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SETTING UP OF BUSINESS ENTITIES AND CLOSURE NOTES

CS EXECUTIVE SETTING UP OF BUSINESS ENTITIES AND CLOSURE NOTES

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Choice of Business Organisation

• The main types of business entities in India are Sole Proprietorship, Partnership, Hindu Undivided Family (HUF) Business, Limited Liability Partnership (LLP), Co-operative Societies, Branch Office and Company which may be any kind of company including one person company (OPC), private limited company, public limited company, guarantee company, subsidiary company, statutory company, insurance company or unlimited company. Further, Company formed under section 8 of the Companies Act, 2013 or under section 25 of the earlier Companies Act of 1956 is a non-profit business entity.
• There can also be Association of Persons (AOP) and Body of Individuals (BOI), Corporation, Co-operative Society, Trust etc.
• Choosing a form of business entity is crucial to a successful organization.
• Various factors involved are Nature of business activity, Scale of operations, Capital requirements, Managerial Ability, Degree of control and management, Degree of risk and liability, Stability of business, Flexibility of administration, Division of profit, Costs, procedure, and government regulation, Tax implication, Geographical mobility, Transferability of ownership, Managerial Needs, Secrecy, Independence.
• These factors do not exist in isolation, but are interdependent, and all these factors are important in their own right. Nevertheless, the factors of nature of business and scale of operations are the most basic ones in the selection of a form of ownership for setting up of a business organisation. All other factors are dependent on these basic considerations.
• The various factors listed above are only major factors, and in no case they constitute an exhaustive list. Depending upon the requirements of the business, the demands of the situation and sometimes even the personal preference of the owner, the choice of a form of ownership is made.
• There is a need to analyse and weigh the relative advantages and disadvantages to find the one that will yield the highest net advantage. And for that, weights may be assigned to different factors depending upon their importance in each form of organisation, and the type of organisation that obtains the maximum weights may be ultimately selected.




Types of Companies

• From the point of view of incorporation, companies can be classified as chartered companies, statutory companies and registered companies. Companies can be categorized as unlimited companies, companies limited by guarantee and companies limited by shares. Companies can also be classified as public companies, private companies, one person companies, small companies, associations not for profit having license under Section 8 of the Act, Government companies, foreign companies, holding companies, subsidiary companies, associate companies, investment companies and Producer Companies.
• A private company has been defined under Section 2(68) of the Companies Act, 2013 as a company which has a minimum paid-up capital as prescribed, and by its articles restricts the right to transfer its shares, limits the number of its members to two hundred, and prohibits any invitation to the public to subscribe for any securities of the company.
• Where a private company alters its articles in such a manner that they no longer include the restrictions and limitations which are required to be included therein under section 2(68), the company shall, as from the date of such alteration, cease to be a private company.
• A private company can be further classified into a One Person Company and Small Company.
• “One Person Company” means a company which has only one person as a member.
• “Small company’’ means a company, other than a public company, (i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; and (ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees.
• Above definition of small company is not applicable to a holding company or a subsidiary company; or a company registered under section 8; or a company or body corporate governed by any special Act.
• A public company is a company which (a) is not a private company (b) has a minimum paid-up share capital as may be prescribed.
• A limited company is a company limited by shares or by guarantee. An unlimited company is a company not having any limit on the liability of its members.
• Associations not for profit with limited liability are permitted to be registered under a license granted by the Central Government without using the word(s) ‘Limited’ or ‘Private Limited’.

• Section 2(45) defines a Government company as a company in which not less than fifty-one per cent of the paid-up share capital is held by Central or State Government or governments or partly by one and partly by others.
• Auditor of a government company shall be appointed orreappointed by the Comptroller and Auditor General of India (C.&A.G.).
• Foreign Company means any company or body corporate incorporated outside India which (a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and (b) conducts any business activity in India in any other manner.
• Investment Company means a company whose principal business is the acquisition of shares, debentures or other securities.
• A Producer Company is a body corporate having objects or activities specified in Section 581B and which is registered as such under the provisions of the Act. Section 581B (1) of the Companies Act, 1956 provides the objects for which a producer company may be registered under the Act.

• The primary object of Nidhis is to carry on the business of accepting deposits and lending money to member-borrowers only against jewels, etc., and mortgage of property. According to section 406 of Companies Act, 2013 “Nidhi” means a company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit, and which complies with such rules as are prescribed by the Central Government for regulation of such class of companies.

• A company formed under an Act of Parliament or State Legislature is called a Statutory Company/ Corporation.
• Principal characteristics of Statutory Corporation are State ownership, creation by special law, immunity from Parliamentary scrutiny, freedom in regard to personnel, body corporate features, distinct relation with the Government, independent finances, commercial audit and operation on business principles.
• Central Government has exempted applicability of various provisions of the Act, to Private Company, Nidhi Company, Section 8 Company and Government Company.




