Setting Up A New Business

The process of selecting the form of business organization plays a very important role in setting up of business, as various factors like flexibility, business requirement, taxation etc are required to be considered and a wrong decision may hamper your future business plan. As its long term plan which need to be rationalized based on the pros and cons on the type of organization.

At B.C.Shetty & Co., we provide option to choose the right kind of business form and therefore we can help you in understanding the technicalities and positives that lies behind each form, to enable you to take a right and informed business setup decision.

We can help you in setting the following form of business such as
Proprietorship

It is an unincorporated business owned by a single person who is responsible for its assets and liabilities and entitled to earned profits and enjoying the benefit of business environment.

Features of Proprietorship:

  • One man ownership and control
  • No much legal formalities
  • Own Capital contribution
  • Unlimited liability
  • No separate entity for the business and personal
  • Non Profit sharing
  • Complete secrecy

Benefits of Proprietorship:

  • Easiest and least expensive form of ownership to organize
  • Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they see fit.
  • Sole proprietors receive all income generated by the business to keep or plough back to earn.
  • Profits from the business flow-through directly to the owner's personal tax return.
  • The business is easy to dissolve, if desired

Limitations of Proprietorship:

  • Sole proprietors have unlimited liability and are legally responsible for all debtagainst the business. Their business and personal assets are at risk according to the risk of the business.
  • Has a disadvantage in raising funds and are often limited to using funds from personal savings or consumer loans.
  • May have a hard time attracting high-caliber employees, or those that are motivated by the opportunity to own a part of the business.

Suitability:

A sole proprietorship form of business organization is suitable to the following types of business houses where:

  • The capital requirement is very small.
  • The goods are of artistic and personal requirements
  • There is transfer of personal services
  • Computer services
  • Business necessitating spirit of co-operation
  • Procedure for Commencement of Proprietorship:

    Decide on a business name for your sole proprietorship.
     
    Search availability of your sole proprietorship's chosen business name, and for similarity to existing names

    Register your sole proprietorship's name

    Application for PAN/Bank Account

    A sole proprietorship offers the least amount of complication in terms of start-up requirements for the different business organizations (i.e. corporation, partnership, etc.)

Partnership
In India, partnership organization is formed and managed by Indian Partnership Act, 1932.
Section 4 of Partnership Act defines partnership as the relation between persons who have agreed to share profits of a business carried on by all or any of them acting for all.
Minimum Requirement:- Minimum of 2 persons are required to form a partnership and maximum of 10 persons in case of banking and 20 in case of others.

Features:-
The relation of partners is based on the contract.
At least 2 persons are required for the formation of partnership firm
There must be some undertaking of business.
The objective must be to earn profits and share among partners.
Law of agency applies.
Partner's liability is unlimited.
Mutual trust and confidence is the basis of partnership.
Every partner can be a principal or agent of other partners during the

Course of Business.
Consensus i.e. mutual consent is required for all important decisions.
Restriction on transfer of share.
No relation between contribution of capital and share of profits.
Life span of partnership depends upon the will of partners.

Benefits of Partnership:-
Formation of partnership is easy as it does not involve too many legal    formalities.
Flexibility in the operations of the business.
Registration of partnership form of organization is not compulsory as in    the case of company.
All major decisions are taken by mutual trust, which results in better    decision making.
Sharing of risk helps in formation of capital.
Relation of effort and reward.
Unlimited liability helps in more credit worthiness.
It protects the interest of minority as mutual consent i.e. consensus is    required to take all the major decisions.
Easy to maintain secrecy as partnership firm is not under an obligation    to disclose its annual accounts.
No legal formalities for dissolution.

Limitations:-
Unlimited liability increases the risk; this hinders the growth of    business.
Limited resources for generating capital.
No perpetual succession i.e. sudden death or retirement of any one of    the partners dissolves the partnership.
Lack of good faith and confidence among partners causes great    limitations.
No transfer of shares.
Burden of law of agency.
Due to non-disclosure of accounts there is always a lack of public    confidence

Suitability:-
For service industry:- Accounting, Medical, Legal, Transportation,    Warehousing etc.
Medium enterprises.
For distribution of profits.
Partners
Capital Contribution
Registered Office
Partnership Deed
Pooling of partners IDEA
Business selection
Mutual understanding on conditions of agreement
Preparation of Partnership Deed
 
Partnership deed on Stamp paper and Drafting it
Signature of partners on Deed and submitting it to "Registrar of Firms" along with registration form
Commence Business
get subsequent registrations
Society

A group of people formed as a separate organization and which has as a stated purpose some charitable or benevolent purpose either in regards to the public at-large or in regards to the common interests of the members, and which operates as nearly as possible at cost.

