restoring a company can be difficult if it has been struck off the register. The procedure for reviving a firm that has been struck off can be challenging and may call for legal counsel. Before being reinstated, the corporation might also have to make good on any unpaid liabilities or debts, which could be a major financial strain.

Voluntary Strike Off/ Closure Services

We provide Voluntary Closure service for the companies/ LLP who have not filed Annual accounts and returns for previous financial years or since incorporation of the company/LLP or any other possible cases.

Who needs this Voluntary Strike Off/ Closure Services & who can approach us?

  • Company who has not filed Annual accounts & returns for previous financial years.
  • The Company has some pending Charge satisfaction matters and looking to close the company.
  • Company who has any pending Director Dispute matter
  • Any other matter in which the company wishes to file a closure application.

Although the process of closing a company in Delhi, India is simple, it is still advised to start the process online with the assistance of a company strike off specialist. At India Financial Consultancy Corporation Pvt Ltd, we have a team of professionals ready to help and support you at affordable company strike off fees that have excellent understanding of the private limited company closure procedure.

IBC Consultants in Delhi :

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About India Financial Consultancy Corporation Pvt Ltd.  

After growing and gaining experience in the Corporate World over a decade, now have own platform to provide Secretarial and Legal Services with the highest degree of professionalism. Our Co. aims at providing innovative and commercial solutions to corporate entities and has a network of associates in major cities around the country. Time is always the essence of our work. We firmly believe in strong work ethic culture, Few major areas of practice/service are:-

Ø  Drafting of Commercial Agreements/contracts.

Ø  Company Secretarial Services

Ø  Litigation, representation and appearances

Ø  Secretarial Audits

Ø  Legal Due diligence

Ø  Corporate Compliance Management

Ø  IBC law practice’s

Other allied and related services.

India Financial Consultancy Corporation Pvt Ltd is one of the top Company closure consultants in Delhi and offers services for Company Closure in India. With the lowest Company Closure fees, we make this task simple and cost-effective. Therefore, you can email us at Singh@caindelhiindia.com,  or call on 9555 555 480 if you’re looking for someone who can help you strike off your Company or LLP.

/ Business Set Up in India

Guide on Pvt Ltd Company Registration Process in India

company Registration

How many types of business in IndiaHow many types of business in India

Guide on Pvt Ltd Company Registration Process

  • Creating a company in India is an essential first step on your path to entrepreneurship. And establishing a company is not as simple as you would think.
  • There are procedures to follow and documents to submit, of course, but once you understand how to do them, the entire company registration process will go rather smoothly and fast. Continue reading to discover how to simply register a private limited company!

What is the Minimum needs for Company formation Process?

The four requirements for registering a private limited company in India are mentioned below before we go on to the company registration procedure in India.

Indian Registered office address in India.

  • Companies should have their RO (Registered office) in India but company have option of among residential or commercial property either of the two as a Registered Office Address

Unique business name

  • Entrepreneurs give a lot of consideration to the name of their company. But, they must ensure that it is sufficiently unique. The name must also include a suffix that defines the company’s line of business, like as MotherPride daily Fruit & Vegetable Pvt Ltd. The company deals with dairy products, vegetables & fruits just by looking at the name.

Minimum Two shareholders

  • Shareholders might be a person or Company or organization. In the case of a Company entity, a Nominated person via authorised representative is qualified to act in the capacity of a shareholder on behalf of the company.

Minimum Two directors

  • According to the Companies Act of 2013, one director must be an Indian resident who has resided there continuously for at least a year (as recently amended). One more might be a resident who is foreign or Indian.

What is list of document Checklist for company Registration?

You are finding here list of all documents of shareholders/ directors that are needed to Company register in India.

For Indian Nationals

  • Aadhar Card Copy
  • Identity of Directors & members (Passport/Driving License/ Voter ID) must be Self-Attested Proof
  • Copy of PAN card all the Directors and members must be Self-Attested.
  • Address proof which must be in the Director or shareholder name (i.e Telephone Bill/Electricity Bill/ Mobile Bill/Latest Bank A/c Statement showing name & address along with the last page of transaction with recent activities) which required be Self-Attested.
  • Photograph i.e Passport size

In case Foreign Country person

In the case of a foreign shareholder/ director, below documents must be apostilled & notarized.

  • Foreign national subscribers required to give their passport as proof of nationality
  • Photograph i.e Passport size
  • Foreign national address proof including, Bank Statement/ Driving License/electricity/utility bill which must not be older than two months

What is documents needed for Company Registered address for Office?

  • Rent Agreement copy if rented property
  • NOC Certificate from Property owner.
  • Company business proof of address (Water Bill/Gas Bill/ Electricity Bill/Telephone Bill) must not older than last two months.

Company incorporation process- Simplifying here under :

According to the Companies Act, 2013, the MCA governs the incorporation of a Private limited Company registration.  It is focused on making sure that laws and regulations adhere to company law. . MCA Registration form fees depend upon two factors i.e, Stamp Duty and Normal Form filing fees. The minimal incorporation expenses for Private Limited Firm registration are necessary because Stamp Duty varies depending on authorised capital and the state in which the company is incorporated. Rajput Jain & Associates assists business owners in establishing a private limited company in just 4 simple steps:

Pvt Ltd Company Registration Process.

The Four step process begins with the application for a DSC & filing SPICe+ forms. Now we Let’s go step by step process !

Step-1:  Applying for Directors DSC

  • All Director & shareholder of a Pvt Ltd C. required to take a DSC as per the MCA. This Digital Signature Certificate will be used on all the documents for filing the e-forms in a secured manner, as per guidance issued by “Information Technology Act”.
  • 1st step is to acquire Digital Signature Certificate to File online documents securely. Digital Signature Certificate is get from the Controller of Certification Agencies (CCA). The minimum validity is one year. But, 1 can extend the validity to two years.

All Applicant needs to furnish the following individual details for applying for DSC:

  • Photographs i.e. Passport-size
  • Aadhaar Card No
  • Mobile/Phone No.
  • E-mail Address
  • Permanent Account No

In case 1 or more shareholders or directors are foreign country nationals, they required apostilled and notarized documents will also be needed.

Step-2: Applying for Company Name Reservation (SPICe+ Part A)

  • We shall have apply some name options for company. We needed to chose best 2 to submit in MCA SPICe+ Part A form, which is normally used to reserve a unique Name of company for our new Pvt LTD Company. We should require help of professionals practising CA/ CS to fill out & file SPICe+ Part A form. In this case firstly we should go, We can pick two options of Company name.

SPICe+ Part A form has the mention following option’s:

  • Type of Company:We needed to Select ‘Pvt Ltd Co.’ from various kind of company structures listed down in the MCA form. Other type of business structures include Section 8 Company, IFSC Company, Producer Company, Nidhi Company, Unlimited Company etc.
  • Class of Company:This section key significant whether a company is private, public, or one person company. We have to choose ‘private’.
  • Category of Company:Select if you’d want the company to be limited by shares, by guarantee or have unlimited shares. Important popular is to keep the limited by shares company.
  • Sub-category of Company: select the sub-category applicable with help of CA / CS practising professional.
  • Industrial Activity main division:what industry will we be operating in? Ministry of Corporate Affairs has designated distinguishing codes to the main divisions. Select one that fits for our company business with help of CA or CS Practising professional.
  • Main division Description: This is where we can clarify our Company business idea, & specify main purpose of services or products that we are going to offer to our client in a detailed manner.
  • Proposed Company name:We can propose two names so which we like to keep as our name of company.

And done! After filed, Ministry of Corporate Affairs will take two or three days to get approve SPICe+ Part A form. In case initial names get questioned or rejected, We will get a 2nd chance to submit for two more name of company options of our liking.

In case all your 4 name choices get rejected, you will need to file the SPICe+ Part A form all over again. Pro Tip: Come up with very unique brand name choices & check company name availability beforehand. Before filing the form, we should check if a company with a similar name is already registered or not on the Ministry of Corporate Affairs portal.

After names of Company approved by Ministry of Corporate Affairs, SPICe+ Part B form will be made available to you to furthermore with our company registration process.

Step-3: Submit details for the Proposed Company (SPICe+ Part B)

SPICe+ Part B form is where you fill in the key details about business & Company. We needed to make sure all details are provided to practising professional CA / CS correctly. SPICe+ Part B required to be filed in eight parts:

  • Capital Details:
  • Registered Office Address:
  • Subscriber and Directors’ details:
  • Stamp Duty:
  • TAN & PAN Application:
  • Require Attachments: like a utility bill, identity & residential address proof of the 1st director & shareholder, director consent & No Objection Certificate from owner of the registered address etc.
  • Necessary declaration: DSC to declare that we follow guidelines of the Companies Act 2013.
  • Required declaration & Certificate by Professional: Lastly SPICe+ Part B form, the CA, CS, or CMA practicing professionals helping us out with company formation registration process will be needed to give their DSC.

Step 4: Drafting and filing of MCA Registration Form

  • An Registration Form will be drafted & filed as per the significant clauses of SPICe+ Memorandum of Association(MOA) by the CA in practicing. Let’s understand clauses quickly & briefly.

SPICe+ Memorandum of Association (MOA):

  • Company Name clause: we required to disclose pic company name & use of word “Pvt/ Private Limited” after Name of company.
  • The Company Capital clause: Company authorized capital & share capital of company is required to be disclose.
  • Liability clause: Under the liability clause determines that Company shareholder member’s liability is limited by shares.
  • Company Subscriber clause: We required to state details of the first subscribed/shareholder & No of subscribed shares.
  • Registered office clause: Under Registered office clause identifies Indian state where we have to company registered.
  • Company Object clause: This is an important company clause as you required to mention main object- that is we idea to deal with the Company business activities.

After above clause is added, Proposed subscribers of company & CA/ CS professionals affix the Digital Signature Certificate to submit with the Ministry of Corporate Affairs for approval.

SPICe+ Articles of Association (AOA):

Then comes the SPICe+ AOA (Articles of Association)

SPICe+ AOA give below information correctly to be submitted in the Table F of the company:

  • Clause 1: The interpretation of your company
  • Clause 60: Mention the company details
  • Company Name is auto filled

SPICe+ AOA ROC form also state responsibility & power of the management decisions, director, dividend policy, transfer of shares & many other significant information related to structure of company.

Similar as Memorandum of Association, the CA/ CS professionals affix their own Digital Signature Certificate as well as Companies director’s Digital Signature Certificate to file  with Ministry of Corporate Affairs for approval.

AGILE-PRO-S

  • AGILE-PRO-S form is also significant phase in the formation of a company process.It must be provided in order to register a GST number, EPFO (Employees Provident Fund Organization) credentials, and ESIC information (Employee State Insurance Corporation). You must also inform the bank account and shop and establishment licence, depending on the state where your company is registered. All the above can be done with a professional’s help.
  • After completion of above ROC forms,INC-9 will be issue automatically as a declaration of ROC form
  • Finally, After above process is done, ROC Challan is to be paid along with ROC Stamp duty & Govt Charges. If there are no objection or rejected generated by ROC, MCA issue Certificate of Incorporation (COI).