Charter Documents of Companies

• The Memorandum of Association is a document which sets out the constitution of the company and is the foundation on which the structure of the company stands. It defines as well as confines the powers of the company. If the company enters into contract or engages in any trade or business which is beyond the powers conferred on it by the memorandum, such a contract or the act will be ultra vires the company and hence void. However, the Companies Act, 2013 shall override the provisions in the memorandum of a company, if the latter contains anything contrary to the provisions in the Act.
• The memorandum of association of a company may be altered by changing its name, altering it in regard to the State in which the registered office is to be situated or its objects, altering or reorganizing its share capital, reducing its capital or making the liability of the directors unlimited.
• Articles means the articles of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this Act. It also includes the regulations contained in Tables F to J in Schedule I of the Act, in so far as they apply to the company.
• The memorandum lays down the scope and powers of the company and the articles govern the ways in which the objects of the company are to be carried out and can be framed and altered by the members.
• A company has a statutory right to alter its articles of association. But the power to alter is subject to the provisions of the Act and to the conditions contained in the memorandum. Any alteration so made shall be as valid as if originally contained in the articles.
• The memorandum and articles, when registered, bind the company and its members to the same extent as if they have been signed by the company and by each member to observe and be bound by all the provisions of the memorandum and of the articles.
• As per doctrine of constructive notice, every person dealing with the company is deemed to have a “constructive notice” of the contents of its memorandum and articles. Outsiders dealing with incorporated bodies are bound to take notice of limits imposed on the corporation by the memorandum or other documents of constitution. Nevertheless, they are entitled to assume that the directors or other persons exercising authority on behalf of the company are doing so in accordance with the internal regulations as set out in the Memorandum & Articles of Association.

• While the doctrine of constructive notice seeks to protect the company against the outsiders, the doctrine of indoor management operates to protect the outsiders against the company. While persons contracting with a company are presumed to know the provisions of the contents of the memorandum and articles, they are entitled to assume that the provisions of the articles have been observed by the officers of the company. However, there are certain exceptions to doctrine of indoor management.

Indoor Management It operates to protect outsiders against the company. It protects innocent parties who are doing business with the Company and are not in a position to know if some internal rule or procedural requirement has not been complied with.
Rule of Constructive Notice To protect the company against outsiders. The rule of constructive notice is confined to the external position of the company and, therefore, it follows that there is no notice as to how the company’s internal machinery is handled by its officers. It is a presumption in favour of the company which mean that an outsider has a knowledge of the Memorandum and Articles of Association of the company with which he/ she is about to entering into the contract.
Alteration The state of being altered; a change made in the form or nature of a thing; changed condition. In Company Law the memorandum and articles sometime require alterations.

Alteration of Charter Documents

• a company may, by a special resolution and after complying with the procedure specified in this section, alter the provisions of its memorandum.
• In Case of Listed Company, at least 7 days before of the Board Meeting, publish notice of the board meeting in the newspaper. Simultaneously, send the copies of said publication to the Stock exchanges.
• amendment in authorised share Capital clause of Memorandum of Association shall be in accordance with the requirement of section 61 of the Companies Act, 2013.




Formation of LLP

• LLP is a body corporate having separate entity from its partners and perpetual succession is liable for all its assets, with the liability of the partners limited only to the amount of contributed by them just like a company. No partner will be individually liable for any wrongful acts of other partners. However if the LLP was formed for the purpose of defrauding creditors or for any fraudulent purpose, then the liability of the partners who had the knowledge will be unlimited.
• Annual returns are filed in Form 11. Form 11 needs to be filed within 60 days of the closure of the Financial year.
• The books of accounts of the firm shall be kept at the registered office of the LLP.

Different Forms of Business Organisations & its Registration

• Partnership is an association of persons who agree to combine their financial resources and managerial abilities to run a business and share profits in an agreed ratio.
• The business of the Joint Hindu Family is controlled and managed under the Hindu law.
• There are two schools of Hindu law:
(i) Dayabhaga, and
(ii) Mitakshara
• Partnership deed, also known as a partnership agreement, is a document that outlines in detail the rights and responsibilities of all parties to a business operation. It has the force of law and is designed to guide the partners in the conduct of the business.

Formation and Registration of NGO’S

• A company incorporated under Section 8 of the Companies Act, 2013(corresponding to Section 25 of the Companies Act, 1956) Company incorporated for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object, provided the profits, if any, or other income is applied for promoting only the objects of the company.
• A Trust is a relationship in which a person or entity holds a valid legal title to a certain property which is known as the Trust property. The Trust is bound by a fiduciary duty to exercise that legal title for the benefit of any one or more individuals or group of individuals or organisations, who are known as the Beneficiaries.
• A society is an association of persons united together by mutual consent to deliberate, determine and act jointly for some common purpose. Societies are usually registered for promotion of charitable activities like education, art, religion, culture, music, sports, etc.