Features:

  • It's a group of persons
  • For some common interest or purpose
  • United by a common vow
  • Follows the same trade or profession

Benefits of Society:

  • Easy to form
  • No obstruction for membership
  • Limited liability
  • Service motive
  • Democratic management
  • Stability and continuity
  • Economic operations
  • Surplus shared by the members
  • State patronage

Limitations of Society:

  • Limited resources
  • Inefficient management
  • Lack of secrecy
  • Cash trading
  • Excessive Government interference
  • Absence of motivation
  • Disputes and differences

Suitability:

Any group of persons can form a cooperative society of their own if they so like to act jointly for the common benefit of each other. But that is not the legal way of formation the cooperative society. All societies must be formed under the Cooperative Societies Act, 1912 or under the relevant state cooperative laws.

Formation of Society:

For formation of a cooperative society at least 10 persons are required. They must have the common objective to serve each other by forming a society. They have to contribute capital in form of share capital and decide to take up any one or more activities. They form a managing committee from and among the members who looks after the management of the society and implements the decisions of the members. As our Constitution is wedded to a socialistic pattern of society, it is a part of the Government policy to promote and encourage establishment of cooperative societies.

Therefore, co-operative societies enjoy several benefits provided by the Government from time to time. But in order to avail those benefits the society must have to register under the Cooperative Societies Act. The procedure for registration are as follow :

Apply for registration of the association as cooperative society in a prescribed proforma available with the Registrar of Cooperative Societies with requisite information like -

List of members, their individual addresses

Name and objectives of the society for which it has been formed

Collection of funds - share capital or loan fund with their utilization process

Office bearers as managing committee and their powers

Admission and retirement of members

Bye-law of the society

Trust

Trust created for advancement of education, promotion of public health and comfort, relief of poverty, furtherance of religion, or any other purpose regarded as charitable in law. Benevolent and philanthropic purposes are not necessarily charitable unless they are solely and exclusively for the benefit of public or a class or section of it. Charitable trusts(unlike private or non-charitable trust) can have perpetual existence and are not subject to laws against perpetuity. They are wholly or partially exempt from almost all taxes.

Benefits:
  • If approved by the Inland Revenue Department, they are able to earn income, which will not be taxed within the Trust.
  • Gifts can be made of any amount to Charitable Trusts without incurring gift duty.
  • Charitable Trusts can continue on in perpetuity if desired, as compared to other types of Trusts that can only continue for a maximum of 80 years.
  • They can be set up during one's lifetime and then added too later by a Will.
  • Money can be given or lent to a Charitable Trust.
  • The chosen name of the Trust can be preserved in perpetuity and the Trust structured so it will continue to grow through investment or by compounding part of the income.
  • By lending capital to the Trust it is possible to preserve ones options. The loan can always be repaid later if the capital is needed for other purposes.
LIMITATIONS:-
  • Annual Excise Tax
  • Self-Dealing
  • Distribution of Income
  • Controlling Business Entities
  • Inconsistent Investments
  • Prohibited Taxable Expenditures
Who can form a trust:
As per section 7 of the Indian Trusts Act, a trust can be formed –
  • By every person competent to contract, and
  • By or on behalf of a minor, with the permission of a principal civil court of original jurisdiction.

But subject in each case to the law for the time being in force as to the circumstances and extent in and to which the Author of the Trust may dispose of the Trust property.A person competent to contract is defined in section 11 of the Indian Contract Act as a person who is of the age of majority according to the law to which he is subject and who is of sound mind and is not disqualified from contracting by any law to which he is subject. Thus, generally speaking, any person competent to contract and competent to deal with property can form a trust. Besides individuals, a body of individuals or an artificial person such as an association of persons, an institution, a limited company, a Hindu undivided family through it's Karta, can also form a trust.


It may, however, be noted that the Indian Trusts Act does not apply to public trusts which can be formed by any person under general law. Under the Hindu Law, any Hindu can create a Hindu endowment and under the Muslim law, any Muslim can create a public wakf. Public Trusts are essentially of charitable or religious nature, and can be constituted by any person.

REGISTRATION OF CHARITABLE TRUST:-

Limited Liability partnership

In India, the law of LLP is new. The Limited Liability Partnership Bill, 2008 and The LLP Act 2008 became operational on 31st March 2009.

The Limited Liability Partnership Rules 2009 ('the LLP Rules') notified on 01st April 2009 and brought into force from that date, except the Rules pertaining to conversion of existing partnership firms, private limited and unlisted public limited companies into LLP, which are brought into force from 31st May 2009.

As per the LLP Act any two persons can incorporate a LLP.

Every LLP shall have two designated partners (i.e. partners responsible for compliance of law of LLP) and one of the two designated partners, shall be resident in India.

LLP shall have a registered office and optionally one other address for serving of documents by the Government and others.

Audit of books of accounts of LLP by an Indian Chartered Accountant is mandatory, except for small LLPs. As per Rule 24(8) of the LLP Rules 2009 -where turnover of LLP does not exceed Rs. 4 million (Rs. forty lakhs) in any financial year or contribution of partners in LLP does not exceed Rs. 2.5 million (Rs. Twenty Five lakhs) need not get their accounts audited.

Annual filing of statement of accounts (by 30 September) and annual return (by 30 May).

