Private Limited Company v/s LLP v/s OPC

Private Limited Company v/s LLP v/s OPC

The difference between Private limited company v/s LLP v/s OPC rentiation among private limited company, limited liability partnership and one person’s company is based on the various features. Private limited company should be considered for business raising funds, requires greater compliance, with few of tax advantages. In LLP it is for non-scalable businesses with fewer compliance and tax advantages. And in OPC it is for sole entrepreneur who requires the higher compliance with minimal tax advantages and starup costs.

Those differentiations are important for the business in India. As they all are somehow interlinked with each other, but the difference among them can be made upon the various features.

Initially, the private limited company and OPC are governed by Companies Act 2013 but LLP is governed by Limited Liability Act 2008. They all are the separate legal entity, but their capital contribution is different. The capital contribution is minimum Rs. 1 lakh and for OPC too, but there is no prescribed limit for LLP.

Number of Directors

The number of Directors among private limited company is minimum 2 Directors, one has to be resident, in case of LLP, they also have 2 designated partners, one has to be resident but in OPC, there is only 1 resident director.When it comes for the audit among all these, it is compulsory in private limited company and OPC, but in case of LLP, no annual audit if turnover is less than 40 lakhs and the capital contribution is less than 25 lakhs. But they all have the limited liability.

With regard to conversion, private limited company can be converted into public liability company and LLP but LLP can’t be converted into OPC, and private limited company lastly OPC can be converted into public liability company and private limited company.

Another differentiation among all those is with the foreign ownership. In private limited company it is allowed but in LLP ownership can be allowed but with due permission from reserve bank of India and foreign investment department and similarly in OPC too.

Now another concept is with the taxation, in private limited company, LLP and OPC the tax rate is 30% on profit plus cess and surcharge. And with the annual filing in private limited company and LLP income tax return and annual statement of accounts and return is required to be filled with registrar of the company. In OPC one person is required to file its income tax return and annual statements of accounts with the registrar.

Author: This blog is written by Ms. Deepshikha Dabi, a passionate blogger & intern at  Aapka Consultant.

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Goods and Service Tax

What is GST?

Goods & Service Tax: The Constitution Amendment Bill for Goods & Service Tax (GST) has been approved by The President of India post its passage in the Parliament (Rajya Sabha on 3 August 2016 and Lok Sabha on 8 August 2016) and ratification by more than 50 percent of state legislatures. The Government of India is committed to replace all the indirect taxes levied on goods and services by the Centre and States and implement GST by April 2017.

But first let us understand what actually Goods & Service Tax is. It has been long pending issue to streamline all the different types of indirect taxes and implement a “single taxation” system. This system is called as Goods & Service Tax (GST is the abbreviated form of Goods & Services Tax). The main expectation from this system is to abolish all indirect taxes and only GST would be levied. As the name suggests, the GST will be levied both on Goods and Services. GST is a tax that we need to pay on supply of goods & services. Any person, who is providing or supplying goods and services is liable to charge GST.

Salient features of Goods & Service Tax bill:-

The proposed amendments shall subsume a number of indirect taxes which are presently being levied by the Central and State governments into GST thereby doing away with the cascading of the taxes and providing a common national market for goods and services. The aim to be achieved in bringing out such amendments is to confer simultaneous power on the parliament and the state legislatures to enact laws for levying GST concurrently on every transaction of purchase and supply of goods and services. Taking into account the federal republic nature of the country, the GST would be implemented concurrently by the central and state governments, CGST and SGST respectively.

Subsuming of various Central Indirect Taxes and levies such as Central Excise Duty, Service tax, Additional Custom and Excise duties respectively, and Central Surcharges and Cesses so far as they relate to the supply of goods and services.

Subsuming of State Value Added Tax / Sales Tax shall be done by the Goods & Service Tax bill, Entertainment tax (other than those levied by local bodies), Octroi and Entry tax, Purchase tax, Central Sales tax (levied by state and collected by states), Taxes on lottery, betting and gambling, and Luxury tax.

Compensation to the States shall be provided for the loss of revenue incurred which arose on account of the implementation of the Goods and Services Tax for a period, which may extend to five years.