Certificate of Incorporation

Guide on Pvt Ltd Company Registration Process

  • The MCA issues the Certificate of Incorporation after carefully verifying your application and the accompanying paperwork.
  • When the company’s incorporation date, Company Identification Number (CIN), PAN, and TAN are mentioned along with the Registrar’s signature and seal, it is irrefutable evidence of the company’s existence. Furthermore, directors are given DINs upon registration approval.
  • The Certificate of Incorporation  mention CIN receipt acts as adequate evidence of your company’s legitimacy & you are now free to engage in the commercial activity you had planned.

PAN AND TAN after co incorporation

Post Registration Compliances

Post Registration Compliances

Compliances are one of the things that need to be done once the firm is incorporated so that business owners can concentrate on their key functions. Furthermore, it assists companies in establishing a proper structure that outlines the responsibilities of shareholders and directors. Read more about how Rajput Jain and Associates’ professionals and subject matter experts assist new businesses with managing post-registration compliances.

This effectively summarises the company registration process. We hope that by now you have a better understanding of how to set up a private limited company in India and are prepared to start your own company. You can submit a query using the form below if you need more clarification or assistance. We would be delighted to participate in your innovative project.

/ Company Law Compliances

MCA notifies Companies on Dematerialisation Compliance

Dematerialisation of shares mandatory:

dematerialisation-of-shares-

  • Every unlisted public company must issue all of its securities in dematerialized form in accordance with the provisions of the Depositories Act of 1996 and the rules promulgated thereunder, as stated in the aforementioned new Rule 9A, and must also take all other necessary steps to facilitate the dematerialization of all of its existing securities.
  • Compulsory dematerialization should only apply to large Company, such as those with more than 10,000 shareholders and more than 300 share transfers each month. In other cases, dematerialization should be at the company’s discretion.
  • All unlisted public companies must only issue securities in dematerialized form, and they must assist the dematerialization of all of their existing securities, according to a notification from the Ministry of Corporate Affairs (MCA) dated September 10, 2018. The notification will go into effect on October 2, 2018.
  • All unlisted public companies are required to get an International Security Identification Number (ISIN) through a Registrar and Transfer Agent (RTA) and to notify all of their current security holders of this facility.
  • After that, security holders must apply to the depository participant in order to dematerialize their existing securities.
  • Every public unlisted company will need to comply with the aforementioned announcement of September 10, 2018 & designate a Registrar & Share Transfer Agent (RTA).
  • MCA (Ministry of Corporate Affairs) has notified (Notification dated 10th Sept 2018 Govt of India) Amendment to the Companies (Prospectus and Allotment of Securities) Rules, 2014 making it mandatory for every Unlisted Publicly held Company to facilitate dematerialization of all its existing securities. Every unlisted public company making any offer for issue of any securities or buyback of securities or issue of bonus shares or rights offer shall ensure that before making such offer, entire holding of securities of its promoters, key managerial persons & directors has been dematerialized. Transfer of securities on or after 2nd October 2018 shall be effected only if such securities are dematerialized before the transfer.

Important MCA Update !!

A big change, now in case of private limited companies (other than small ), dematerialization of securities is mandatory.

dematerialization of securities

Can a private company transfer shares in physical form?

  • A share certificate serves as an a prima facie evidence of the title of the ownership of the company shares. The shares are transferrable and movable property. Physical or Demat shares of a company are both allowed.
  • Shareholders must first dematerialize their shares if they want to transfer them. Previously, the notification was applicable to all Unlisted Public Companies without any class of such companies receiving an exception. But, in response to stakeholder requests, the Ministry of Corporate Affairs issued a notification on January 22nd, 2019 that following classes of unlisted public companies from dematerializing their shares are exempted.
  • Notification Link :

Benefit of Dematerialisation 

Dematerialisation of shares benefit

  • Ease in Mergers and Consolidation of Companies
  • Preventing malpractices
  • Nomination Facility
  • Loan against securities which are held in a DEMAT by offering it as a collateral to the lender
  • Improving the corporate governance system
  • Ease in Transfer, Pledge, etc.
  • Elimination of risks associated with physical certificate
  • Reduce the risk of duplication, fraud, loss or theft, delays in respect of securities held in physical share certificates.
  • Exemption from payment of stamp duty on transfer

The Ministry of Corporate Affairs vide its notification dated May 22, 2019 compulsory all the unlisted public companies to file a half yearly return in form PAS-6 to the concerned ROC within sixty days from the conclusion of each half year. This notification was applicable with effect from Sept. 30, 2019. But Ministry of Corporate Affairs has recently deployed the aforesaid form PAS-6 for filing on its portal in the month of July 2020. The details such as ISIN, number of shares held in physical form and demat form, number of shares held by its directors, promoters, KMP, reason for not keeping the securities in demat form, if applicable etc. are required to be provided in the said form.

This notification state that no invitation or offer of any share or securities under below mention rule will be made to a Company incorporated in, or The nine neighbouring countries of India are – Afghanistan, Bangladesh, Bhutan, China, Maldives, Myanmar, Nepal, Pakistan, and Sri Lanka. which shares a land border with India, unless such Company or the Country, as the case may be, have obtained Govt approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 & attached the same with the private placement offer cum application letter.

Moreover, as per Ministry of Corporate Affairs Notification Dated 23 May 2019 companies have to file ROC – Form PAS-6 Half Yearly audit report on share capital reconciliation. It is also required for Unlisted Public Companies to submit audit report half yearly as per regulation 55A of the SEBI (Depositories and Participants) Regulations, 1996 to the registrar under whose jurisdiction the registered office of the company is situated.

Every company whether public limited or private limited excluding one person company and small company file MGT-7 may insert the details of the ISIN of the equity shares of the company.

ROC Form PAS-6 required to be file -Reconciliation of Share Capital Audit Report a half-yearly basis:

  • The ROC Form PAS-6 is used for reconciliation of the share capital audit report on the half –year basis.

ROC Form PAS-6 Applicability in the below mention situations :

  • Applicable with effect from July 15, 2020.
  • Unlisted Public Companies.
  • Form PAS-6 is a half yearly audit report on reconciliation of share capital which is to be signed by a PCA/ PCS(Practicing CS/ CA).
  • All information shall be furnished within 60 days from the end of each half year (30th September/31st March) for each ISIN separately.
  • Company must bring to notice of depositories any difference finding in its the capital held in dematerialised form & issued capital.

Main information & Details required in filling of the ROC Form PAS-6:

  • ISIN(International Securities Identification Number)
  • Period for which return is filling.
  • Details of capital of the Company.

a Issued Capital

b Held in Demarialised Form in CSDL

c Held in Demarialised Form in NSDL

d Held in Physical Form e

e Total No. of Share (b)+(c)+(d)

  • Reasons for difference if any in (a) and (e) Details of changes in Share Capital during the half –year under due to any:
    • Amalgamation
    • Private Placement
    • ESOPs
    • Right Issue
    • Bonus Issue Advertisement
    • Conversion
    • Buy Back
    • Capital Reduction

Just wanted to apprise you of the recent MCA notification for Private Limited Companies and it is very important for companies to comply with the notification of MCA to avoid penalties and other compliances issues.

MCA notification in brief Dematerialized of Security : 

·         Every Private Company other than a small company as on 31st March 2023 shall issue the securities only in Dematerialized Form

·         All such companies to comply with the MCA notification by 30th September 2024

·         Companies intending for Bonus, Buyback, ESOP, Rights shall ensure that before making such offer, the entire holding of securities of its promoters, directors, key managerial personnel has been dematerialized in accordance with provisions of the Depositories Act 1996 and regulations made there under

·         Transfer, Purchase and Sell of shares can only happen in dematerialize form

Definition of non-small private limited companies?

·         Companies whose paid-up capital is Rs. 4 Crores & above

·         Turnover for immediate preceding financial year is Rs. 40 Crores & above

The above notification is not applicable to

·         Nidhi Companies

·         Small private limited companies

·         Govt Companies

·         Wholly owned subsidiaries of Public companies

We at India Financial Consultancy Corporation Pvt Ltd are assisting all such non-small private limited companies to comply with the MCA notifications by handholding the companies in:

·         Acquiring the ISIN number from Depositories of India

·         Guidance for demat of your securities

·         Maintaining your shareholder database in electronic mode

·         Managing transfer, purchase, sell of securities in electronic mode

·         Offers of your company – Rigts, Bonus, ESOP all in electronic mode

·         Capital restructuring

·         Providing weekly Benpos

·         Handling your IPO as and when you are IPO ready

/ Company Law Compliances

Post incorporation compliance checklist for Pvt Ltd Co.

Post incorporation compliance checklist for Pvt Ltd company

Post incorporation compliance checklist

  • Nowadays, Registration for a company becomes easy However the compliance checklist does not get over here. rather it implies greater responsibilities to comply with certain provisions.. Once a business get registered what are the further steps involved in it.
  • Companies Act, 2013 not only regulates the online registration process of a company but also regulates the registration process of the company.
  • Once a business gets Indian the certificate of incorporation the private company can immediately start its business. These steps should be consider before handling the commercial activities such as opening of bank account for ensuring all transactions via banking channels.
  • Through this article you will get to know about the post incorporation checklist, which is mandatory even if your private limited company is successfully registered. And if you have not registered your company then you will get to know the mandatory steps immediately after company registration.

Post incorporation Compliance

Opening of Bank Account.

  • The 1st Step is to open a Bank Account in the name of the company within the period of 30 days after getting registered to route all the commercial transactions of the company. In order to open a bank account one should submit the certificate of incorporation and Permanent Account Number along with the documents required according to the policy of Bank.

Issue shares of the company and deposit capital

  • The company may issue the certificate to its subscribers within the period of 60 days after taking online registration. Further, the paid-up capital as mentioned in the memorandum of the company at the time of registration should be deposited by the subscriber of the company in the account of the company before the given time.

Post incorporation compliance

Appointment a statutory auditor

  • The BOD can appoint a CA of the company U/s 139 within the during the period of 30 days from the date of incorporation. The Company auditor gets statutory appointed here will be known as the First Auditor whose term of audit will be limited to the conclusion of first AGM.

Intimation of the Address of the registered office

  • In case company fails to provide the registered office address of the company at the time of registration, the company should intimate the same to the ROC. The intimation of the address should be files within 30 days from the registration of the company and also in ROC e-Form INC-22.

Other compliance and registrations

  • Apart from online private limited company registration, few necessary registrations include the tax registrations based on the company size and activities registered. Such registrations are:
  • Apart from the company registration as a private limited company, there are other important registrations include the tax registrations based on the size of the company and activities registered.
    • Shop & Establishment license under the Shop Act
    • GST Registration, if required
    • Profession Tax Registration
    • PF and ESI, if applicable
    • Obtain Importer – Exporter Code
    • Any other activity specific registrations

Registration of Intellectual Property

  • The intellectual properties like as brand name or patent must be protected in this era of duplication and infringement. There should not be given any opportunity to the competitor or any third person that can affect your market share and brand value in a negative manner.  The logo and the brand name must be registered to give the legal protection under the Act of Trade Marks. As per the need the patent and application of registration shall be made in a manner and is equally important.

Drafting company documents

  • Standardised policies and procedures helps the company in the growth since commencement. As per the operational need, the company should set up the policies and enter into certain agreements. The agreements like Non-disclosure agreement, Shareholders and the terms and condition for the use of website etc, are the concerned agreements for any entity. The mostly preferred agreements are shareholders agreements or co-founder agreements for the purpose of making the role and responsibility of the co-founder clear for the company.