Salient features of LLP are:

  • For income tax purpose, LLP is treated at par with partnership firms. Thus, LLP liable for payment of income tax and share of its partners in LLP is not liable to tax. Meaning no dividend distribution tax payable. Provision of 'deemed dividend' under income tax law, is not applicable to LLP.
  • LLP is a body corporate. It means it can hold property (movable, shares, securities, immovable's etc) in its own name. LLP can file suit in its own name. LLP can be sued by others in its name. LLP can enter into contract in its own name.
  • LLP can have other Body Corporate (including companies) as its partners.
  • LLP requires minimum 2 partners. There is no limit on maximum partners. However two individuals shall be 'Designated Partners'. One of the Designated Partner shall be such individual who has stayed in India for at least 182 days in the immediate preceding one year.
  • Where LLP has only body corporate as partners, then such body corporate shall nominate individuals to comply with requirements of two individuals being 'Designated Partners'.
  • Prior written consent of individual required to make him Designated Partner (DP). Designated Partners require DP Identification Number (DPIN)
  • Liabilities of partners of LLP are restricted to the extent of amount of capital contributed by them. Designated partners liable for any lapse in compliance of the provisions of the LLP Act. In the event of non-payment of Income Tax by LLP, its partners may be held liable for the same.
  • In LLP, partners are agent of LLP, but are not agent of other partners. Thus, a partner is not liable for act of other partners.
  • If LLP agreement so provides, partners can do business with LLP as if outsiders. LLP can enter into pre-incorporation contracts.
  • Partners of LLP may assign / transfer his share of profit in LLP.
  • Legal heirs may become partner of LLP, if so provided in LLP agreement.
  • Existing partnership firm, private company and unlisted public company can be converted into LLP.
  • LLP is required to maintain books of accounts.
  • LLP shall get its books of accounts audited either voluntarily or mandatorily from a chartered accountant, where its turnover is Rs.40 lakhs (Rs.4,000,000/-) or above OR where its capital is Rs.25 lakhs (Rs.2,500,000/-) or above.
  • LLP is required to file with ROC, every year, annual return and state of accounts and declaration of solvency. For delay in filing, additional fees @ Rs.100 per day is payable.
  • Where LLP is having capital exceeding Rs. 50 lakhs (Rs.5,000,000/-) OR turnover exceeding Rs.5 crore (Rs.50,000,000/-), annual return shall be certified by a practicing company secretary.
  • Except offences punishable with imprisonment, other offences are compoundable. Statute provides for arrangement or reconstruction between LLP and its partners and/or creditors
  • For non-payment of debt, creditors may file suit for winding up of LLP.
  • LLP can be closed by striking off its name or by winding up.
  • Partners may apply for investigation into affairs of LLP by the Central Govt. appointment and cessation of partners, as per LLP agreement. If LLP agreement is silent, then provisions of LLP Act shall apply.
  • Electronic filing of documents and requirement of digital signature.

LLP Registration

Procedure in brief:

  • Obtaining DIN & DSC for the proposed designated partners. (Mandatory)
  • Applying for company name approval.
  • Drafting & stamping of LLP Agreement.
  • Submission of documents & obtaining of Certificate of Incorporation.
  • Filing of LLP Agreement within I month of Incorporation and requisite ratification of LLP agreement.

Requirements for obtaining DIN & DSC:

  • Copy of PAN card.(self-attested )
  • Copy of address proof (self- attested voter's id card/self- attestedrecent (not older than 2 months) telephone bill;self- attested (not older than 2 months) recent electricity bill; bank statement attested by banker ; valid passport).
  • 5 Photographs (passport size).
  • DIR 4 (verification document)
  • Personal details--Details of own name & father's name as appearing in PAN (no abbreviations allowed), occupation, educational qualification, place of birth, mobile number, email id;

Information required for DIN

Applicant's Name First Name Middle Name Last Name
     
Father's Name First Name Middle Name Last Name
     
Date of Birth Date Month Year
     
Nationality   Gender  
Place of Birth      
Phone / Cell Number      
Email ID  
Address: Building No, Street City State Country PIN
Permanent          
Present          

Educational qualification and present occupation details

         

Documents /Information required for Registration:

  • Six Proposed names of the LLP in order of preference
  • Activities of the proposed LLP in detail.
  • DIN; DSC; Address Proof; Identity Proof; Father's Name; Place of Birth; Date of Birth; of all proposed designated partners and promoters.
  • Clear Copy of Identity and Address Proof (latest bank statement/passport/telephone bill/electricity bill)
  • Details of Authorized and Subscribed Capital (minimum Rs. 1,00,000/-)
  • Details of break – up of Share Capital.i.e. Funding by promoters.
  • Drafting of LLP Agreement .Subscription sheet to be handwritten by the designated partners themselves in their own hand.
  • Clear copy of partners ID & Address Proof has to be self- attested.
  • Lease agreement/rental agreement for registered office else .NOC from Landlord in case of rented premises.
  • If own premises tax paid receipts.

Our scope of services covers the end to end service which includes preparing all the documentation till the incorporation of your business entity and routine compliance.

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