Creation of Goods & Service Tax Council to be done in order to examine the issues relating to goods and services tax and make recommendations for the same to the Union and the States on parameters like rates, exemption list and threshold limits. The said Council shall function under the Chairmanship of the Union Finance Minister and will have the Union Minister of State in charge of Revenue or Finance as member, along with the Minister in-charge of Finance or Taxation or any other Minister nominated by each State Government. It is further contested that every decision of the Council shall be taken by a majority of not less than three-fourths of the weighted votes of the members present and voting in accordance with the following principles-

(a) The vote of the Central Government shall have a weightage of one-third of the total votes cast, and

(b) The votes of all the State Governments taken together shall have a weightage of two-thirds of the total votes cast in that meeting

Levy of Integrated Goods and Service tax (IGST) on inter-state transactions of goods and services to be done.

Levy of an Additional Tax on Supply of Goods, not exceeding one per cent. in the course of inter-State trade or commerce to be collected by the Government of India for a period of two years, and assigned to the States from where the supply originates.

CHALLENGES:

With regards to Tax Threshold

The threshold limit for turnover above which Goods & Service Tax would be levied will have to be strictly observed and analyzed. First of all, the threshold limit should be such that it benefits the small scale traders and service providers. The first major impact of setting higher tax threshold would naturally lead to less revenue to the government as the margin of tax base shrinks; second it may have on such small and not so developed states which have set low threshold limit under current VAT regime.

With respect to nature of taxes

There are various kind of taxes that would be part of GST such as excise duty, service tax, and different levels of taxes at State level. Remarkably, there are numerous other taxes which are union and state states based which is still out of Goods & Service Tax.

With respect to number of enactments of statutes

There are two types of laws in Goods & Service Tax, one at a center level which would be called ‘Central GST and the second one at the state level to be known as ‘State GST . This would be leading to different rates of taxes both at central and state level leading to lack of proper balance in the tax system in the country.

With respect to Rates of taxation

 Frankly speaking, the tax rate in current Goods & Service Tax is not in accordance with the state’s requirement of fund. They don’t have the power to increase their revenue if there is increase in their expenditure states.

Author: This blog is written by Ajinkya Nikam, a passionate blogger & intern at  Aapka Consultant.

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HOW TO OPEN A CURRENT BANK ACCOUNT ON COMPANY NAME

CURRENT BANK ACCOUNT ON COMPANY NAME

Companies, especially start-ups often need many different type of bank accounts. One of them is a current bank account. Nowadays, banks are offering multiple types of current account facilities. It may be premium current account, or max current account etc. depending upon your choice of bank, and the services that they provide.So today, let us understand, what are the steps to be followed for the same.

Documents required

1. Company Incorporation Certificate.

2.Memorandum of Association (MOA) and Articles of Association (AOA). They happen to be the basic or the back bone documents of a company.

3. PAN Card of Company.
4. Board Resolution by the company which would state that they want to open a current account in a particular bank, and also mention which facilities like net banking, mobile banking etc. they want to avail, along with authorizing persons who could operate that account. Similarly, it will state that if they require cards to be issued to the authorized person or not.
5. Address proof as prescribed by bank norms.
6. Know Your Customer (KYC) of the person authorized to operate the account as per the board resolution.
7. Cheque of certain amount depending upon type of account from one of the director’s accounts.

All these documents need to be self-attested. However, these are general requirements which are commonly asked by banks. Banks, may have their own individual requirements of documents. For e.g. ICICI Bank website shows, requirement of other documents also like shareholding pattern of the list of beneficial owners holding more than 25% shares etc. Therefore, one needs to check the particular bank’s requirements as well, or talk to a bank official for the same.

• Form to be filled

After these details are provided the company will fill anaccount opening form and submit all these documents with the form to the bank. One can find online the account opening form various banks or directly take it from the bank. Bank will do its own verification, after which details of your bank account will be sent to the registered address of the company.

Bank may also ask for an “entity-proof” which is primarily means anything that shows the existence of your business. Company can show various licenses or registrations certificate as well.

• Lastly, according to the bank’s rules you need to make some initial deposit which can be from 5000/- to somewhere between 20,000/-.

Author: This blog is written by  Ms. Aastha Mehta, a passionate blogger & intern at  Aapka Consultant.

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HOW TO REGISTER A BLOGGING COMPANY IN INDIA?