Exhibition of the name of the Company.

  • Since the company name is exhibited it will add Private Limited or One Person limited as it forms the part in the name of the company. The company should show its name by affixing a boars or painting at the registered office of the company or may be the place from where the company operates its business. The name of the company, address of registered office, Corporate Identification Number, Telephone Number, e-mail should be mentioned at the website of the company.

Corporate Stationery:

  • The corporate stationery like business letterheads, letter papers, bill, letter heads etc. must include the company name with the Corporate Identification Number, Contact number, web address and email. The details must be added in the notice or official publications of the company.

Declaration of Directors interest in the company

  • At the time of online registration the directors interest in other company should be intimated to the Registrar of Company. The director must disclose/declare their interest in other business entity in the first AGM held within the period of 30 days. It is the responsibility of the company to maintain a registration Form- MBP – 1 to keep the same in the records. The disclosure should be made during the financial year and if there is any change in the interest of directors.

Keeping Statutory Registers and Records:

  • According to the company act, 2013 every company shall keep the registers and records at the registered office of the company. The registers should include the register of debenture or security holders, register of directors disclosure and the register of member etc. Also, the Memorandum of Association and Article of Association should be maintained at the ROC.
  • Also, the company should prepare and keep its books of accounts in the given format at the ROC. Some registrars and documents have to be open for inspection by the third person.

Maintaining Accounts and Book-keeping:

  • As mentioned above, the company should maintain the books of accounts. The accounts of the company must be prepared in the format as may be prescribed in Schedule III of the Companies Act, 2013. Further, the accounting standards of the company should be complied with.
  • The accounting shall start since the incorporation of the company and all the preliminary expenses, like incorporation expenses must be recorded properly.

Other important provisions:

  • Aside from compliances on annual interval, there are event based compliance should be followed. Following is the general list of events arises when need of intimation or approval of Registrar of Company arises during the working of business. List include;
  • Change in registered office
  • Change in statutory auditor of the company
  • Further issue of capital such as increase in capital
  • Change of Object
  • Change in Member of Board
  • Alteration in Memorandum of Association or Change in Article of Association clause
  • It is mandatory not to violate any of the below provision as per the structure of the company or the object.
  • Approval of shareholders is required in case transfer of shareholders to any person other than the existing member
  • Issue of securities to third party or public at large is not allowed
  • Number of member should be up-to 200
  • Further, not allowed to carry on any activity other than prescribed in object clause of Memorandum of Association.

Maintaining of the Statutory Registers & Records by the Company

Statutory Books:- The term statutory register means the specified records related to a directors, companies shareholders & details of the meeting held. These are the additional records which are maintained by the company. Mostly companies keep their records and statutory records in a bound book or loose-leaf binder but the company is liable to keep the records in any form such as computer record.

Conclusion

  • The Indian government makes it quick and easy to register a company, but it is also essential for the person to adhere to the registration’s strict requirements. To avoid penalties, the organisation must adhere to the compliance. As a consequence, after the company registers, it must be aware of the next procedure. A professional is necessary whenever there are any alterations to the organisational structure of the business. In order to ensure that there is no chance of being non-compliant in any form. A specialist on retainer will be more advantageous for small businesses than recruiting full-time staff.

 

/ Uncategorized

All about the OPC Registration Procedure in India

One person Company and its registration process

OPC

One person company was introduced by the company’s Act 2013. There is a requirement of a minimum number of Two members and Two directors in a private company as well as a minimum No of 3 directors along with Seven members in a public company. Earlier a company cannot be register by a single person only.

Such companies are generally formed by a single person. Companies Act, 2013 gives power to a person to establish one person company.  An individual cannot establish his/her business before the commencement of section 2(62) under Companies Act, 2013. If he/she wants to set a new business, he has to opt for sole proprietor which needs minimum number of 2 director and 2 members for establishing a company.

According to Section 2(62), only one member and one director can registered a company.  Private company has more compliance requirements than that of a one person company.

an individual can start a business with just one member and one director according to the Companies Act of 2013. It is possible for the director and member to be the same individual. As a consequence, a one-person company means that one person, whether a resident or an NRI, can organise a business that has the qualities of a company but the potential benefits of a sole proprietorship.

What is OPC Registration Process?

What is OPC Registration Process?

Step 1: Apply for Digital Signature Certificate (DSC)

Firstly, digital signature certificate of the proposed director is needed with following documents:

  • Photo
  • Email id
  • Proof of address
  • Adhaar card
  • PAN card
  • Phone number

Step 2: Apply for Director Identification Number (DIN)

After taking the Digital Signature Certificate (DSC) from the proposed director next step is to apply for (DIN) in the space attached with the name and address proof of the director. Only existing companies have the option to file Form DIR-3 which means Form DIR-3 need not be filled separately from January 2018. Also, DIN can be applied within SPICe form for up to 3 directors.

Step3: Application for the ROC approval for OPC Name

  • Deciding the name of the company is a relevant and second step while incorporating an OPC. Formation of the name will be in the form of ‘’XYZ (OPC) Private Limited’.
  • The name of the company gets approval in the Form SPICEe+ 32 also the significance of keeping that name can be given in the Form SPICe+ 32 application.
  • After getting the approval from MCA go-ahead for the next upcoming step.

Step 4: Requirement of documents for OPC incorporation

  • Preparation of the following documents is mandatory as they need to be submitted to the ROC:
  • MOA is essentially required as an object to be followed by company or it will state the business for which the company is going to be incorporated.
  • AOA will direct the company for conducting lawful operation.
  • A nominee will be required to perform the duty of the member as there is only one director and a member and in case if the director and member will die or become incapable to perform his duty than the nominee will take his place. His consent will be taken with pan card and adhar card in Form INC- 3.
  • Proof of the registered office of the company is required with the proof of ownership also a NOC from the owner.
  • Also the declaration and consent with of the proposed Director OF Form INC-9 along with DIR-2.
  • A declaration certificate is required from the professional that all compliances have ben made.

Step 5 : Filing of OPC incorporation Forms With ROC

All the above documents need to attach with the SPICe Form, SPICE-MOA with DSC of the director and the professional after this upload it to the MCA site for approval.It will automatically generate the Pan number and Tan number while incorporating the company, as a  result, no need of filling out a separate application for obtaining the PAN number and Tan number.

Step 6: Finally Issue of the OPC Certificate of Incorporation

On verification, the ROC will issue a Certificate of Incorporation and we can commence our business.

Checklist for One Person Company Registration

  • One member is required (Minimum & Maximum 1 Directors)
  • Appointment of a nominee before incorporation
  • Obtain consent of nominee in Form INC-3
  • Selection of the company have to be done according to the provisions of the Companies (Incorporation Rules)2014
  • DSC of the proposed director
  • Proof of registered of the One Person Company

Time limit for One Person Company Registration

  • There is a limited time of one day for obtaining the Digital signature & Director identification No of proposed directors. Also there is a time limit of 3 to 5 days for obtaining the certificate of Incorporation of an One Person Company. The entire process will take time of Ten days subject to departmental approval & revert from the respective dept.

Benefits of one person company

benifit of One Person Company Registration

Legal status 

  • One person company has a status of separate legal entity from the member. A single individual who has incorporated it gets protection from a separate legal entity. The member is not personally liable for eh loss as he/she is limited by liability. Therefore, only One person company can be sued by the creditors and not the director or member.

Easy to get/acquire funds

  • As we know One person company is a private company, so it is simple for it to collect funds via capitals, incubators, angel investors etc. A company gets more preference from Banks & financial institutions for loans rather than a proprietorship firm. Hence, OPC becomes easy to collect funds.

Less compliances

  • The OPC gets certain exemptions from the Companies Act, 2013 in relation to compliances. There is no obligation on OPC to prepare the cash flow statement. Director of the company signs books of accounts and annual returns it cannot be signed by Company secretary.

Easy incorporation

  • There is a requirement of only one member along with one nominee for the incorporation of OPC. The director can be from a member. Rs 1 lakh is required as minimum authorized capital but there is no requirement of minimum paid-up capital. However, it becomes easy to incorporate as compared of other firms.

Easy to conduct/ Mange

  • One person company can be established and ruined by a single person, in result managing its affairs becomes easy. Decision making become easy and its procedure becomes quick. Member has the right to pass ordinary and special resolution by entering them into the minute book and it can be duly signed by the sole member. Hence it becomes easy to run and manage the company without any conflict or delay.

Perpetual succession

  • There is only one member in One person company still it has the feature of perpetual succession. A nominee has been appointed by a single member in the incorporation of OPC. After the death of the member, the nominee will run the company in the place of the member.

Drawbacks of One person company

Suitable for only small business 

  • Small business structures can opt for OPC. The OPC can only have one member at all times. It cannot include more members or shareholders in OPC to raise further capital. Thus, more members cannot be included in OPC for the purpose of growth and expansion of business.

Business activities can be restricted

  • Non- Banking Financial or Investment activities along with investments in securities of any body corporate cannot be carried by One person company. As per Section 8 of the companies Act, 2013 One-person company cannot convert itself into a company with charitable objects.

Management and Ownership

  • There is no difference between management & ownership as the sole member can also become the director of the company. Decisions can be taken or approved by the sole member. Also, there is a thin line between ownership and control which might result in unethical business practices.

FAQ on One Person Company Registration

FAQ on One Person Company Registration

Q.: Who has the eligibility to hold the position of member in One Person Company?

Ans.: A person who is an Indian citizen and also a resident in India has the eligibility to act as a member and nominee of an OPC. Here, a person is known as a resident of India if stayed in India for a period of not less than one hundred and eighty two days during the immediately preceding one financial year.

Q.: Can a person be a member of more than 1 One person company ?

Ans.: No, a person cannot become a member of more than 1 One person company at a time

Q.: Is there any tax benefit on incorporation of an One person company?

Ans.: No, does not provide any specific tax benefit to an One person company over any other form of company. Also there is a flat tax rate of 30% , other tax provisions like MAT & DDT apply as they apply to any other form of company.

Q.: Is there any threshold limits for an One person company  to compulsory get converted into either a private or public company?

Ans.: No, there is no mandatory conversion of One person company is needed upon meeting the criteria of exceeding the minimum paid-up capital and average annual turnover as it was removed from the companies (Incorporation) Amendment Rules, 2021. As a result, now, One person company needs no conversion into either a public or private company upon an increase in its paid-up capital and average annual turnover.

Q.: What is the compulsory applicable compliance that an One person company needs to observe?

Ans.: The basic compulsory One person company compliance comprises as mention below :

  • There has to be one board meeting held in each half of the calendar year & there has to be a time gap of not less than 90 days between the two Board Meetings.
  • Proper books of accounts need to maintain every year
  • Financial statements required to get audited.
  • Income tax return of business needs to file every year before 30th September
  • Financial statements required to file in Form AOC-4 and ROC Annual return in Form MGT 7.

Q.: Who are not eligible form an One person company?

Ans.: Following are not eligible form a One-person company.

  • A minor
  • A foreign citizen
  • Non-resident
  • A person who is incapable by the contract is not eligible to become a member cannot for an One person company.
/ Business Registration Services

How to choose a business structure in India?