Financial Services Organisation and its Registration Process

• The financial sector comprises commercial banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds and other smaller financial entities;
• However, the financial sector in India is predominantly abanking sector with commercial banks accounting for more than 64 per cent of the total assets held by the financial system;
• Over the years, Non Banking Finance Companies (NBFC’S), Housing Finance Companies (HFC’s), Asset Reconstruction Companies(ARC’s), Micro Finance Institutions(MFI’s), and Nidhi Companies have played a dominant role in mobilisation and disbursal of funds.
• A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 2013 ( or any earlier enactments) engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.
• NBFCs are different from Banks;
• Different types of NBFCs are Asset Finance Company, Investment Company, Loan Company,
Infrastructure Finance Company, Systemically Important Core Investment Company, Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC), Non-Banking Financial Company – Micro Finance Institution (NBFC-MFI), Non-Banking Financial Company – Factors (NBFC-Factors), Mortgage Guarantee Companies (MGC), NBFC- Non-Operative Financial Holding Company (NOFHC);
• Banks and Non-Banking Financial Companies(NBFCs) are financial intermediaries and the services offered by them are pretty much the same as banks. However, the benefits of incorporating an NBFC and carrying on its activities are different.
• For incorporation of NBFCs, the process is same as that of any other company. Apart form incorporation process, it requires registration with RBI.

• Housing Finance Company (HFC) is a type of non-banking financial institution which is primarily engaged in the business of providing home loans and other related products.
• Unlike other Non-Banking Financial Companies which are governed under the regulatory framework of RBI, HFCs are regulated by the National Housing Bank (NHB).
• NHB after satisfying itself on the fulfilment of following conditions provided under sub-section (4) of Section 29A of the National Housing Bank Act, 1987 may grant a Certificate of Registration.
• Asset Reconstruction Company (Securitization Company / Reconstruction Company) is a company registered under Section 3 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SRFAESI) Act, 2002. It is regulated by Reserve Bank of India as a Non Banking Financial Company (u/s 45I (f) (iii) of RBI Act, 1934).
• A microfinance institution is an organization that offers financial services to low income populations. NABARD has defined microfinance as “provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban and urban areas provided to customers to meet their financial needs; with only qualification that (1) transactions value is small and (2) customers are poor.”
• ANidhi Company, is one that belongs to the non-banking finance sector and is recognized under section 406 of the Companies Act, 2013.
• Payments banks is a new model of banks conceptualised by the Reserve Bank of India(RBI). These banks can accept a restricted deposit, which is currently limited to Rs. 1 lakh per customer and may be increased further.
• Payment Banks are regulated by the Reserve Bank of India. It released Guidelines for Licensing of Payment Banks on November 27, 2014 and Operating Guidelines for Payment Banks on October 6, 2016.




Startups and its Registration

• A startup company(startup or start-up) is an entrepreneurial venture which is typically an emerging , fast growing business that aims to solve an unmet need by developing a viable business model around an innovative product, service, processor a platform. A startup is usually a company designed to effectively develop and validate a scalable business model.
• A company may cease to be a startup as it passes various milestones, such as becoming publicly traded on the stock market in an Initial Public Offering(IPO), or ceasing to exist as an independent entity via a merger or acquisition.
• A number of organisation and/or organised activities exist with Startup activities. To name a few, Universities, Advisory and mentoring organizations Startup incubators, Startup accelerators, Co working spaces, Service providers(Consulting, Accounting, Legal, etc.), Event organizers, Start-up competitions, Startup Business Model Evaluators, Business Angel Networks, Venture capital companies, Equity Crowd funding portals , corporates (telcos, banking, health, food, etc.), other funding providers (loans, grants etc.), Start-up blogs and social networks and other facilitators.
• The Government of India has announced ‘Startup India’ initiative for creating a conducive environment for startups in India. The various Ministries of the Government of India have initiated a number of activities for the purpose.
• The process of recognition as a ‘startup’ shall be through mobile app/portal of the Department of Industrial Policy and Promotion.
• To promote growth and help Indian economy, many benefits are being given to entrepreneurs establishing startups.
• The tax exemptions for the startups had been introduced that was made effective from 2017-18.
• There are Exemptions to Start-ups under Companies Act, 2013
• There are different financing options available for Startups
• Financing is generally of two types i.e. (a) equity financing; or (b) debt-financing.

• it may consider an Initial Public Offering (IPO) to raise the funds or increase the magnitude of the business operations
• There are some Unconventional modes of financing options which are popular in India
• Micro Units Development and Refinance Agency Bank(or MUDRA Bank) is a public sector financial
institution in India. It provides loans at low rates to micro-finance institutions and non-banking financial institutions which then provide credit to MSMEs. It was launched by Prime Minister Narendra Modi on 8 April 2015.




