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Legal Aspects for a Start-Up

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Presentation made in Mumbai, India at the Power Of Ideas Workshop organised by the CIIE, IIM-A and the Economic Times

Presentation made in Mumbai, India at the Power Of Ideas Workshop organised by the CIIE, IIM-A and the Economic Times

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  • - Sleeping partners, only capital share partners,
  • Dividend % Tfr to General Reserve10% - 12.5% 2.5%12.5% - 15% 5%15% - 20% 7.5%>20% 10%
  • Professional TaxRs10,000 Rs200 / month (Feb Rs300)
  • Professional TaxRs10,000 Rs200 / month (Feb Rs300)
  • Professional TaxRs10,000 Rs200 / month (Feb Rs300)
  • U/s 79A of Companies Act, 1956
  • Temporary Facilitation Offices:Delhi, Mumbai, Kolkata, Chennai, Hyderabad, Bangalore, Ahmadabad, Pune, Kanpur and Jallandhar
  • Rule 9 and Rule 8
  • S. 17(2) contains an inclusive definition of the term ‘perquisite’, and sub-clause (iii) thereof states that the term includes the value of any benefit or amenity granted or provided free of cost or at a concessional rate by an employer (including a company) to an employee to whom the provisions of paragraphs (a) and (b) of this sub-clause do not apply and whose income under the head ‘Salaries’ (whether due from, or paid or allowed by, one or more employers), exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds fifty thousand rupees.The proviso below the above clause reads as under :"Provided that nothing in this sub-clause shall apply to the value of any benefit provided by a company free of cost or at a concessional rate to its employees by way of allotment of shares, debentures or warrants directly or indirectly under any Employees Stock Option Plan or Scheme of the company offered to such employees in accordance with the guidelines issued in this behalf by the Central Government".The Central Government issued the ‘guidelines’ referred to in the proviso above by Notification No. 323/2001 (R.No. 142/48/2001-TPL) dated October 11, 2001, effective from April 1, 2000, which enumerates the various aspects that ought to be included in any Employees Stock Option Plan or Scheme. The guidelines, inter alia, provide for the following :

Legal Aspects for a Start-Up Legal Aspects for a Start-Up Presentation Transcript