How to choose a business structure in India?

How to choose a business structure in India?

  • When starting a business the first step to incorporating a company is to satisfy all legal regulations and ensure compliance with the legal requirements to make the Firm function safely.
  • A Business model is a conceptual structure. It involves purpose goals to achieve long-term goals and planning for smooth functioning of the organization. The business model describes an entity how achieves its goals.
  • A Registration is the first step that gives an organization the legal power to conduct business. There is a requirement to fill the compliance with a set of regulations under company’s Act 2013.
  • The primary method to conduct a company is Company incorporation which is to be done by the owner of the company. Various types of companies can be established in India under the Companies Act 2013.

1. What is sole proprietorship?

business structure in India

A sole proprietorship is a business that is incorporated by a single person. A sole proprietor is who is responsible for paying its debts. A sole proprietor can operate the business under its own name or has the power to do the business under any fictitious name like Ram Enterprises.

What are the advantages of a sole proprietorship?

  • The establishment of a sole proprietorship is instant, easy, and inexpensive for the owner of the entity.
  • There are a few if any, ongoing formalities for a sole proprietorship.
  • Sole proprietorship is a popular business because it is very simple, easy to set up and has a nominal cost.
  • It is very easy for the owner after registration of his/her name to get GST, and local licenses for business.
  • There is no need to pay unemployment tax on the behalf of the owner’s name. He/she can pay the tax on behalf of employees.
  • Business of a sole proprietor runs into financial trouble. The creditors have the right to file suit against the business owner. If these suits succeed then the owner is personally liable to pay the debts.
  • Because the entity has its own legal entity the owner of the sole proprietorship can sign the contract in his/her name .
  • Owner of the sole proprietorship has its own bank account .

Following are the disadvantages of a sole proprietorship business:

  • Owner of a sole proprietorship is subject to unlimited personal liability for the debts, losses, and liabilities of the business.
  • The owner of the sole proprietorship is personally liable for all the business debts.
  • Owner of the business is not liable to sell the interest for the purpose of raising capital.
  • A Sole proprietorship cannot survive if the owner of the business died or become incapable of doing work.
  • sole proprietor can file a suit against another party if wronged by them. Similary, if a Company can file a suit against under the name of the company if wronged

The formation of a sole proprietorship is simple and easy for the sole proprietor. It includes buying and selling of goods or services. It is not required to do formal filing in the formation of a sole proprietorship.

Because a sole proprietorship is indistinguishable from its owner, its taxation is straightforward. A sole proprietorship’s income is the income earned by its owner. According to the nature of the firm, a sole proprietor’s income reports the sole proprietorship income, losses, and expenses by filling out and completing an appropriate ITR in India.

2. Define One Person Company

One Person Company

A one-person company is a company that has only one member. One Person Corporation (OPC) is a firm with only one shareholder as its member since members are recognized as the company’s shareholders or subscribers to its MOA. When a company has only one founder or promoter, an OPC is founded. Because of the various benefits that OPCs provide, entrepreneurs who are just starting their enterprises prefer to form OPCs over sole proprietorships.

OPC was introduced in India on 31 March 2005 and was implemented under the companies Act 2013 for the benefit of the entrepreneurs. Before this many countries like China, Singapore, France, and the USA had already prevailed and ruined the concept of OPC. A person who is an Indian citizen and resident in India can incorporate an OPC or be the nominee for the sole member of an OPC. The minor person is not eligible to become a nominee of the OPC and cannot share the beneficial interest. The minimum paid up capital of OPC shall be INR 1 lakh.

Any person who is not a minor irrespective of the fact that he is an Indian citizen or not an Indian citizen i.e., the NRI can enter the One Person Company and appoint a nominee on his behalf. The timeline for India’s non residents has been shortened to 120 days.

What are the features of a one person company?

The general features of a One-Person Company are as follows.

  • Private Company :- As per section 3(1)© of the Companies Act,2013 a single person can form a company for any purpose recognized by the law. OPCs are also known as private company.
  • No Minimum Paid-up Share Capital : The Companies Act of 2013 does not mandate any minimum paid-up share capital for OPCs.
  • Single- Member:- One-Person Company’s are liable to have only one shareholder or one member.
  • Nominee:- During the company’s registration, the company’s only member nominates a nominee. This is a property that distinguishes OPCs from all other forms of businesses.
  • Special Privileges : OPCs are subject to certain benefits and exemptions under the Companies Act that other forms of businesses are not. The following are some of them:
  • No Perpetual Succession:- After the death of the only member of the company a nominee can become the sole member of the company or he may reject to become the member of the company. other companies followed perpetual succession.
  • Minimum One Director : The director of One-Person Company’s must be at least one person, which in this case is the member. A maximum of 15 directors are allowed.

Advantage or Exemptions Provided to an OPC

Certain benefits and exemptions are available to One-Person Company’s that are not available to other forms of businesses. Such exemptions are as follows

  • An OPC is not required to prepare a Cash Flow Statement as part of its financial statement.
  • An Annual General Meeting is not required of an OPC.
  • They do not have to include cash flow statements in their financial statements.
  • OPCs are exempt from provisions relating to independent directors.
  • When compared to other companies, directors can earn greater money.
  • In the event of an OPC, the Annual Returns must be signed by the Company Secretary or, if there is no company secretary, by the company’s director. The yearly returns could be signed by the directors as well; a company secretary is not required.

Restriction and terms imposed of OPC

An One-Person Company is provided with certain restrictions and conditions. One-Person Company has imposed the following restrictions and terms:

  • No one natural person can have more than one OPC.
  • Any natural person under the age of majority is ineligible to become a member or nominee of an OPC.
  • OPC cannot be turned into a non-profit corporation, and it cannot engage in non-banking financial investment activities.
  • NRIs are not permitted to form a one-person company.

Criticisms of OPC:

The success of One-Person Company’s concept is in doubt for the following reasons:

  • Currently, sole proprietors can raise cash and reserves from their relatives/friends or others, whereas an OPC, as a private limited company, is not permitted to do so.
  • There are a few existing proprietors in India who do not want to follow the OPC concept because they desire to do business in their own traditional manner and because they are concerned about legal compliance.

There are a few existing proprietors in India who do not want to follow the OPC concept because they prefer to do business in their own traditional manner and because they are concerned about legal compliance.

It is absurd to expect financial firms to provide funds to OPC. Currently, financial institutions require guarantees and various security before extending credit to small business owners. The risk factor for financial institutions has increased since the One-Person Company now allows the same individual proprietors to claim limited liability.

/ IBC

Basic of Personal Guarantors Insolvency under IBC

Concept of Personal Guarantors (Promoter) under IBC 

Personal Guarantors

  • The concept of ‘guarantee’ as defined in the Indian Contracts Act, 1872 refers to an agreement of assurance made among the debtor, guarantor and creditor. If the debtor fails to repay the debt to the creditor, the burden falls on the guarantor to pay the amount and failing to do which the creditor reserves the right to begin insolvency proceedings against the personal guarantor.
  • We can say that, a principal debtor has gone into liquidation would absolve the guarantors of their liability.
  • Following a review of the aforementioned components of the case at hand, we can safely conclude that the IBC has a wide range of extensive reach, and the fact that the Promoter is a personal guarantor means that, due to the nature of the guarantee contract and the Promoter’s relationship to the Company, insolvency proceedings can be initiated against the Promoter in the event of any debt default.

Legal Position under Personal Guarantors (Promoter) under IBC 

Is Insolvency Act a Game Changer? : an Opinions.

  • A promoter is someone who has substantial amount over the company’s operations. It should also be noted that a promoter is a separate legal entity from the Company. The question remains, however, whether; the Promoter can be held liable separately for the IBC Acts of the Company.
  • While holding a promoter personally liable to a third-party in the case of D.R Patel v. A.S Dimellow, the Hon’ble Madhya Pradesh High Court relied on the sayings of D.M Ghosh, who stated that “a promoter is personally liable to third parties, unless such Company takes over their liability with their consent.” To appreciate the relationship between the aforementioned and the Supreme Court ruling in question, we must first understand the concept of Personal Guarantee.
  • the IBC envisages to provide a ‘Clean Slate’ to the Corporate Debtor, But, such a luxury is not afforded to the Promoter as his relationship is one defining the eventual state of Corporate Debtor. In addition, aforesaid is via to be in perfect alignment with inherent object of the IBC Code i.e., maximisation of the value of assets & promotion of entrepreneurship.
  • Creditors now have the option to file for insolvency against the promoter, saving the company from going into liquidation in several cases.
  • This choice was made to provide banks and financial organisations a prominent and powerful position, enabling them to avoid bearing the brunt of losses to a degree. But one concern that may arise amid the celebration of the ruling is the possibility of banks & financial institutions abusing their control over debt recovery.
  • Banks must use these provisions cautiously so that small corporate entities do not face undue hardships, as this decision may have an impact on their risk-taking capacity, causing them to reconsider contacting financial institutions. However, it is fair to conclude that the Supreme Court’s decision was based on strong legal principles and a critical evaluation of the IBC’s scale and scope.

Insolvency Resolution Process for Personal Guarantors

Insolvency Resolution Process for Personal Guarantors

Ruling under Lalit Kumar Lain v. Union of India

The Hon’ble Supreme Court of India upheld the Insolvency & bankruptcy (Appeal to governing and decision making authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 (Rules) informed by Govt of India dated 15 November 2019 as per the Supreme Court judgement in the matter of Lalit Kumar Lain v. Union of India, 2021, case number 396.

The IBC (Appeal to governing and decision making authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019, inter alia notified Section 2(e) of the IBC, 2016. The Code in relation to personal guarantors to corporate debtors, who were recognized as separate category of individuals in the IBC Amendment Act 2018, The IBC  Amendment Act 2018 established three different categories of persons:

  1. Partnership firms & Proprietorship firms
  2. Personal guarantors to corporate debtors.
  • Individuals, with the goal of treating each one differently under the Code.

Part III of the Insolvency & bankruptcy Code was made separately applicable to personal guarantors of corporate creditors in the 2019 Rules. As a result, a creditor could file a corporate insolvency resolution process (CIRP) petition before the Debt Recovery Tribunal against personal guarantors to corporate debtors.

Furthermore, under the amended Section 60 of the Insolvency & bankruptcy Code (as amended by (Second Amendment) Act, 2018, effective June 6, 2018), if corporate insolvency resolution process is initiated against a corporate debtor before the NCLT, any recovery proceedings initiated against personal guarantors to corporate debtors undergoing CIRP in any Court or Tribunal would be transferred to the National Company Law Tribunal, and any further activities set out to be initiated to oppose personal guarantors to corporate debtors must be look out before the National Company Law Tribunal.

The Petitioners -Lalit Kumar challenged the 2019 Rules primarily on the grounds that:       

  1. The Govt of India has exceeded the power conferred to it U/s 1(3) of the Insolvency & bankruptcy Code by modifying Code provisions & creating them selectively applicable to a specific group of people, which it was not authorised to do.
  2. Initiating proceedings against both the personal guarantor to a corporate debtor and the corporate debtor would constitute “double recovery,” which is prohibited by the Insolvency Resolution Process Code.

If a resolution plan extinguishes a corporate debtors existing debts, the personal guarantors liability to corporate debtors, which is co-extensive U/s 128 of the Indian Contract Act, 1872, must also stand extinguished.