Joint Ventures Collaboration and Special Purpose Vehicles

• A simply dictionary meaning of the word ‘Joint Venture’ is a commercial enterprise undertaken jointly by two or more parties which otherwise retain their distinct identities.
• Examples of Joint Venture Companies in India are Indian Oil Skytanking Ltd.( between Holders -Ruchi Soya and Indian Oil), Ratnagiri Gas & Power Private Limited( between NTPC Ltd and GAIL India Ltd.), Mahanagar Gas Ltd.{ BG Group of U.K. and GAIL India Ltd.) and Petronet LNG Ltd.( between PSU’s, namely, BPCL, GAIL India Ltd., ONGC and IOCL).
• There are various advantages of forming Joint Venture such as Risk Sharing, Economies of Scale, Market Access, Exploring the Global Market, Easy acquisition of other entity or business, Cost Efficiency, Flexible nature.
• There are disadvantages also of forming Joint Ventures as outlined in the Chapter.
• Joint ventures can be very effective for growth and success of a business. If formed strategically Joint Ventures can be extremely valuable and chances of their failure can be reduced to a greater extent. Some of the strategies are detailed in the chapter for forming a successful Jointing Venture.
• There are two modes of formation of Joint Ventures: Equity Joint Venture and Contractual Joint Venture.
• some entities face restrictions under FDI Policy of Government of India.
• Government of India permits certain type of entities. Different types of entities are : company, Limited Liability Partnership, Venture Capital Fund, Trusts, other entities:
• A Limited Liability Partnership (LLP) Firm combines the simplicity of a partnership firm with the advantage of limited liability as available in the case of a company.
• Some of the key issues which must be kept in mind while drafting the Shareholders’ Agreement(SHA) /Joint Venture Agreement / LLP Partnership Agreement (PA) are specified in the chapter.
• A special Purpose Vehicle (SPV) or Special Purpose Entities (SPE) are generally formed for a special purpose. Scope of these kind of companies or entities are limited only to those activities which are required to be performed to attain that specific purpose.




Setting up of Business outside India and Issues Relating Thereto

• Section 6 of the Foreign Exchange Management Act, 1999 provides powers to the Reserve Bank to
specify, in consultation with the Government of India, the classes of permissible capital account transactions and limits up to which foreign exchange is admissible for such transactions.
• Overseas Investment (or financial commitment) can be made under two routes viz. (i) Automatic Route and (ii) Approval Route
• All transactions relating to a JV / WOS should be routed through one branch of an Authorised Dealer bank to be designated by the Indian Party.

Procedure of Conversion of Business Entities

• Under section 2(71), a subsidiary of public company shall be deemed to be public company even if it continues to be private company in its Articles.
• A public company can be converted into a private company only after the approval of the Tribunal.
• For commencement of new business by an existing company, the guiding criterion is whether the new activity is germane to the original business or not.

Preliminary Contract When the company is being formed, the promoters, purporting to act on behalf of the company, enter into contracts for the purchase of property, or for securing the services of managers or other experts. Such contracts are obviously made before the incorporation of the company.
Provisional Contract In the case of a company having a share capital, contracts made after incorporation but before the company becomes entitled to commence business are provisional. Such contracts are no more relevant as the requirement of commencement have been omitted.
Company Seal An embossing press used to indicate the official signature of a company. A company under the new Act, may or may not have a common seal.