  • Legal Aspects for a Start Up
    Presented by CA Mehul Mukati
    for
    ET Power Of Ideas Workshop
    CIIE, IIM - Ahmedabad
  • Outline
    SSI vs MSME
    Choosing your vehicle
    Companies
    Taxation
    Other Legal aspects
    2
  • SSI vs MSME
    SSI – Small Scale Industries
    MSME – Micro, Small and Medium Enterprises
    Certification / Registration
    3
  • Entity Choice
    Service area or product development
    No of people – partners, employees, etc
    Time to test your service / prototype your product
    4
  • Formation
    * High degree of legal compliance / formalities
    # surcharge applicable if revenues > Rs1 crore
    5
  • In all forms of entity
    Need to maintain proper income and expenditure records
    Obtain tax numbers:
    PAN / TAN / Service Tax / VAT / Sales Tax
    PAN / TAN / Service Tax process simplified
    Anyone can apply online and then send the documents to the relevant office
    OR
    Go to the nearest facilitation centre and submit the form and documents
    6
  • Partnership
    Proper agreement (deed)
    Capital share
    Profit share vs Loss share
    Duties, responsibilities, and authority
    Salary paid to partners deductible as expense
    Taxable in hands of individual
    7
  • Limited Liability Partnership (LLP)
    Agreement Deed / Incorporation Agreement (as previous)
    LLP Act, 2008
    Minimum 2 partners, at least 1 resident
    DPIN to be obtained
    audit subject to limits
    Annual Filings
    Statement of Accounts and Solvency to be filed within six months from end of financial year
    Annual Return to be filed within 60 days of end of financial year
    8
  • Limited Liability Partnership (LLP)
    Exemptions from audit available
    Turnover
    Contribution
    But needs to be certified by designated partners
    Maximum Remuneration*
    Profit ≤ Rs3 lakhs Rs1.5 lakhs/90% of profit
    Profit > Rs3 lakhs 60% of incremental profit
    * same as a traditional partnership firm
    9
  • Private Limited Company
    All Directors need DIN
    Other mandatory provisions:
    Quarterly board meetings
    Intimation to Registrar of Companies
    Audit
    More Legal Requirements
    10
  • Annual Filing – RoC
    Balance Sheet
    Profit and Loss Statement
    Annual Return
    Compliance Certificate
    If capital between Rs10 lakhs and Rs2 crore
    11
  • Other Filings – RoC
    Mortgage
    Cost Audit Report, if applicable
    Increase in Authorised / Paid Up Capital
    Change in Directors, if any
    12
  • Companies Act
    Board Meetings
    At least one each quarter
    No maximum limit
    Whole-time / promoter directors no sitting fees
    Can be held anywhere and at any time
    Registers to be maintained
    Audit requirement
    Audit fees cannot be % based
    Auditor can claim reimbursement of expenses
    13
  • Companies Act
    Annual Return to be filed within 60 days of General Meeting
    Can accept deposit only from Director / Member / Relative
    AGM to be held within max 15 months
    On working day and during working hours
    Appointment of Statutory Auditor
    Change in Directors
    14
  • Companies Act
    Can issue DVR shares
    Cool off period 3 profitable years
    Specific format of P&L / Balance Sheet
    15
  • Companies Act – No Worry On
    Audit Committee
    Directors rotation / retirement
    Ceiling on managerial remuneration
    Time-limit for managing director
    16
  • Dividends
    To be deposited in separate bank account within 5 days and paid within 30 days
    Prerequisites
    Provision for depreciation
    Transfer to general reserve
    No default in redemption of preference shares
    Need to pay DDT @ 16.22%
    Not Taxable in the hands of recipient
    17
  • Income Tax – Due Dates
    Advance Tax payments
    Calculated on the estimated profit for the year
    15th June 15% ---
    15th Sept 45% 30%
    15th Dec 75% 60%
    15th Mar 100% 100%
    Annual Returns to be filed
    Audited / Partner of such firm 31st Oct
    All others 31st July
    Ensure loss returns are filed in time
    18
  • Income Tax - Requirements
    Maintain Books of Accounts for 8 years
    Form of entity does not matter
    Audit Limits based on revenues
    Business > Rs60 lakhs (Rs40 lakhs)
    Profession > Rs15 lakhs (Rs10 lakhs)
    Mandatory for companies irrespective of revenue
    Statutory Dues / Taxes can be claimed only if paid within respective due dates
    Remember: advantageous if bills are generated in name of entity
    19
  • Income Tax – Expenses Claim
    Depreciation on WDV : vehicle, computers & peripherals, mobile
    30 September vs 31 March
    Can be carried forward indefinitely
    Service Tax/Sales Tax/VAT Input
    Availability of set-off
    Rentals
    Receiver can claim flat maintenance cost of 30% of rentals: no bills are needed
    Income tax applicable only on balance amount
    20
  • Income Tax – Expenses Claim
    Other Company Expenses
    can vary from puja expenses in the office, newspapers, office materials, water, electricity, telecom, security, etc.
    Claimed by the company and not by the directors
    Proper bills will be needed in company name
    Salaries & Reimbursements
    Employees
    Directors / Promoters
    21
  • Income Tax –Salary Payments
    Optimum Salary: Rs3.30 lakhs / year
    New tax slab limit Rs. 1.8 Lakh
    80C benefits Rs1.1 Lakh
    Medical insurance Rs15,000/Rs35,000?
    Others: medical, conveyance, children education
    If above 60 / 80 yrs Rs4.15 / 6.15 lakhs
    Other Direct Payments to Directors