The Hon’ble SC, rejected the petitioners arguments and upheld the Insolvency & bankruptcy Code 2019 Rules on the grounds that:

  1. The Central Govt planned a stage-by-stage implementation of the IBC code while keeping in mind the purpose & object, which is allowable in law.
  2. When a debt is discharged by operation of law, the personal guarantor’s liability remains independent from the corporate debtor’s liability. The Hon’ble S.C stated that the rules were intended to strengthen the corporate insolvency resolution process and that, given the close relationship between corporate debtors & personal guarantors, allowing proceedings in separate forums in relation to the aforementioned parties could result in uncertain result outcomes & defeat the IBC Code’s Objective.

Implications

The Petitioners -Lalit Kumar is as a welcome step because it allows them to recover their debts from both the corporate debtors and the personal guarantors in the same forum respectively. Furthermore, The Petitioners -Lalit Kumar reiterates the position in Creditor’s Committee of Essar Steel v. Satish Kumar Gupta, 2019. Namely, that upon completion of a corporate debtor’s corporate insolvency resolution process, creditors who would otherwise be taking a haircut are entitled to separately proceed against the corporate debtor’s personal guarantor to recover the remaining amounts, assuming the resolution plan does not extinguish the guarantors’ liability. But This implication will disincentivize individual personal guarantors from providing extending guarantees to corporate debtors.

Position of personal guarantors Before to the Insolvency & bankruptcy Code 2019 Rules

Part III of the Insolvency & bankruptcy Code was inapplicable to personal Guarantors to corporate debtors prior to the notifications of the IBC 2019 Rules. Creditors could then proceed via :

  1. A Civil suit enforcing their contractual remedies,
  2. The Provincial Insolvency Act, 1920 or the civil courts under the Presidency Towns Insolvency Act, 1909;
  3. Other specialized legislations inter alia such as the SRFAESIA, 2002.

But, Post Notifications of IBC 2019 Rules, creditors may also approach the Debt Recovery Tribunal under part III of the code along with the National Company Law Tribunal under part II of the code for recovery of dues from personal guarantors. Furthermore, continue to subsist as Section 243 of the IBC Code, which seeks to repeal the Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920 has not yet been notified, the directions of recovery that existed prior to the 2019 Rules continue to exist.

Simultaneous Proceedings

  • According to the section 128 of the Contract Act, A guarantor’s liability is co-extensive with that of the principal debtor. In other words, because personal guarantor and the corporate debtor are separately or jointly liable to repay the Creditors debt, the Contract Act allows a creditor to proceed against a guarantor before exhausting his remedies against the principal debtor.
  • This contract law principle is also incorporated into the Code. The SC in the case of SBI Vs. Ramakrishnan & Others (2018) and The NCLAT in State Bank of India v. AEVPL, 2020 cases Online NCLAT 774, have both stated that creditors have the right to file parallel procedures before the National Company Law against the corporate debtor and the relevant forum against the personal guarantor.
  • Taking a different view, In the matter of Dr Vishnu Kumar Agarwal v. Piramal Enterprise Ltd, 2019, the NCLAT held that once a claim filed by a creditors U/s 7 of the IBC code is admitted as against the personal guarantor or the corporate debtor, as the case may be, no further proceedings for the same set of claims may be brought against the other.
  • While the Piramal adjudication is being challenged in the Supreme Court, taking the consideration of The Petitioners – Lalit Kumar & Section 60 of IBC code, it is apparent that, While simultaneous proceedings against both the personal guarantor and the corporate debtor are permissible, they must be brought before the NCLT, and creditors cannot collect more than their entire claim amount. The Insolvency Law Committee’s February 2020 report further emphasises the significance of allowing simultaneous recovery while ensuring that no creditor has an unjustly enriches over the amount owed to them.

Personal guarantor’s right of subrogation

Position of personal guarantors

  • According to Section 140 of the Contract Act, “When a guaranteed debt becomes due, or the principal – debtor fails to complete a guaranteed duty, the surety is invested with all the rights that the creditor had against the principal – debtor upon payment or performance of all that is liable for.”
  • The above right of the subrogation mentioned above is an important element of guarantee law since it makes the latter commercially viable. But, as noted by the Hon’ble SC in Lalit Kumar and the NCLAT in Lalit Mishra & Ors. v. Sharon Bio Medicine Ltd. & Ors., 2018 NCLAT, the right of the personal guarantor to recover the guarantee from the corporate debtor ceases to exist upon  of the guarantee by a creditor, in furtherance of the the code’s larger purpose of the IBC Code to reviving corporate entities.
  • The Hon’ble Supreme Court has thus selectively applied the principle of guarantee, holding that the IBC Code U/s 238, has overriding powers over other statutes. As a result, while a personal guarantor’s liability under the Contract Act is kept, his corresponding privilege is limited, which is contrary to recognised fundamental principles of law & equity and would amount to ‘unjust enrichment’ by the corporate debtor.’

Personal guarantor’s liability to be extinguishes upon the extinguishment of the principal debt

Sections 133, 134, 135 & 140 of the Contract Act provide that a guarantor’s liability, which is co-extensive with the debtor’s, will be extinguished if the debtor’s debt is also extinguished. But in the Lalit Kumar case, the Hon’ble Supreme Court stated that if a corporate debtor’s debt is discharged by ‘operation of law’ rather than a contractual arrangement, the guarantor’s liability is not extinguished.

personal guarantor

Conclusion

The Hon’ble Supreme Court took this approach, In order to benefit creditors, which has put personal guarantors in a perilous situation. The Supreme Court declared in the Swiss Ribbons Private Limited v. Union of India, (2019), that the IBC Code’s purpose and object is to assure the corporate debtor’s revival, and warned against using it as a simple “recovery tool.”

But, the current creditor-centric approach has resulted in just that, at the expense of general contract and legal norms.. IBC code has become an instrument for recovery benefiting creditors by allowing creditors to pursue the personal guarantor for recovery of their dues without providing the personal guarantor with the appropriate right.Furthermore, the creditors approve the resolution plan U/s 30 of the IBC Code via the committee of creditors (CoC), leaving the guarantor with no recourse if his contractual rights are terminated.

That said there are a few methods to change the current situation to favour personal guarantors from a commercial point of view while retaining the IBC code’s purpose & objective of IBC Code which would leave the guarantor with no recourse if his contractual rights are extinguished.

In cases where a corporate insolvency resolution process is filled against both the corporate debtor and the personal guarantor, the NCLT may first issue appropriate orders against the personal guarantors, allowing the corporate debtors to include his claim in the resolution plan in his new capacity as a creditor exercising his right of subrogation. Under Section 21(2) of the IBC code also offers a safe guard in the event that the personal guarantor is the promoter, preventing a related party financial creditor from participating in the committee of creditors.

Alternatively, the National Company Law Tribunal could try to distinguish between personal guarantors who are promotors of the corporate debtor (or in any way related to the firm’s promoters) and independent personal guarantors who have issued a guarantee from a business standpoint under corporate insolvency resolution process. Creating a separation like this would prohibit promoters who may have contributed to the corporate debtor’s insolvency from benefiting from it, while incentivizing independent guarantors to continue providing guarantees.

IBC Consultants in India :

Services in the field of Insolvency Laws

  • Drafting of Insolvency Petition Under IBC
  • Filing of your matter with National Company Law Tribunal Delhi
  • Appearances by the Advocates & pleadings for the same
  • Action for National Company Law Tribunal Final Order
  • Recovery of Financial and Operational debt from the Debtors
  • Recovery Of Operational and Financial Debt In Delhi via Insolvency

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/ NBFC

All about the NBFC (Non-Banking Financial Corporation)

All about the NBFC (Non-Banking Financial Corporation)

NBFC.

  • It is a company known as Non-Banking Financial Corporation  incorporated under the Companies Act 1956 or 2013. As per the section 45– I (C) of the Reserve Bank of India Act, a  Company  which carries on the business of a financial institution will be a Non-Banking Financial Company. Also NBFC must be engaged in the business of Acquisition of stocks, equities, business of advances and loans , debt, etc which is issued by the marketable securities or local authority or Govt.

NON- Banking Financial Corporation (NBFC)

It is a company known as  Non Banking Financial Institution/ Company, which  has a principal business of receiving deposits. NBFC ( Residuary non banking company) can receive deposits under any scheme or arrangement by any other mode.

Exclusions from the NBFC definition

These are not included in the business of  Non Banking Financial company :-

·        Sale and Purchase of any goods excluding securities

·        Industrial Activity

·        Agricultural Activity

·        Any immovable property including its sale, purchase and construction – providing of any services.

Meaning of Principal Business:

·        Financial activity is the principal business to bring clarity to the business that will be regulated by the Reserve Bank of India. This criterion is also known as the 50-50 test and its as follows:

·        The total assets of the company must be 50% to its financial assets.

·        According to the guideines given by  Ministry of Corporate affairs and Reserve Bank of India the income from financial assets must constitute 50% of the total income. RBI generate the license for the operation of NBFC and it is incorporated under the laws of the land as a company.

·        Total income must constitute 50% of its income to financial assets. It is governed by the Reserve Bank of India and also by the  Ministry of Corporate Affairs. The License for operation is obtained from the Reserve Bank of India and it is incorporated as a company under applicable laws of the land.

Kind of NBFCs (Non Banking Financial Companies):-

The NBFCs are classified according to their liabilities and activities. NBFCs are classified as follows:

NBFC Company’s which need not to be registered with the Reserve Bank of India. These are the Non-Banking Financial companies which may  not be required to obtain any registration with the RBI with an idea that they are regulated by other regulators.

Non Banking Financial Company needs to follow Following Guidelines.

·         Core Investment Companies – (Public funds are not taken or assets are less than 100 crore)

·         Merchant Banking Companies

·         Chit fund company as specified under the section 2 clause (b) of the chit fund Act, 1982

·         Insurance Companies holding  a certificate of registration issued by Insurance Regulatory and Development Authority

·        Nidhi Company as defined under Section 620(A) of the Companies Act 1956

·         Housing Finance Companies

·         Companies that are engaged in the business of Venture Capital.

·         Companies that are occupied in the business stockbrokinging

NBFC FORMATION PROCEDURE

NBFC FORMATION PROCEDURE

·        Firstly, a Company should be registered under the Companies Act 1956 or also under the Companies Act 2013 as either a public limited or a private limited company.

·        At least INR 2 crore should be owned by the company as its minimum funds.

·        Company has to keep its CIBIL record clean.

·        At least 1/3 of the directors of  a company must posses finance experience.

·        A Business plan of five years has to be made by the company for future.

·        Company must comply with the requirements for Foreign Exchange  Management Act Notification and capital compliances

·        After fulfilling  all these conditions the online application  on the website of Reserve Bank of India should be fulfilled and submitted along with the requisite documents

·        A CARN number will be generated

·        Also a hard copy of the application has to be sent to The  Regional Branch of the RBI

·        A license will be given to the company after proper scrutinization  of the application

Non-Banking Financial Company needs to follow Following Guidelines:

NBFC India

After getting the license a company has to adhere the following guidelines

·        NBFC cannot receive the deposits  that are payable on demand

·        There is a time limit of minimum period of 12 months and maximum period of 60 months  for the public deposit of the company.