Various Initial Registrations and Licenses

• A permanent account number known as PAN is a vital document for any taxpayer. It is a 10-character alphanumeric number consisting of letter and digits.
• Any corporate body doing business in India requires a PAN card whether it is registered in India or abroad.
• PAN Card is significant for Setting up of Business.
• Registration of any business entity under the GST Law implies obtaining a unique number from the concerned tax authorities for the purpose of collecting tax on behalf of the Government and to avail Input Tax Credit for the taxes on his inward supplies. Section 22 of Central Goods & Services Tax Act, 2017 mandates that every person who has an aggregate turnover of more than Rs 20 Lacs in the relevant financial year, is liable to be registered under the Act. It must be noted though that for the state of Jammu & Kashmir and North-Eastern states, the threshold limit is Rs 10 Lacs.
• One of the important regulations/statutes to which most businesses in India are subject to is the Shops and Establishment Act, enacted by every state in India. The Act is designed to regulate payment of wages, hours of work, leave, holidays, terms of service and other work conditions of people employed in shops and commercial establishments.
• Any shop or commercial establishment that commences operation must apply to the Chief Inspector for a Shops and Establishment Act License within the prescribed time. The application for license in the prescribed form must contain the name of the employer, address of the establishment, name of the establishment, category of the establishment, number of employees and other relevant details as requested.
• Small Scale and ancillary units should seek registration with the Director of Industries of the concerned State Government.
• The main purpose of Registration is to maintain statistics and maintain a roll of such units for the purposes of providing incentives and support services. States have generally adopted the uniform registration procedures as per the guidelines.
• With a view to increase the share of purchases from the small-scale sector, the Government Stores
Purchase Programme was launched in 1955-56. NSIC registers Micro & small Enterprises (MSEs) under Single Point Registration scheme (SPRS) for participation in Government Purchases.
• Employee’s State Insurance (ESI) is a self-financing scheme for Indian workers which covers health insurance and social security. ESI functions as an independent corporation and comes under Ministry of Labor and Employment in India. The ESI Corporation thus manages the funds which is regulated by the guidelines and regulations of the ESI Act. 1948.
• Charitable Trusts, Societies, a Section 8 Company that receive foreign contribution or donation from foreign sources are required to obtain registration under Section 6(1) of Foreign Contribution Regulation Act, 2010. Such a registration under the Foreign Contribution Regulation Act, 2010 is called a FCRA registration.
• Entrepreneurs are required to obtain Statutory clearances relating to Pollution Control and Environment for setting up an industrial project. For 30 types of projects as listed, environmental clearance needs to be obtained from the Ministry of Environment, Government of India. This list includes industries like petrochemical complexes, petroleum refineries, cement, thermal power plants, bulk drugs, fertilizers, dyes, paper etc.
• IEC registration is required by a person for exporting or importing goods. It is a 10 digit code which is issued by the Directorate General of Foreign Trade (DGFT). All businesses which are engaged in Import and Export of goods require registering Import Export Code. IE code has a lifetime validity. Importers are not allowed to operate without obtaining this code and exporters cannot take benefit of exports from DGFT, customs, Export Promotion Council, if they do not have this code.
• To start a pharmacy business, a drug license is required. The Central Drugs Standard Control Organization and State Drugs Standard Control Organization control the issue of drug license in India. Drug license for setting up a pharmacy business is usually under the purview of the State Drugs Standard Control Organization.
• FSSAI is an abbreviation used for Food Safety and Standards Authority of India. FSSAI license is mandatory before starting any food business. All the manufacturers, traders, restaurants who are involved in food business must obtain a 14-digit registration or a license number which must be printed on food package
• The objective of the Trade Marks Act, 1999 is to register trademarks applied for in the country and to provide for better protection of trade mark for goods and services and also to prevent fraudulent use of the mark. The main function of the Registry is to register trademarks which qualify for registration under the Act and Rules.
• The Copyright Act and the Rules framed thereunder, inter alia  provide for procedure for relinquishment of Copyright; grant of compulsory licences in the matter of work withheld from public; to publish or republish works (in certain circumstances); to produce and publish a translation of a literary or dramatic work in any language; licence for benefit of disabled; grant statutory licence for cover versions; grant of statutory licence for broadcasting literary and musical works and sound recordings; registration of copyright societies and copyright registration.
• The objective of The Designs Rules, 2001 is to enable protection of newly created designs applying to particular articles manufactured by the industrial process.
• A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act that isnengaged in the business of loans and advances, receiving deposits (some NBFC’s only), acquisition of stocks or shares, leasing, hire-purchase, insurance business, chit business. Therefore, NBFCs lend and take deposits similar to banks; however there are a few differences a) NBFC cannot accept demand deposits, NBFCs cannot issue cheques drawn on itself and NBFC depositors are not covered by the Deposit Insurance and Credit Guarantee Corporation.
• Licensing of Banking Companies is governed by Banking Regulation Act, 1949. Section 22 of the Act details on Licensing of Banking Companies.
• To facilitate the regulatory regime of insurance business in India, IRDA is authorized to grant some licenses and issue registration for setting up insurance business in India.
• In India, the telecom market and business thereunder are governed and regulated by the Telecom Regulatory Authority of India (TRAI), which is a statutory body set up for regulating the Telecom and
Broadcasting Sectors.
• As per the New Telecom Policy (NTP) 1999, service providers in India involved in providing services like tele-banking, tele-medicine, tele-education, tele-trading, e-commerce, call center, network operation center and other IT Enabled Services, using telecom resources are termed as “Other Service Providers” (OSP).
• The Ministry of Information and Broadcasting (Ministry of I & B) is a branch of the Government of India which is apex body for formulation and administration of the rules and regulations and laws relating to information, broadcasting, the press and films in India.
• The Ministry is responsible for the administration of Prasar Bharati – the broadcasting arm of the Indian Government. The Central Board of Film Certification is the other important functionary under this ministry  being responsible for the regulation of motion pictures broadcast in India.
• MSME registration or Udyog Aadhaar can be obtained by any type of business entity. Proprietorships, Hindu Undivided Family, Partnership Firm, One Person Company, Limited Liability Partnership, Private Limited Company, Limited Company, Producer Company, any association of persons, co-operative societies or any other undertaking can obtain MSME registration in India.
• The eligibility criteria for obtaining Udyog Aadhaar registration is based on the investment in plant &  machinery made by a manufacturing concern or investment in equipment made by a service provider.
• The Industrial (Development and Regulations) Act 1951, popularly called as the IDRA, entitles the manufacturing sectors to observe certain formalities.
• Industrial Entrepreneurs Memorandum (IEM) is an application for acknowledgment of unit.
• Apart from the registration and licences listed above, one has to seek state level approval (s) whatever is applicable on one’s business from the respective State Industrial Department.