    Rentals
    Consultation Fee
    Commissions 1% / 3% of Net Profits
    22
  • Income Tax – Deductions
    Sec 80HHC – Export of Goods
    Export of goods / merchandise
    Certificate issued by Export House / Trading House
    Sec 80HHE – Software / Tech Services Export
    Buyer / Auditor certificate
    Common to above
    Payment in Convertible Foreign Currency
    Proportionate to Total Revenue / Profits
    23
  • Income Tax – TDS
    Onus on payer to deduct TDS
    TDS to be deducted on all bills / payments
    TDS to be deposited each quarter / month
    PAN not quoted = higher TDS
    24
  • Income Tax – TDS
    25
  • Service Tax
    Wide range of services covered, including most common – consultancy, advisory, etc.
    Exception: Export, if receipts in foreign currency
    Applicable if revenue ≥ Rs10 lakhs
    Based on providers’ revenue
    Need to register
    once revenue crosses Rs9 lakhs in previous year
    Within 30 days
    Set-off available – now a grey area
    Effective Rate = 10.3%
    26
  • Service Tax Procedure
    Apply to Superintendent of Central Excise
    Single Registration for all services
    PAN mandatory for ST registration
    Need to issue bill / invoice within 14 days of completion of service
    Signed and numbered
    Details / description of service provided
    Service tax amount to be shown separately
    Name & Address of provider / receiver of service
    ePayment mandatory if ST ≥ Rs.10 lakhs
    27
  • Service Tax
    Payment
    5/6th of quarter end (ex Mar) Individual / Firms
    5/6th of month (ex Mar) Others
    Returns: Half Yearly – 25th Oct / 25th Apr
    ST applicable on full bill value
    Including TDS deducted
    28
  • Excise Duty
    Excise Duty
    Only manufacturers
    Payment by 5th / 6th of next month / quarter
    SSI Quarterly; others each month
    Returns
    SSI 10th after end of quarter; others 10th of next month
    29
  • RBI / FEMA
    RBI Regulations / FEMA
    Imports: Equipment
    Exports: Software / Services
    30
  • Provident Fund (PF)
    Mandatory if
    ≥ 20 employees and
    Salary ≤ Rs6,500/month
    Exceptions
    Company PF Trust
    “excluded” employee
    Deductions
    12% of Basic + DA
    Matching contribution by employers
    31
  • Shops & Establishments Act
    Mandatory in all cases (except if it is a factory)
    Fees depends on number of employees
    32
  • ESIC
    Mandatory if
    Manufacturing using power ≥ 10 employees
    Others ≥ 20 employees
    Salary ≤ Rs15,000 / month
    33
  • Professional Tax
    State subject
    Maharashtra, Karnataka, West Bengal, Andhra Pradesh, Gujarat, Tamil Nadu, Madhya Pradesh
    In Maharashtra
    Mandatory in all cases
    Amount depends on Salary
    34
  • Things to Remember
    Always issue a Bill / Invoice
    Name & Address: both provider and receiver
    Serial Number
    PAN / TAN number
    Service Tax Registration Number
    Description of service / goods: each class separately
    TDS / Service Tax / Education Cess / Higher Secondary Education Cess separately shown
    35
  • Private Company Sweat Equity
    Only of class of shares already issued
    Special Resolution passed in General Meeting
    Resolution to specify
    number of shares
    consideration, if any
    class / classes of directors / employees to whom such equity shares are to be issued
    Company should be at least 1 year old
    To be at a fair price calculated by an independent valuer
    36
  • Thank You
    CA Mehul Mukati
    Axia Advisory Services Pvt Ltd
  • DIN Process
    Only eForms with scanned documents
    eForm can be submitted by person, if he/she has valid DSC
    eForm can be digitally signed by CA / CS as proof of having verified documents
    If so done, DIN will be approved immediately
    38
  • Normal Procedure (1/2)
    Obtain DSC / DIN
    File for approval of proposed name to ROC
    Get MoA & AoA vetted by ROC and printed
    Apply for stamping of the MoA & AoA
    Obtain CoI from RoC
    Open Bank Account
    Obtain a company seal
    Obtain PAN / TAN
    • Value Added Tax (VAT) / Sales Tax / Service Tax
    39
  • Normal Procedure (2/2)
    Register under
    Shops and Establishment Act
    Profession Tax
    Employees' Provident Fund Organization (EPFO)
    ESIC (medical insurance)
    Factories Act
    Filing for Government Approval before RBI/FIPB for Foreigners and NRI's
    40
  • How to e-File Documents
    Company representative
    Upload e-Forms on MCA21 portal through the ‘Annual Filing Process’ link
    Prepare e-Form and submit on CD to Temporary Facilitation Offices (10-12 cities only) / Registrar’s Front Offices (RFO).
    Prepare e-Form and submit through Certified Filing Centers
    Either the director who has DSC or practicing CA / CS can file on behalf of the Company
    41
  • Private Company Sweat Equity
    Procedure
    IP / know-how / value addition valued by valuer;
    Valuer to justify valuation in report;
    Company to send valuation report to shareholders
    Treated as managerial remuneration, if:
    Sweat equity shares issued to director / manager;
    Issued for non-cash without resulting in an asset
    42
  • Private Company Sweat Equity
    Taxation: Not a Perquisite, if
    Plan / Scheme as per SEBI Guidelines
    For both unlisted and listed companies
    Person holding >10% equity ineligible
    Copy of Plan / Scheme submitted to CIT
    Submission only, no approval required
    Conditions of Plan / Scheme have not changed
    Regulatory Compliance
    Within 30 days of allotment
    43