REGISTERING A BLOGGING COMPANY IN INDIA

If you have a blog for making money, you would register a company that runs a blog. A blogging company need to be registered first like pvt ltd company or LLP or Solo firm etc. It’s not mandatory that you have to go with the Pvt ltd Company or LLP even you can run a simple solo firm which is best legal entity for testing your ideas.You need to register your trademark for your blog, though it’s not mandatory in India but it has certain benefits.

There are 5 types of business registration available –

• Sole Proprietorship Firm: –If you are a single blogger it’s the best way to register your blogging company. A current account can be opened after service tax registration.Service tax Registration need to be done, for doing so you will be required pan card, voter id or adhar card and one business place proof like rent agreement copy or NOC from landlord.

• Partnership Firm: –If you have 2 or more than 2 founder this can be opted as a way to register the blogging company in the form of partnership firm. In this a partnership deed need to be formulated and PAN card is required as an ID proof. With the help of this a current account can be opened in banks registered under the name of the blogging company.

• Private Limited Company: –If you have 2 or more than 2 founder than along with partnership firm, this can also be opted as a way to register as a private limited company. If the aim of the company is to make a big company and its set up cost is high it’s the best way to opt.

• LLP: –It is similar to that of private limited company with less liability less set up cost. If the budget is less then this can be an appealing way to register the blogging company. For its registration a Designated Identification Number (DIN) need to be obtained along with digital signature of registered partners. Check for the availability of the name and the filing of Incorporation and Subscription document. Lastly an LLP agreement need to be formulated.

• One Person Company: –Though a One Person Entity allows a lone Entrepreneur to run a business with Limited Liability protection, an OPC (One Person Company) does have a few limitations. For instance, every OPC must nominate a nominee Director in the MOA or AOA who will become the owner of the OPC in case the promoter Director is disabled. Also, an OPC must be converted into a Private Limited Company if it crosses an annual turnover of Rs.2 crores and must file audited financial statements with the Ministry of Corporate Affairs at the end of each Financial Year. Therefore, it is important for the Entrepreneur to carefully consider the features of an OPC prior to incorporation.

Author: This blog is written by  Ms. Ankana Mukherjee, a passionate blogger & intern at  Aapka Consultant.

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MEMORANDUM OF UNDERSTANDING (MOU): NOT LEGALLY BINDING, BUT ESSENTIAL

A memorandum of understanding (MOU), a written agreement between the parties and it is also known as letter of intent or memorandum of agreement. A Memorandum of understanding is a document which describesan agreement between the two or more parties. It is generally used in the agreement where the parties do not bound by any legal contract or any legal comitmmitment. It is a very formal way of the agreement. MoUs are very important document and are generally used for domestic purposes and agreements between nations.

A MoU have certain requirement which need to be fulfilled certain requirement are

1. There must be a contracting partied to an agreement;
2. One must identify what is the subject matter and objective of an agreement;
3. Contain the essential of the agreement;
4. It must be signed by the parties.

MoUs are generally not legally binding, because no parties want to deal with the ramifications of a binding agreement, and even they do not want to get involve the exchange of money.

Although Memorandum of understanding is a contract between two parties and it is more confidential but it does not have any legal existence. They carry a degree of mutual understanding between the parties as well as it may be considered as a gentel men agreement. Most commonly MoU is considered as the first step towards the formation of any legal contract. It even helps the parties to move towards the right direction for getting the work done.

MoU is an essential because it specifies the role and the responsibility of all the parties agreeing for carrying on the business and the organization is working in order to achieve the objective which was signs in the MoU it becomes the basic goal of all the members to work for that.

The reason that parties prefer for MOUs because MOUs are simpler to form and are flexible than contracts. We can say it is essential because every party prefer it as well as every party takes up a proper plan and invest energy, time to form this MOU.

Author: This blog is written by Mr. Aman Verma, a passionate blogger & intern at  Aapka Consultant.

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How to Start Private Limited Company in India

Private Limited Companies are those companies which are privately held by the people. They are mostly preferred as a common business organization in India. Shareholders may operate the business themselves, or hire directors to manage the company on their behalf. The main characteristics of a company are as follow:

1. Minimum 2 and maximum 200 members are required in Private Limited Company.

2. It shall be started  with minimum paid-up capital  of Rs.1,00,000

3. It shall have minimum two directors.

4. Transfer of share can be restricted as per Articles of the company.

5. It can take loan from shareholders, directors and relatives of directors but not from the public. Shares cannot be issued to public.