Maintenance of Registers and Records

• The Registers need to maintained and updated eventually and should be kept at the Registered Office of the Company.
• Some of the Registers are required to be kept open for inspection by Directors, Members, Creditors and by other persons.
• A Company is also required to provide the extracts from the Registers, if demanded by Directors, Members, Creditors and by other persons on payment of specified fees.
• Failure of the company to maintain statutory register could result in a fine of not less than Rs.1 lakh, which may extend to Rs.10 lakh. Further, the Officers of the company may also be punishable with imprisonment for a term which may extend to six months or with a fine not less than Rs.25 thousand which may extend to Rs.1 lakh.
• Hence, it is important for all the companies including private limited company or limited company or one person company incorporated in India to maintain statutory register.
• To be able to accurately state income is important due to several reasons. Not only is it important to be able to assess the viability and strength of the business but it is also important that financial records neither overstate nor understate the incomes earned by the business.
• To be able to determine your business’s profitability it is important that you should record and retain details of expenses and purchases made by your business.
• Bank records offer great insight into the transaction undertaken by a business. To be able to correctly ascertain the financial strength of an enterprise it is necessary that the bank balances as per records be in sync with the reality.
• Despite all advances in banking technology and facilities, businesses must still undertake a large number of transactions in cash. Due to the very sensitive nature of cash holdings and transactions, it is important from a business as well as reporting perspective to have a tight handle on the cash in circulation within the enterprise.




Identifying Laws applicable to Various Industries and their Initial Compliances

• The foremost requirement for setting up this business is to understand and decide what kind of business venture it would be. For example, if it’s a company, it would be governed under Companies Act, 2013, in case of Partnership, the Partnership Act, 1932 would be applicable, if it is an MSME, the MSME Act, 2006 would come into picture.
• Each business type comes with its own set of legal requirements and regulations and businesses should pay special attention to them before incorporating the business.
• Among others one important form of business is the Company which is governed under the Companies Act, 2013.
• It is necessary to get registered yourself to run your business without any legal problem. These are four major steps:
1.Acquiring Digital Signature Certificate (DSC)
2.Acquiring Director Identification Number (DIN)
3.Filing an e-form or New user registration
4. Incorporate the company
• Licenses are integral to run any business. Depending on the nature and size of business, several licenses are applicable in India. Knowing the applicable licenses for the enterprises and obtaining them is always the best way to start at business. The lack of relevant licenses can lead to costly lawsuits and unwanted legal battles. Business licenses are the legal documents that allow a business to operate while business registration is the official process of listing a business (along with relevant information) with the official registrar.
• Taxes are part and parcel of every business. There are a broad variety of taxes, such as, central tax, state tax and even local taxes that may be applicable for certain businesses.
• Adherence to labour laws is integral to every organization, small or big. When you are established as a company and have hired people to work for your organization, you are subject to several labour laws regardless of the size of the organization.
• Intellectual property is vital for most businesses in the contemporary regime of knowledge and innovation, especially for tech centric businesses. Codes, algorithms and research findings among others are some of the most common intellectual properties owned by the organizations. Therefore, one has to ensure strict adherence to the Laws relating to Intellectual Property in India as well as of International Application to which India is a signatory.
• There are several legislations which regulate the conditions of employment, work environment and other welfare requirements of certain specific industries. These enactments deal with factories and workshops; mines and minerals; plantations; shops and establishments as well as transportation.




Intellectual Property laws (Provisions applicable for Setting up of Business)