·        Reserve Bank of India has a prescribed ceiling limit for the chargeability of interest which the company cannot exceed.

·        Reserve Bank of India will not take any guarantee for repayment of loan taken by company.

·        Company has to furnish all information to the Reserve Bank of  India about any changes in the composition of the company.

·        Unsecured deposits will be taken by public.

·        Apart from this, the said would be required to submit their Audited Balance sheet at the end of every financial year.

·        In form NBS – 1 a statutory return on the deposits taken by the company has to be furnished  every year.

·        The Company has to furnish its quarterly return on the liquid assets

·        To shows that the company is in a position to pay back all the money taken from the public and to pay back all the deposits  a certificate from auditor is needed.

·        Company has to give a half – yearly Asset Liability Management (ALM ) return  which shows asset worth Rs. 100 Crore and above and has a public deposit of Rs. 20 Crore and above.

·        At the end of every 6 months a credit ratings has to be taken and submitted to the Reserve Bank of India.

·        A Company has to maintain a minimum level of 15% of the Public Deposits  in its liquid assets.

·        In case if the Non Banking Financial Company fails to make payment of any amount taken, than the consumer can go to the Consumer Forum or to the National Company Law Tribunal to file a suit against the Company.

/ GST

GST IMPLICATIONS ON DISCONTINUATION OF BUSINESS

GST IMPLICATIONS ON DISCONTINUATION OF BUSINESS
GST IMPLICATIONS ON DISCONTINUATION OF BUSINESS

GST IMPLICATIONS ON DISCONTINUATION OF BUSINESS

BRIEF INTRODUCTION

Many businesses change their structure for various reasons and purposes like for betterment of business from declining phase or to extend the worth of their business or to possess potency in market competition. In recent times after the COVID 19 crisis, more businesses are restructured thanks to continuous losses or thanks to difficulties in continuation of business.

A business also can be discontinued thanks to various reasons like death of proprietor/partner causing dissolution of legal entity, intentional closure of the firm/company, transfer of business to another person etc.

Discontinuation of Business are often undertaken using the following ways: –

  • Closing of business operation, without transferring the stock or other assets.
  • Transfer of business to legal heir with none consideration
  • Sale/transfer of business for:
    1. Payment Consideration i.e. slump sales of business
    2. Itemized sale, i.e., when separate consideration is charged for various assets.

GST ON SALE OF STOCK IN HAND AND OTHER ASSETS

In such scenarios, as stock and assets are sold within the regular course of business, therefore, GST at applicable rates must be charged at the time of supply. Further, as no supply of products is going down at the time of closure of business, therefore, no GST is applicable on the identical.

TREATMENT OF BALANCE REMAINING THE ENTITIES ELECTRONIC CREDIT LEDGER

In case of clearance of all stocks and assets before discontinuation, balance in Electronic credit ledger will be remained because of various reasons like sale of stock on losses, reduction in GST rates on goods proscribed, e.g., GST @ 18% was applicable at the time of purchase of stock and afterward reduced to 12% etc.

In such cases, no refund of balance lying in Electronic Credit Ledger shall be granted and therefore the person may still surrender his GST registration number.

TRANSFER OF BUSINESS TO LEGAL HEIR, WITHOUT CONSIDERATION

This scenario generally arises just in case of discontinuation of business because of death of proprietor and consequently the complete business is being transferred to the legal heir/successor of the proprietor. In such a scenario, the legal heir would be available with the options to either to continue the business of the deceased proprietor by transferring his assets and liabilities. Just in case of continuation of business, the legal heir shall obtain a new GSTIN and he may transfer ITC lying within the Electronic Credit Ledger of the deceased proprietor to his GSTIN. Legal heir shall even be to blame for payment of GST liability of the deceased proprietor.

Where such a business is discontinued, legal heir shall be liable for payment of GST on stock or capital goods prevailing on the date of cancellation of GST registration of deceased proprietor.

GST ON SLUMP SALES / LUMP SUM CONSIDERATIONS

Transaction of transfer of business with all assets and liabilities for a lump sum consideration, i.e., where values don’t seem to be assigned to every asset and liabilities separately, is understood as Slump sale.

SLUMP SALE

  • Slump sale will have the identical treatment as normal supply. Under the GST regime tax is payable by the registered taxable person on the provision of goods and/or services.
  • The transfer of business is amounted to transfer of a component of the assets and not the entire business. Moreover, para 4(c) of the schedule II specifies that just in case business is transferred as a going concern then it’d not constitute as supply.
  • However, in pursuance of Notification No. 12/2017 Central tax (rate) dt 28.06.2017 services, which are provided by way of transfer of a going concern as a full or an independent part thereof, are exempted from GST. Thus, no GST would applicable on slump sale transaction as transfer of business on a going concern basis.

TREATMENT OF SLUMP SALE UNDER GST

Question whether transfer of business for payment consideration is taken into account as “Sale of Goods” and “Sales of service” may be a matter of dispute since beginning and various Advance Ruling has been sought on this issue.

Points considered in relevant case law –

  • As per Section 7 of CGST Act, 2017, “Supply” includes activities like sales, transfer, bater, exchange, etc. made for a consideration within the course or furtherance of business.
  • Activity involving transfer of business as a going concern and made for a payment consideration doesn’t constitute as a supply in the course or furtherance of business. However, as per the Section 7, an inclusive definition of term “Supply” has been provided, whether or not resulting in transfer of business as a going concern has not been distributed in course or furtherance of business the identical shall still be considered as “Supply” under GST.

Under Schedule II of CGST Act, 2017, it was provided that there are certain specified Activities or Transactions that shall be treated as Supply of products or Supply of Services.

According to Entry No. 4(c) of Schedule II of CGST Act, 2017 the following has been provided –

“4 Transfer of business asset:

  • In case a person ceases to be a taxable person, the goods standing as assets of any business carried on by him shall be deemed to be supplied by him, and the same is sought to be made in the course or furtherance of his business immediately preceding the date of cessation as taxable person unless:
  • the business is transferred as a going concern to a different person; or

Thus, as per the above explanation, transfer of goods forming a part of business shall be considered as “Transfer of Business Asset”, in case such person ceases to be a taxable person. However, the said provision shall not apply to cases, where the business is transferred to someone else, as a going concern.

In case of slump sale, the complete business is transferred on a going concern basis. Therefore, such transfer isn’t to be considered as “Transfer of Goods”

Notification No. 12/2017-Central Tax (Rates) dated 28th June, 2017 contains an inventory of services exempted which are exempted under GST.

S. NO. CHAPTER DESCRIPTION OF SERVICES RATE (%) CONDITION
2 CHAPTER 99 SERVICES BY WAY OF TRANSFER OF A GOING CONCERN, AS A WHOLE OR AN INDEPENDENT PART THEREOF. NIL NIL

Therefore, as per Entry No. 2 of N/No. 12.2017-Central Tax (Rates), Transfer of business on going concern basis is taken into account as “Supply of Service” which is exempt.

Therefore, if a business is transferred on a going concern basis, then such a transaction is taken into account as “Supply of Service”.

GST RATE ON SLUMP SALE

According to the notification number. 12/2017-Central Tax (Rate), transfer of business on going concern basis is exempted from GST liability and that too without any condition. In case of slump sale, if business is transferred on a going concern basis, then the identical shall be considered as “Exempted Supply”.

IMPLICATION OF BALANCE LYING IN ELECTRONIC CREDIT LEDGER

After considering the above discussions, it is cleared that as per Section 18(3) of CGST Act read with Rule 41 of CGST Rules, balance in Electronic Credit Ledger of the transferor shall be transferred to the transferee by filing Form GST ITC-02 on GST portal subject to fulfillment of other conditions discussed above.

COMPUTATION OF ITC TO BE TRANSFERRED, PARTIAL TRANSFER OF BUSINESS IS MADE

Where the transfer involves, transfer of the full business, the transferor is entitled to transfer the whole balance of unutilized ITC lying within the Electronic credit ledger to the transferee. However, where the transfer involves transfer of partial transfer of business, the transferor shall be eligible to transfer only proportional ITC.

As per the Rule 41 of CGST Act, 2017, the ITC shall be apportioned within the ratio useful of transferred assets with the whole value of Assets. the identical is understood by the subsequent formula:

ITC allowed to be transferred = Balance of ITC * Value of Assets, being transferred / Total Value of Assets

  • For example A GST business is partially transferred with the worth of assets transferred is Rs. 4 crores out of total assets of Rs. 10 crores. ITC available within the credit ledger is Rs. 1 crore. In such a case, ITC transferred shall be Rs. 1*4/10= Rs. 0.4 crore

ITEM WISE SALE

  • In case, the assets and liabilities of a business are transferred, by assigning certain price to every item, the same is known as itemized sale.
  • Under this, the disposal of key or selected business assets is involved. Under the merger and amalgamation, value of every asset is calculated separately i.e. the full business is transferred but item wise.
  • Transaction of itemized sale is meant as supply under the ambit of GST and individual asset would cover under the definition of goods as per schedule II of the CGST Act. Thus, the said transaction shall be leviable to GST.
  • In case of Itemized sales, the complete business isn’t transferred to someone, rather few assets are transferred and where the worth is assigned to every asset
  • According to Entry No. 4(a) of Schedule II of CGST Act, 2017 -“4. Transfer of business assets
  • In case, the goods forming as the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as not to make part of those assets, such transfer or disposal may be a supply of goods by the person;”

Therefore, as per Entry No. 4(a) of Schedule II of CGST Act, transfer of business assets is taken into account as “Supply of Goods” and GST on the identical shall be charged at the applicable rate.
Also, as there’s no transfer of business happening, therefore, there’s no provision given for transfer of unutilized balance in Electronic Credit Ledger.

OTHER IMPLICATION OF GST ON TRANSFER OF BUSINESS

  1. Prologue: Any sought Corporate transaction involving amalgamation, mergers, acquisition and takeovers are subject to GST. Thus, the industries are required to investigate the provisions of the GST Law and its impact on their business.
  2. Registration: According to the 22(3) of the CGST Act, in case, a business, being carried on by a taxable registered person is transferred, the transferee or the successor shall be compulsorily required to undertake fresh registered under GST, with effect from such transfer or succession.

The transferee will be required to obtain such registration from the date on which the Registrar of Companies issues a certificate of incorporation.

SALE OF SECURITIES

  • In most case, the same old mode is that the acquiring of company by making a proposal by the transferee company to the shareholders of the transferor company to get their securities, within the transferor company, at a price stated for the aim.
  • The definition of products still as services under the GST regime don’t cover the securities, therefore GST wouldn’t be levied on the sale of securities.

INPUT TAX CREDIT

  • Section 18 provides for the provisions regarding availment of ITC by taxable person. As per Section 18(3) of CGST Act, it was provided that in case of change of constitution of a registered taxable person on account of sale, merger, demerger, amalgamation, lease or transfer of business, the said registered person will be required to transfer the unutilized input tax credit to transferee.
  • Also, the said registered person shall be liable to furnish the main points of sale, merger, de-merger, amalgamation, lease or transfer of business in Form GST ITC-02 electronically on the Common Portal together with asking to transfer the unutilized input tax credit lying in his electronic credit ledger to the transferee.

