1. Legal Aspects for a Start Up Presented by CA Mehul Mukati for ET Power Of Ideas Workshop CIIE, IIM - Ahmedabad
2. Outline SSI vs MSME Choosing your vehicle Companies Taxation Other Legal aspects 2
3. SSI vs MSME SSI – Small Scale Industries MSME – Micro, Small and Medium Enterprises Certification / Registration 3
4. Entity Choice Service area or product development No of people – partners, employees, etc Time to test your service / prototype your product 4
5. Formation * High degree of legal compliance / formalities # surcharge applicable if revenues > Rs1 crore 5
6. 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
7. 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
8. 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
9. 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
10. Private Limited Company All Directors need DIN Other mandatory provisions: Quarterly board meetings Intimation to Registrar of Companies Audit More Legal Requirements 10
11. Annual Filing – RoC Balance Sheet Profit and Loss Statement Annual Return Compliance Certificate If capital between Rs10 lakhs and Rs2 crore 11
12. Other Filings – RoC Mortgage Cost Audit Report, if applicable Increase in Authorised / Paid Up Capital Change in Directors, if any 12
13. 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
14. 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
15. Companies Act Can issue DVR shares Cool off period 3 profitable years Specific format of P&L / Balance Sheet 15
16. Companies Act – No Worry On Audit Committee Directors rotation / retirement Ceiling on managerial remuneration Time-limit for managing director 16
17. 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
18. 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
19. 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
20. 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
21. 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
22. 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
23. 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
24. 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
26. 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
27. 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
28. 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
29. 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
31. 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
32. Shops & Establishments Act Mandatory in all cases (except if it is a factory) Fees depends on number of employees 32
33. ESIC Mandatory if Manufacturing using power ≥ 10 employees Others ≥ 20 employees Salary ≤ Rs15,000 / month 33
34. 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
35. 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
36. 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
37. Thank You CA Mehul Mukati Axia Advisory Services Pvt Ltd
38. 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
39.
40. 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
41. 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
42. 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
43. 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
Notes de l'éditeur
- 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%
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 :