6. Reduced compliance burden as per company law.

7. The words ‘Private Limited’ should be suffix or must come after the name of company. Many of the restrictive provisions of Companies Act are not applicable to Private Limited Company allowing flexibility and convenience unlike Public Limited Company.

Types of Private Limited Company

In accordance to the varying level of liability to the shareholder and other members, promoters can choose to have different type of Private Limited Company. Types of Private Limited Company are as follow:

Company Limited by Shares	Company Limited by Guarantee	Unlimited Companies
In this the liability of the members is limited by the memorandum to the amount i.e. paid up share capital, if any, unpaid on the shares respectively held by them.	The liability of members is limited to such amounts as they may respectively undertake by the memorandum to contribute to the assets. However, in case when the company is winding up its business, they may be asked to pay for the liabilities.	There is no limit to the liability on members. The liability covers the entire unpaid amount, debts and other payables. If company wound up, the creditors can enforce its  shareholders to pay for the company debts and liabilities. Since it is still a separate legal entity, hence members of unlimited company cannot be sued individually.

Advantages of a Private Limited Compan

• Limited Liability:

As business entity grows, the need for funds grows too. Hence, businesses have to borrow funds. In private limited company, the extent of liability is limited to the amount invested in starting the business. They are not personally liable to pay the debt.

• Access to Funding:

Private limited companies easily accommodate equity funding through venture capitalist, angel investors as they are unlikely to invest in any other structure.

• Debt-taking Capacity:

A private limited company can take funds from Banks, debentures and convertible debentures.

• Greater Credibility:

They have greater credibility as they have to inform about the structure, directors, members, Article and Memorandum of Association and necessary changes to the Ministry of Corporate Affairs. Such information is available in internet in public domain making the business entity more credible as compared to partnerships and proprietorships

• Easy Exit:

Private limited companies can be sold or transferred, either partially or in full, to another individual or entity without any disruption to the current business.

• Capital:

More capital can be raised as there is no limit on number of shareholder.

• Business startup:

Minimum number of shareholders need to start the business are only2.More capital can be raised as the maximum number of shareholders allowed is 50.

• Continuity of existence:

Business is not affected by the status of the owner. It continues to be remain in existence.

• Brand Value: 

Company’s brand value will get increased because people come to know about the company very well.

• Tax Advantages:

Private limited companies enjoy tax advantages. These companies pay corporation tax on their taxable profits and tend to be exempt from higher personal income tax rates. It opens the door to more tax-deductible costs and allowances redeemable against profits.

• Managing Shareholder Affairs:

1. a) Transfer of Shares: Shares in any form of Company are normally freely transferable. However, in a Private Company the articles can lay down certain restrictions and also the methodology in which they can be transferred.
2. b) Convening General Meetings: A PLC necessarily has to give a notice of 21 clear days for conducting any general meeting, unless all the shareholders agree for a shorter notice. However, in case of a Private Company the articles can determine the period of notice, which is required for convening a general Notice, as well as the percentage of shareholders to consent for a meeting to be convened at a shorter notice.

Disadvantages of a Private Limited Company

• The shares cannot be sold or transferred to anyone else without the agreement of other shareholders.

• In PLC no one is allowed to invite public to subscribe to its shares.

• The Growth may be limited because maximum shareholders in a PLC are only 50.

Private Limited Company – Incorporation

Any Company Registration start with indentifying the pre-requisites for incorporation and processing required documents for filing with concerned Registrar of Companies. Pre-requisites for company registration area s follow:

1. a) Shareholders (Members)

Minimum Two Persons required.

Maximum members can exceed up to 200.

Member can be individual, LLP or any registered company

1. b) Directors

It shall have minimum Two Directors.

One of the directors must be Resident in India, i.e., stayed in India not less than 182 in the previous calendar year.

Proposed Directors shall have a Director Identification Number (DIN) issued by the Ministry of Corporate Affairs.

1. c) Company Name

It consists of three parts i.e.

The Name Activity (Signify the industry) Private Limited Company.

The Registrar of Companies shall approve the name of company.

Minimum Share Capital- the Company shall have Rs 100000.