RULE 41

  • Where the case involves demerger, the ITC shall be apportioned in the ratio of the value of assets being allotted to the newly established units, in accordance with the demerger scheme.
  • The transferor is also required to provide a Certificate from a practicing-Chartered Accountant or comptroller, certifying that the sale, merger, de-merger, amalgamation, lease or transfer of business has been finished a particular provision for the transfer of liabilities and the same be made available in duplicate form.
  • All the businesses transferring their business under GST will have to furnish the particulars within the form GST ITC-02 through the common portal together with an invitation for transferring the unutilized ITC to the electronic credit ledger of the transferee.

Exception: where there is a demerger of an organization, the ITC shall be apportioned in the ratio of the value of assets allotted to the newly established units.

For example, XYZ private limited undergone demerger. XYZ be demerged into three separate units X, Y, Z. The assets of XYZ have been apportioned in the ratio of 4:3:3. Thus, the ITC available with XYZ would be apportioned in the ratio of 4:3:3.

Once the transferee has validated the small print entered by the transferor within the Form GST ITC-02, the quantity of unutilized input tax credit would be transferred to his electronic credit ledger.

The input tax credit would be reversed within the following two situations.

  1. When a taxpayer registered under the composition scheme utilizes input tax credit on goods and services, or both, which became wholly or partly exempt from tax, then the number similar to the quantity of ITC on inputs held in stock, semi-finished and finished goods held in stock, and capital goods are going to be debited to the electronic credit ledger or electronic cash ledger. The said amount of ITC shall be calculated on the basis of corresponding invoices relating to which the credit is available to the registered taxable person.

For example:

ABC Enterprise sold handmade jute works to Sam for Rs 2,00,000. ITC utilized on the said inputs were Rs 30,000. Assuming that ABC Enterprise opts for composition scheme under GST and we know that handmade jute products are exempt from GST. Thus, the amount of ITC i.e., Rs 30,000 is required to be debited from the electronic credit or cash ledger belonging to Amar Enterprise.

  1. Where a taxpayer’s GST registration is canceled by the authority, the amount of ITC in respect of goods held in stock, capital goods, semi-finished and finished goods will be required to be debited from the electronic credit ledger or electronic cash ledger on the day preceding day of cancellation of registration.

*ITC on Capital goods lying in stock should be calculated on the pro-rata basis of residual life and therefore the residual life is assumed to be 5 years. Capital goods also are to be reduced by 5% per quarter or the part thereof from the date of invoice or other document specifying the receipt of such capital goods by the recipient.

The amount in respect of credit available shall be calculated separately in respect of IGST and CGST. Just in case there isn’t any tax invoices for the input held in stock, capital goods, semi-finished and finished goods than the number shall be calculated on the premise of prevailing market value of goods. the details of the above input tax credit must be furnished within the form GST ITC-03 and also within the form GSTR 10 if the quantity of ITC is reversed due to the cancellation of registration.

CONCLUSION

  • Goods and Services Tax have impact on each and each industry and business in India. Transfer of business involving mergers, amalgamation and acquisitions do not attract any sought of GST liability, hence, they are unlikely to be impacted from the same.
  • In order to calculate Capital gains, holding period shall be calculated from the date of original purchase of shares. the businesses who choose merger and acquisition, the liability to register arises on the date of transfer for transferee of a business as going concern.
  • Further, GST Law stipulates transfer or sale of business assets can occur either as a slump sale or itemized sale. just in case of change of constitution of a registered person on account of sale, merger, demerger etc., the unutilized ITC would be allowed to be transferred to transferee. Thus, GST Law has provided immense clarity in respect of the taxability of business transfer and its related aspect.
  • Therefore, where the case involves closure or dissolution of business and the same has been caused due to death of proprietor or winding up of Company, mere surrendering a GST registration shall not suffice. Cancellation of GST registration doesn’t put an end to liabilities of somebody and appropriate action are often taken against such person in future date. Therefore, before surrendering GST registration, an individual is required to appear in the end possible GST liability and applicable compliances.
/ Company Law Compliances

Conversion of Partnership Firm into LLP

Convert Partnership Firm to LLP – Documents Required Procedure

Convert Partnership Firm to LLP – Documents Required, Procedure

Introduction

  • Partnership, Limited Liability Partnership, Private Limited Company, One Person Company, Sole Proprietorship, Public Company –When it relates, to business a country like India offers a series of alternatives. As a businessman, you have the option of choosing amongst various business models. However, before making a decision, you should be aware of the advantages and disadvantages of each option. You must determine which form will be most beneficial to you and your corporation.
  • Each of these forms has its own set of criteria, benefits, and drawbacks. When it regards to partnerships, one of the most significant disadvantages is that it exposes its partners to unlimited liability. This feature puts the partners’ own assets in danger. There are firms and companies with restricted obligations that can help to mitigate this danger.
  • Limited Liability Partnership and Private Limited Company are their names. Nowadays, entrepreneurs are converting their partnerships to these two types of businesses in order to minimize the risks that partnerships entail. But how does this transformation happen?
  • In recent years, there has been a greater move from traditional partnerships to Limited Liability Partnerships (LLPs). The rationale for this is that LLPs provide greater freedom, as well as unrestricted partners and other benefits. However, the actual reason for the transition is that LLPs provide a significant benefit in terms of limited liability.
  • When it comes to LLPs, the strain on the partner’s personal assets is alleviated because they are a mix of a partnership and a private limited company. Small and medium-sized organizations find that this organizational structure is ideal for their needs.

partnership Firm benefit

The benefits of a Limited Liability Partnership (LLP) exceed the disadvantages of a standard partnership. The main reasons for a partnership firm to convert to an LLP are limited liability, perpetual succession, and unlimited partners.

The Advantages of Converting a Partnership to an LLP

The following advantages can be obtained by converting a partnership to an LLP:

  • Increased in Investment: The amount of money invested in the LLP would increase if the partnership was converted to an LLP. The entity’s reputation would improve as a result of the conversion, causing additional investors to invest in the LLP.
  • Perpetual Succession: The departure or death of a partner does not result in the partnership firm’s dissolution. The LLP would be subject to the perpetual succession principle.
  • Liability Restriction: When a partnership is converted to an LLP, the partners are automatically granted limited liability status. Limited liability would provide the firm’s partners with some independence. The partners’ liability is separated from the firm’s liabilities.
  • Management’s Choice: In comparison to a regular partnership firm, converting a partnership to an LLP increases the degree of flexibility and decision-making process in an LLP.
  • Direct Foreign Investment (FDI): The Indian government has eased the rules on foreign direct investment in limited liability partnerships (LLPs). When compared to a partnership, an LLP allows for more FDI.

Main Differences Between a Partnership and an LLP

Differences between LLP and Partnership Firm

Basis of Difference Partnership Firm Limited Liability Partnership
Applicable Act Limited Liability Partnership Act, 2008 The Indian Partnership Act, 1932
Registered to Ministry of Corporate Affairs(MCA) registered the LLP Registrar of Firms registered the Partnership Firm
Liability One of the most significant distinctions between an LLP and a partnership is the liability of the partners. Because the partner and the firm are seen as independent legal entities. As a result, the partners’ liability is limited to the amount invested in the business. Because the firm and the partner are not regarded different legal entities. As a result, partners are personally liable for the partnership’s unlimited liabilities.
A number of partners and requirements ·  No. of Partners required is minimum 2 and no limit for maximum partner

·  Any minor cannot be partner

 ·    No. of Partners required is minimum 2 but not more than 20 are allowed.

·    Any minor can be partner
Agreement between partners The LLP Agreement regulates the LLP’s operations, management, decision-making procedures, and other activities. The partnership’s operation, management, and decision-making procedures, as well as other activities, are governed by the partnership deed.
Transferability /Conversion ·         Shares can be easily transferred to another person after obtaining the required consent from all the Partners in an LLP.

·         The transferee cannot become partner automatically.

LLP cannot be converted back to the partnership but can be converted to Private Limited Company or Limited Company easily.

 ·         Shares can be transferred to another person after obtaining the required consent from all the Partners in a Partnership.

·         Transferability of the partnership a is a lengthy process.

·         Conversion of partnership to LLP or Private Limited Company is a burdensome process
Compliances Compulsory to file the annual return to Ministry of Corporate Affairs. You can get LLP Annual filing with Rajput Jain & Associates at just Rs 2499/- No requirement of annual return filing
Registration Cost Get LLP Registration online for Rs. 7999/- only. Get partnership registration online for Rs.2199/- only.

Documents for Conversion of Partnership to Limited Liability Partnership (LLP)

For the conversion of a partnership to an LLP, the following documents are required:

  • Proposed Limited Liability Partnership (LLP) Name
  • Information on the partnership firm’s Partnership Deed
  • Digital Signature Certificate of the Respective Partners
  • LLP’s Authorised Capital
  • Registered office details of the partnership limited entity
  • Identification Documents of the Partnership- Voter ID and other related information
  • Utility Bill of the Partnership Firm- Electricity Bill/ Water Bill or any other Bill
  • Evidence or Proof of the Partnership’s Registered Office (Lease deed/Ownership Documents) of the property
  • Permanent Account Number (PAN) of all the Partnership’s Partners
  • Audited Partnership Information
  • Statements such as the Partnership’s Bank Details
  • The Partnership Business’s Main Objectives
  • If the premises are rented, a letter of authorization from the owner is required.

Document required after incorporation of LLP

  • Copy of Incorporation ceritificate of LLP
  • Document require to submitted for Fill LLP

Conditions for Converting a Partnership Firm to a Limited Liability Partnership (LLP)

  • Section 55 of the Limited Liability Partnership Act 2008, read with Schedule II of the Act, governs the conversion of a partnership firm to an LLP.
  • All of the firm’s partners must be LLP partners, which means no new partners can join or existing partners cannot leave while the application is being processed.
  • Before submitting an application, all partners must have a valid Digital Signature Certificate (DSC) and at least two partners must have a DPIN.
  • The converting partnership firm must be registered under the Partnership Act of 1932.
  • The consent of all partners must be acquired.
  • The LLP’s partners must be the same as the partnership firm’s. After the conversion is complete, any partner who chooses to be removed from the LLP may do so.
  • All Designated Partners must obtain a Director Identification Number (DIN)/Designated Partner Identification Number (DPIN).
  • Procedure for Converting a Partnership to a Limited Liability Partnership (LLP)

Processing Step for converting Partnership Firm into LLP

1st Step:  Approval of Name and Digital Signature Certificate (DSC)

Approval of name

  • Create an account and then log in to the MCA site.
  • Select the “RUN – LLP” option under the MCA Services menu.
  • Reserve Unique Name is States for RUN.
  • Select the option “Conversion of Firm into LLP” from the selection list.
  • There are two proposed names for the LLP to be given after that.
  • Any supporting papers may also be supplied in PDF format, followed by a click on the “Submit” button.
  • The page is redirected to a payment gateway, where the form’s fees of Rs. 200 must be paid.
  • The reserved name then has a 90-day validity term.

Digital Signature Certificate (DSC)

  • The Designated Partners of the LLP must have their individual Digital Signature Certificates in order to move past the Name Incorporation stage.
  • To enable a successful submission, each e-form requires the Designated Partners’ DSCs to be affixed to the applicable forms.