• Intellectual property (IP) refers to the creations of the human mind like inventions, literary and artistic works, and symbols, names, images and designs used in commerce.
• Intellectual property is divided into two categories: Industrial property, which includes inventions (patents), trademarks, industrial designs, and geographic indications of source; and Copyright, which includes literary and artistic works, such as, novels, poems and plays, films, musical works, artistic works such as drawings, paintings, photographs and sculptures, and architectural designs.
• Rights related to copyright include those of performing artists in their performances, producers of phonograms in their recordings, and those of broadcasters in their radio and television programs.
• Intellectual property rights protect the interests of creators by giving them property rights over their
creations.
• Over the past fifteen years, intellectual property rights have grown to a stature from where it plays a major role in the development of the global economy.
• It is strongly felt that under the global competitive environment, stronger IPR protection increases incentives for innovation and raises returns to international technology transfer.
• Engagement with India on Intellectual Property Rights (IPR) continues, primarily through the Trade Policy Forum’s Working Group on Intellectual Property.
• In 2016, India released its comprehensive National IP Policy, with its primary focus being on awareness and building administrative capacity.
• A trademark is a word, phrase, symbol, or design that distinguishes the source of products (trademarks) or services (service marks) of one business from its competitors. In order to qualify for patent protection, themark must be distinctive. For example, the Nike “swoosh” design identifies athletic footwear made by Nike.
• The Trade Marks Act 1999 (“TM Act”) provides, inter alia, for registration of marks, filing of multiclass applications, the renewable term of registration of a trademark as ten years as well as recognition of the concept of well-known marks, etc. It is pertinent to note that the letter “R” in a circle i.e. ® with a trademark  can only be used after the registration of the trademark under the TM Act.
• Mention should be made that under the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), there is no obligation for other countries to extend reciprocal protection unless a geographical indication is protected in the country of its origin. India did not have such a specific law governing geographical indications of goods which could adequately protect the interest of  producers of such goods.
• To cover up such situations it became necessary to have a comprehensive legislation for registration and for providing adequate protection to geographical indications and accordingly the Parliament has passed a legislation, namely, the Geographical indication of Goods (Registration and Protection) Act, 1999. The legislation is administered through the Geographical Indication Registry under the overall charge of the Controller General of Patents, Designs and Trade Marks.
• In view of considerable progress made in the field of science and technology, a need was felt to provide more efficient legal system for the protection of industrial designs in order to ensure effective protection to registered designs, and to encourage design activity to promote the design element in an article of  production.
• The Designs Act, 2000 has been enacted essentially to balance these interests and to ensure that the law does not unnecessarily extend protection beyond what is necessary to create the required incentive for design activity while removing impediments to the free use of available designs.
• The new Act complies with the requirements of TRIPS and hence is directly relevant for international trade.
• Industrial Design law deals with the aesthetics or the original design of an industrial product. An industrial product usually contains elements of both art and craft, that is to say artistic as well as functional elements.
• In order to qualify under copyright laws, the work must be fixed in a tangible medium of expression, such as words on a piece of paper or music notes written on a sheet. A copyright exists from the moment the work gets created, so registration is required to provide proper protection to one’s work and also to prevent the chances of its misuse and unauthorized use.
• Copyright in India is governed by Copyright Act, 1957.
• Patent, in general parlance means, a monopoly given to the inventor on his invention to commercial use and exploit that invention in the market, to the exclusion of other, for a certain period.




Compliances under Labour Laws (Provisions applicable for Setting up of Business)

• Factories Act, 1948 is applicable to any premises wherein 10 or more persons with the aid of power or 20 or more workers are/were without aid of power working on any day in the preceding 12 months, wherein Manufacturing process is being carried on.
• Minimum Wages Act, 1948 is made to provide for fixing minimum rates of wages in certain employments.
• Payment of Wages Act aims to regulate the payment of wages of certain classes of employed persons.
• Employees State Insurance Act, 1948 is extended in area-wise to factories using power and employing 10 or more persons and to non-power using manufacturing units and establishments employing 20 or more person up to Rs. 7500/- per month with effect from 1.4.2004. It has also been extended upon shops, hotels, restaurants, roads motor transport undertakings, equipment maintenance staff in the hospitals.
• Any person who is employed for work of an establishment or employed through contractor in or in connection with the work of an establishment.
• Mandatory for employer to pay Minimum Bonus of 8.33% of Salary & Maximum Bonus of 20% of Salary from the accounting year in which establishment has profits (excluding First 5 years of existence).
• All workers irrespective of their status or salaries either directly or through contractor or a person recruited to work abroad are covered under Employees Compensation Act, 1923.
• Contract Labour (Regulation and Abolition) Act, 1970 aims to regulate the employment of contract labor in certain establishments and to provide for its abolition in certain circumstances and for matters connected therewith.
• The objective of the Industrial Disputes Act, 1947 is to secure industrial peace and harmony by providing machinery and procedure for the investigation and settlement of industrial disputes by negotiations. This act deals with the retrenchment process of the employees, procedure for layoff, procedure and rules for strikes and lockouts of the company.
• The Trade Unions Act, 1926 aims to provide for the registration of Trade Union and in certain respects and also to define the law relating to registered Trade Unions.
• The object of Maternity Relief Act, 1961 is to protect the dignity of motherhood and the dignity of a new person’s birth by providing for the full and healthy maintenance of the woman and her child at this important time when she is not working.
• The Child Labour (Prohibition and Regulation) Act, 1986 is an Act to prohibit the engagement of children in certain employments and to regulate the conditions of work of children in certain other employments.
• The Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 was enacted in 1995 to give effect to the Proclamation on the Full Participation and Equality of the People with Disability in the Asian & Pacific Region (Beiijing 1992).