1. d) Registered Office Address

At the time of registration of Company, temporary address along with the address of any of the directors can be provided. Although, after registration the company has to file the permanent business address with documentary proof of address, ownership etc.

1. e) Company Objects

Objects of the Private Limited Company refer to proposed business activities. Private Limited Company objects shall be legal and shall not misuse or harm the society.The name of Company shall also signify the main, prerequisite objects. If the name of the Company is not describing a particular object, then the Company can have multifaceted objects. The objects are described under a Clause in Memorandum of Association of the Company.

1. f) Digital Signature Certificate (DSC)

All documents are filed online with Registrar of Companies. Digital Signature certificate is the ultimate way to verify the authenticity of document. Hence, all the documents shall be authenticated by using a Digital Signature Certificate of the Director.

1. g) Professional Certification

Services of professionals such as Chartered Account, Company Secretary, Cost Accountant is required to make necessary Certifications and declarations for incorporation of a Private Limited Company.

Incorporation of a Private Limited Company Process

A private limited company is most common form of business entity in India. It is easy to maintain and raise funds, offers limited liability to its members, offer flexibility, easy bank loan accessibility.  Following are the steps involved in the incorporation of private limited company

 1. Obtaining Director Identification Number (DIN) & Digital Signature Certificate

The First step is

ü  Obtaining Director Identification Number (DIN) for the proposed Directors in the Company. Documents regarding the same are

Identity proof, address proof, photograph, current occupation, email, no. education qualification, verification to be signed by the applicant.

ü  Obtaining Digital Signature for one of the Directors of Company.

2. Applying for the name

The promoters should propose one or more suitable name for the company but registrar have to select the name in case some names are identical or similar to registered business entities or trademark

ü  The name should not be similar or identical to any registered company or trademark.

ü  The name should not be one prohibited under the ‘Emblems and names Act, 1950’.

ü  The name of company must have suffix “Private limited Company “.

After submission of name, registrar will review and approve one of the name .It usually takes 3 to 5 working days to approve the name for company.

3. Drafting of MOA and AOA

MOA is the Memorandum of Association which covers the important provision of the company’s constitution. AOA contains rules and regulations governing the internal management of the company. It is the binding contract between the members of the company.

For drafting these, subscribers specify the name, occupation, address and sign the subscription pages of the MOA and AOA.

4. Filing for Incorporation of Private Limited Company

• After the name approval, promoters should submit the application, prescribed fees and below said following documents to the registrar.
• Declaration from Directors
• Affidavits of the Directors

A declaration states   that the requirements of the Act and the rules framed there under have been compiled with. This declaration is required to be signed by an advocate of the or Supreme Court or an attorney or a pleader having the right to appear before or a High Court or a Chartered Accountant in whole time practice in India who is engaged in the formation of a company, or by a person named in the Articles as a Director, Manager or Secretary of the Company.

Besides the aforementioned documents, the company must provide relevant information regarding of its registered office within 15 days of registration or during filing of incorporation documents.

5. Subscribing to the Private Limited Company

As per the Companies Act 2013, subscriber must sign their names and must be subscribed to the shares of company incorporated. It means each subscriber must have at least one share of the company. Each subscriber should sign the memorandum in presence of at least one witness and must clearly state the following:

• Address
• Personal Description
• Occupation
• No of shares subscribed
• Nature of shares etc.

Likewise, article of association should be signed. Both (Article and Memorandum of association) must be duly signed and stamped.

6. Certificate of Incorporation of Private Limited Company

After filing the above mentioned documentsand payment of necessary fess, the certificate for incorporation would be issued by the Registrar of Companies. Upon Incorporation, the company becomes a legal person separate from its incorporators.

Author: This blog is written by  Ms. Chanchal Sharma, a passionate blogger of Aapka Consultant.

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Service Tax in India

Service Tax in India

The concept of service tax has undergone various developments and changed in the recent world. It is assumed as one of the most significant contributor to the Government exchequer. In the last two financial years 2014-2015 & 2015-2016, the total revenue collection from service tax was Rs. 168132 crore & Rs. 211456 Crore (flash-figures) respectively, which shows a commendable growth from revenue collection of Rs. 407 crore in the financial year 1994-1995. The budgetary target of revenue collection in this financial year 2016-2017 is Rs. 231000 crore which is about 14%% of the total tax collection target of Government of India.