2nd Step: Submitting Forms to the ROC

Form 17 (Application and Statement for conversion of a firm into LLP)

The application form must include information such as:

    • The RUN – LLP form’s Service Request Number (SRN).
    • Proposed Limited Liability Partnership (LLP) name
    • The firm’s name, address, registration, and partnership agreement.
    • Information of the number of partners and the capital investment required.
    • Information of secured creditors

The following attachments must be submitted:

    • Statement of Consent of the Firm’s Partners.
    • A Chartered Accountant in Practice’s certification of the firm’s assets and liabilities.
    • A copy of the most recent acknowledgement of ITR.
    • A list of all secured creditors, with their permission.
    • Any further supporting data (optional).

Fill out FiL LLP (Form for incorporation of LLP)

Following must be filled out on the application form.

    • Details of the RUN – LLP, which will be auto-filed,
    • The LLP’s registered office address and email address.
    • The Registrar’s Office
    • The nature of the company’s operations.
    • Information about the partners, including their DINs, DPINs, and PANs.
    • The amount of money put in by the LLP’s partners.

Required as an attachment

  • Proof of address of the LLP’s registered office..
  • Consent of the subscriber.
  • A letter of authorization from the property owner as well as a copy of the utility bills (not more than 2 months old).
  • Approval from any regulatory authority, if applicable.
  • Information about any LLP/Company in which a designated partner also serves as a director/partner.
  • The applicants’ proof of identification and address.

Where the LLP’s name is identical to that of an existing Company/LLP, a copy of the existing LLP’s Board Resolution or Consent serves as a No Objection Certificate.

The proposed designated partners must e-sign both forms and have them approved by a Cost Accountant, a Company Secretary, or a Chartered Accountant, all of whom must be in full-time practice. The amount of the charge will be determined by the amount of capital commitment.

3rd Step: Obtaining a Certificate of Registration

On approval of the application, the Registrar will issue the LLP’s Certificate of Registration.

4th Step: Form a Agreement of Limited Liability Partnership (LLP)

Within 30 days of the LLP’s incorporation, the LLP Agreement must be presented in Form LLP-3. It must include the following information:

  • The LLP’s name
  • The names of the designated partners and other partners
  • The capital contribution and profit sharing ratios
  • The LLP’s rules
  • Partners’ rights and responsibilities

5th Step: Intimation to the Registrar of Firms

Within 15 days after the date of formation, the Registrar of Firms must be notified of the conversion into an LLP and the LLP’s associated details in Form – 14.

The following papers must be presented with the form:

• A copy of the LLP Incorporation Certificate; and

• A copy of the incorporation documentation filed in Form FiLLLP.

Once all of these stages have been completed, the conversion from a partnership to an LLP is complete in every way. It should be noted, however, that the existing licenses and permits do not transfer to the LLP. For post-conversion, they must be administered freshly.

Documentation To be Filed

  • All partners must file a statement with the Registrar, specifying the firm’s name, registration number (if any), and the date it was registered under the Indian Partnership Act 1932 or any other law.
  • The incorporation document, along with a statement in the prescribed form signed by a chartered accountant/company secretary/cost accountant/advocate who is involved in the formation of the LLP and anyone else who subscribed to the incorporation document, must be filed with the Registrar, attesting to the fact that all incorporation requirements have been met.

Registration

  • The Registrar may accept or refuse to register the LLP after obtaining the necessary paperwork. The Registrar will issue a certificate of registration if all documents are deemed to be correct and in compliance with the act’s stipulations.
  • The LLP must notify the Registrar of Firms with which it is registered in Form 14 within 15 days after registration. In the case that the Registrar refuses to register you, you can file an appeal with the tribunal.

Registration’s Effect

  • An LLP is formed under the name specified in the certificate of registration.
  • All of the firm’s assets, obligations, rights, and privileges will be transferred to the LLP.
  • The firm will be dissolved, and if it was registered under the Indian Partnership Act 1932, it will be deleted from the records; all outstanding processes against the firm will be enforced against the LLP.
  • Any ruling or judgment, whether favorable or unfavorable, may be enforced against the LLP.
  • All current contracts and agreements to which the firm was a party will remain in effect with the LLP as a party.
  • Any current appointment or authority bestowed on the firm must be treated as if it were bestowed on the LLP.

Liability of Partners Prior to Conversion

Each partner will be equally and severally accountable for all of the firm’s liabilities and obligations accrued prior to the conversion. The LLP will indemnify any partner who fulfills his or her obligations.

Notice of Conversion

The LLP must provide for a 12-month period, which must begin no later than 14 days following registration: –

  • In every official correspondence of the LLP, a declaration indicating it was converted from a firm to an LLP as of the date of registration specified, as well as the name and registration number(if any) of the firm from which it was converted.
  • If the LLP violates the aforementioned rule, it would be subject to a minimum fine of Rs 10,000 and a maximum fine of Rs 1,000,000. If the default continues, the minimum fine is Rs 50 per day, and the maximum fine is Rs 500 per day.

LLP Form No. 17

  • This is an application and statement for a firm’s conversion to an LLP. The form is split into two sections: Part A is for the application, while Part B is for the statement.

Part A, Information to be Provided: Application

  • If the Reserve Unique Number (RUN) form has previously been filed, the SRN. If not, the LLP’s suggested name.
  • The firm’s name and address.
  • Information about the firm’s registration under the Indian Partnership Act of 1932 or any other law.
  • The date of the agreement, which contains information on the firm’s founding.
  • The firm’s total number of partners.
  • Information on all partners’ consent.
  • Information on the LLP’s shareholders, which include all of the LLP’s partners and no one else.
  • Information from a tax return filed under the Income Tax Act of 1961.
  • Information on any pending court, tribunal, or other authority proceedings.
  • Whether the Registrar has previously rejected a conversion application. If so, the SRN as well as the grounds for the refusal must be provided.
  • Information about any ongoing convictions, orders, or judgments in favor or against the firm by any court, tribunal, or other authority.
  • Whether any secured creditors exist. If yes, whether all secured creditors have given their agreement to the conversion.
  • Is there any kind of clearance or approval needed for the LLP conversion? If the answer is yes, whether or not the approval has been acquired.

Part B: Statements

  • The declaration’s contents
  • The partner’s consent to the firm’s conversion to an LLP.

The partner must acknowledge that he or she is jointly and severally accountable for all liabilities incurred prior to the conversion.

He or she must state that: – All of the requirements of the LLP Act 2008 and the rules have been met. – That all of the firm’s partners are also LLP partners, and no one else. That all of the necessary permits have been received. – That all secured creditors have given their consent. – To the best of his knowledge and belief, all information supplied in the form is accurate. 

Attachments

  • A firm’s Statement of Assets and Liabilities fully certified as truthful and correct by a practicing Chartered Accountant.
  • A statement of the company’s partners’ consent.
  • A list of all secured creditors, together with their permission to convert.
  • A copy of the most recent income tax return’s acknowledgement.
  • Any authority or body’s approval.
  • Any optional attachments, if applicable.

The e-form must be digitally signed by a designated partner and include the designated partner’s DIN/DPIN as well as a PAN number if none of the designated partners have a DIN.

A Chartered Accountant, Company Secretary, or Cost Accountant in full-time practice shall do the certification. It is necessary to choose an associate or fellow, and a membership number/certificate of practice number must be provided. Form 14 is used to submit notification to the Registrar.

The following details must be provided: –

  • The firm’s name.
  • The company’s main address.
  • Information about the firm’s registration under the Partnership Act of 1932 or any other statute.
  • Information on the LLP into which the firm has been converted is also required.
  • A copy of the LLP’s certificate of incorporation must be attached, and the form must be digitally signed by the partner.

Learn more about converting a partnership to a limited liability partnership (LLP).

Refer to the following articles for more information on converting a partnership to an LLP:

  • Partnership to Limited Liability Partnership (LLP) conversion
  • The Difference Between an LLP and a Partnership Firm
  • Why Convert a Partnership Firm to an LLP

IFCCL can assist you with the entire conversion procedure and make it a lot easier for you. Included in the Package

  • The procedure for converting a partnership to a Limited Liability Partnership (LLP).
  • End-to-end documentation
  • Liaison with regulatory authorities for this procedure
  • Certificate of No Objection from required IT authorities
  • Submitting documentation to the appropriate authorities

Frequently Asked Questions on Convert Partnership Firm to LLP

Q.: Why is it necessary to convert a partnership to limited liability partnership (LLP)?

  • Given all of the foregoing disadvantages of a regular partnership, converting a partnership to an LLP is the best alternative available. An LLP is a separate legal entity that exists independently of the firm’s partners.
  • Because the partners’ responsibility is limited, creditors will not pursue them for any debts or dues owed to the partnership firm.
  • A limited liability partnership (LLP) combines the advantages of a typical partnership and a private limited company. As a result, this type of hybrid entity is appropriate for people that require a great deal of flexibility.

Q.: What is the partnership’s strength at the moment of conversion?

  • The number of partners must be the same at the time of conversion. There must be no increase or decrease in the number of partners in any way.

Q.: What is the maximum number of names that can be reserved for the LLP?

  • The name of the LLP must be reserved in advance by the firm’s partners as part of the conversion process. This name reservation procedure or process can be completed online. The partnership would be allowed to reserve a maximum of six names. For the partnership firm, these names must be listed in order of preference. During the conversion of partnerships, the registrar may also request that the LLP apply for a new name.

Q.: What are the requirements that an LLP must follow when it comes to naming?

The partners must adhere to the following guidelines while naming the partnership:

  • The name must not be infringing on any intellectual property rights in India.
  • The LLP’s name must be unique and distinctive in character;
  • it must not mislead anyone, especially the general public; and it must not violate any Indian public or constitutional law.

Q.: What does it mean to contribute capital to an LLP?

  • The amount of capital contribution must be stated by the respective partners when converting a partnership into an LLP.

Q.: Is it necessary for a director to have a DIN in order to administer an LLP?

  • In most cases, an LLP will have partners. A director identification number is required for any director who is selected to carry out the LLP’s responsibilities (DIN). The independent directors of an LLP must comply with such standards.

Q.: Why should you choose an LLP over a partnership firm?

Apart from the major distinctions, the LLP has a few characteristics that make it a better choice than a traditional partnership firm:

  • Management Freedom/Leeway: The partners are granted a reasonable amount of flexibility in running the LLP’s operations and day-to-day activities. The Limited Liability Partnership Act of 2008 has little impact on the LLP Agreement, which implies that the Act is rather flexible in terms of how the agreement can be written.
  • Perpetual Succession: Unlike ordinary partnerships, the LLP continues to exist even if one of the partners dies.
  • Attractiveness to Investors: LLPs are attractive to foreign investors and venture capital funds because they have a corporate structure and are more organized than regular partnerships.
  • Multidisciplinary LLPs: An LLP allows professionals from multiple disciplines to collaborate, which is a unique trait and an advantage in and of itself.

Q.: What are the conditions for becoming Partner of LLP?

There are some pre-requisites condition must be followed for becoming partner of Limited Liability Partnership Firm:

  • The age of Partner is more than 18 years
  • The partner must not have any form of disqualifications
  • The partner must not be criminally liable
  • The partner must not be insolvent

Q.: Who can be partner in the partnership Firm ?

Who can be partner in the partnership Firm