• It aims to spell out the responsibility of the state towards the prevention of disabilities, protection of rights, provision of medical care, education, training, employment and rehabilitation of persons with disabilities.
• Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (hereinafter referred to as the ‘Act’) is enacted by the Indian Parliament to provide protection against sexual harassment of women at workplace and prevention and redressal of complaints of sexual harassment and for matters connected therewith or incidental thereto.

Compliances relating to Environmental Laws (Provisions applicable for setting up  of Business)

• The Water Prevention and Control of Pollution Act, 1974 (the “Water Act”) has been enacted to provide for the prevention and control of water pollution and to maintain or restore wholesomeness of water in the country. It further provides for the establishment of Boards for the prevention and control of water pollution with a view to carry out the aforesaid purposes.
• The Air (Prevention and Control of Pollution) Act, 1981 (the “Air Act”) is an act to provide for the prevention, control and abatement of air pollution and for the establishment of Boards at the Central and State levels with a view to carrying out the aforesaid purposes.
• The Environment Protection Act, 1986 (the “Environment Act”) provides for the protection and improvement of environment. The Environment Protection Act establishes the framework for studying, planning and implementing long-term requirements of environmental safety and laying down a system of speedy and adequate response to situations threatening the environment. It is an umbrella legislation designed to provide a framework for the coordination of central and state authorities established under the Water Act, 1974 and the Air Act.
• Public Liability Insurance Act, 1991 is to provide the compensation for damages to victims of an accident of handling any hazardous substance or it is also called, to save the owner of production/storage of hazardous substance from hefty penalties. This is done by proving compulsory insurance for third party liability. As from the name of the act, it is Public Liability
• The National Green Tribunal (NGT), 2010 was established keeping in mind The Rio Conference of 1992 and based on the international environment principles of ‘polluter pays principle’ and ‘Sustainable Development’.
• Any person who has sustained the injury can file a suit in the National Green Tribunal. The suit can also be filed by a person who is the owner of the property to which the loss is caused. In case there is a death as a consequence of damage then the legal representative of such a person can file a case.




Dormant Company

a company can either on an application to Registrar change the status of the company from Active to dormant company or the Registrar can suo moto after issuing the notice to the concerned company change the status of the company from active to dormant company in the Register of companies and enter the name of such a dormant company in the Register of Dormant Companies maintained by the Registrar. Such a dormant company enjoys the status of the dormant company for a maximum period of five consecutive years. Before the end of the five consecutive years an application is required to be made for changing the status of the company from dormant to active company or such a company’s name is struck off from the Register of companies. However, if the company breaches any of the ground of being a dormant company then such a company’s status is automatically changed from dormant to active company in the Register maintained by the Registrar of companies.

Inactive Company Means a company which has not:
a. carrying on any business or operations
b. not made any significant accounting transaction during last two financial years
c. not filed financial statements and annual returns during the last two financial years
Significant Accounting Transaction It means any transaction made by the company except below transaction:
(a) payment of fees by a company to the Registrar;
(b) payments made by company to fulfil the requirements of this Act or any other law;
(c) allotment of shares to fulfil the requirements of this Act; and
(d) Payments for maintenance of its office and records.
Listed company It means a Company whose shares are traded on an official stock exchange

Strike Off and Restoration of Name of the Company and LLP

• The Registrar has suo motu power to remove the name of the company and LLP from the register after complying the provision of the law. With the view to enable the defunct company / LLP to remove their name from the Register, the provisions are made for such companies / LLP, providing an exit scheme. Such companies / LLP can apply to the Registrar for striking off their name from the Register.
• The provisions of section of section 248 to 252 of the Companies Act 2013 provide an easy exit to company and are much speedy as compared to other modes of winding up under the Companies Act. Even though the company can easily dissolve through this mode and its name removed from the ROC’s register, the liabilities continue on every director, officer and members of the company and may be enforced in the same manner as if the company had not been dissolved. In addition, by providing restoration provisions, the company which has been struck off may get a chance to restore its name in the register and get active with the permission of NCLT even within 20 years of being struck off.

Defunct company The company which failed to commence business within one year from the date registration without any proper reason which beyond the control of the company. Again if a company is not filling its balance sheet for many years than also it will be traded as defunct company.
Vanishing Company A company, registered under the Act or previous company law or any other law for the time being in force and listed with Stock Exchange which has failed to file its returns with the Registrar of Companies and Stock Exchange for a consecutive period of two years, and is not maintaining its registered office at the address notified with the Registrar of Companies or Stock Exchange and none of its directors are traceable.
Cessation of commercial operation It is the date from which the Limited Liability Partnership ceased to carry on its revenue generating business and the transactions such as receipt of money from debtors or payment of money to creditors, subsequent to such cessation will not form part of revenue generating business.




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