The law for the same has expanded its arms and taken in all he forms of services offered in any sector and therefore it prevails in each and every sector of the economy. To begin with, service tax was introduced on 3 services namely Telephone Services, Non-Life Insurance Services and Stock Brokers’ Services which gradually increased to 119 services.Service tax is a kind of tax levied over the services provided by certain categories of persons including companies, individuals, body of individuals, etc. Service provided is a value added destination based consumption tax on commercial activities i.e. the service tax is a financial compulsion to pay when you consume certain services provided but even though it is value added tax, it is a tax charged to the consumer and not to the business.

Service Tax is imposed under powers of Entry 97 of List I of Seventh Schedule of the constitution of India. Article 265 of the constitution lays down that no tax shall be levied or collected except by authority of law. Schedule VII divides these subjects into 3 categories.

1. Union List (only central government has power of legislation).
2. State List (only state government has power of legislation)
3. Concurrent list (both central and state government can pass legislations)

To enable parliament to formulate by law principles for determining the modalities of levying the Service Tax by the Central Government and collection of the proceeds thereof by the Central Government and State, amendment vide Constitution (92nd amendment) Act 2003 was enacted. Consequently, new article 268A was inserted for Service Tax levy by Union Government, collected and appropriated by the Union Government and amendment of seventh schedule to the constitution, in list I-Union List after entry 92B, entry 92C has been inserted for tax on services as well as in Article 270 of the Constitution the clause (1) Article 268A has been included. Service Tax is applicable in the whole of country except in J & K i.e. for the services provided in the state of J & K there is no tax.

There is no particular statute which specifies service tax, therefore the following laws are the sources of service tax in India:

1. Finance Act, 1994
2. Rules on Service Tax

• Notifications on Service Tax

1. Circulars or Office Letters (Instructions) on Service Tax
2. Orders on Service Tax
3. Trade notices on Service Tax

The aforementioned are the basics of charging service tax in this country. Under the Finance Act the power to administer the Service Tax lies with the Central Government and therefore the central government has issues the following rules regarding administration of service tax:

1. Service Tax Rules, 1994
2. Service Tax (Advance Ruling) Rules, 2003
3. Point of Taxation Rules, 2011
4. Place of Provision of Service Rules, 2012
5. Service Tax (Registration of Special Category of Persons) Rules, 2005
6. Service Tax (Determination of Value) Rules, 2006

To remove the ambiguity service have been defined under Section 65B of the Finance Act, 1994.

Service tax is payable on the gross amount which is charged by the service provider. The thing which is to be noted is that tax is to be paid on reimbursement of expenses which are part of the service itself, but not the payments which are incurred by the service provider itself. When the value is not ascertained, the valuation of similar services can be taken into account to determine the cost for the services provided. The gross amount that is charged is considered to be inclusive of service tax and the same has to be calculated by making further back calculations.

Small service providers whose total value of services provided are less than Rs. 10 lakhs in previous year are exempted from paying service tax unless they reach a turnover of Rs. 10 lakhs. The services which are provided by the RBI are exempted but the services provided to RBI are not exempted from the same.

Under the Finance Act 1994, there are provisions which provide for conclusion of proceedings if payment of tax dues along with interest is done by the assessee on the basis of his own ascertainment or on the basis of tax ascertained by the jurisdictional officer. A tax payer can get full waiver of penalty if payment of tax dues is made along with interest voluntarily before it comes in the notice of the court or when there is a notice about the same by the court or within 30 days its issuance in case the show cause notice is for the normal period of limitation of 30 days and does not involve suppression of facts, misstatement, etc.

Presently there is a hue and cry in the nation about the GST bill. Many states have ratified to it and many are yet to ratify for the same. The bill has its advantages and disadvantages but if this is a successful integration of goods and service tax, it would give India a world class tax system and allow our country to compete in the global market. As a result our system will match the international standard in sphere of indirect taxation.

Service tax is considered to be tax of the future and shall continue to be an exchequer for the government in the distant future itself.

Author: This blog is written by Ms. Anmol Srivastava, student of Damodaram Sanjivayya National Law University, Visakhapatnam, a passionate blogger & intern at  Aapka Consultant.

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