The Insolvency and Bankruptcy Code (Second Amendment) Bill, 2018

The Lok Sabha passed the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2018 that recognizes homebuyers as financial creditors to real estate developers. The bill also proposes a special dispensation for small sector enterprises. The Second Amendment Bill amends the Insolvency and Bankruptcy Code, 2016 to clarify that allottees under a real estate project should be treated as financial creditors. The threshold voting routine decisions taken by the committee of creditors has been reduced from 75% to 51%. For certain key decisions, this threshold has been reduced to 66%. This Bill also allowed withdrawing a resolution application submitted to the National Company Law Tribunal (NCLT) under the Code where this decision is taken with the approval of 90 % of the committee of creditors.
Key features of the Second Amendment bill are as below:

1. Status of allottees
   The Code defines a financial creditor as anyone who has extended any kind of loan or financial credit to the debtor. The Ordinance clarifies that an allottee under a real estate project (a buyer of an under-construction residential or commercial property) will be considered as a financial creditor, as the amount raised from allottees for financing a real estate project has the commercial effect of a borrowing.
2. Representative of financial creditors
   During the insolvency resolution process, a committee consisting of financial creditors will be constituted for taking decisions (by voting) on the resolution process. The Ordinance specifies that, in certain cases, such as when the debt is owed to a class of creditors, the financial creditors will be represented on the committee of creditors by an authorized representative. These representatives will vote on behalf of the financial creditors as per the prior instructions received from them.
3. Voting threshold of committee of creditors
   The voting threshold for decisions of the committee of creditors has been lowered from 75% to 51%. For certain key decisions of the committee, the threshold has been reduced from 75% to 66%. These include appointment of the resolution professional, approval of the resolution plan and increasing the time limit for the insolvency resolution process.
4. Ineligibility to be a resolution applicant
   The Ordinance amends the criteria which prohibits certain persons from submitting a resolution plan. For example, the Code prohibits a person from being a resolution applicant if his account has been identified as a non-performing asset (NPA) for more than a year. The Ordinance provides that this criterion will not apply if such applicant is a financial entity, and is not a related party to the debtor (with certain exceptions). Secondly, the Code also bars a guarantor of a defaulter from being an applicant. The Ordinance specifies that such a bar will apply if such guarantee has been invoked by the creditor and remains unpaid.
5. Applicability of the Code to Micro, Small, and Medium Enterprises (MSMEs)
   The Ordinance states that the ineligibility criteria for resolution applicants regarding NPAs and guarantors will not be applicable to persons applying for resolution of MSMEs. The central government may, in public interest, modify or remove other provisions of the Code while applying them to MSMEs.
6. Withdrawal of submitted applications
   A resolution applicant may withdraw a resolution application, from the National Company Law Tribunal (NCLT), after such process has been initiated. Such withdrawal will have to be approved by a 90% vote of the committee of creditors

Classification of allottees under a real estate project as financial creditors
With regard to corporate debtors, the Code defines two types of creditors: (i) financial creditors, who have extended a loan or financial credit to the debtor, and (ii) operational creditors, who have provided goods or services to the debtor, the payment for which is due. Financial creditors could be secured or unsecured. Secured creditors are those whose loans are backed by collateral (security). The Ordinance clarifies that allottees under a real estate project will be considered as financial creditors. This would give the allottees

• the power to initiate a resolution process,
• representation on the committee of creditors, and
• the guarantee of receiving a certain amount in case of liquidation.

The Insolvency Law Committee (2017) had noted that the amount paid by allottees under a real estate project is a means of raising finance for the project, and hence would classify as financial debt. It had also noted that, in certain cases, allottees provide more money towards a real estate project than banks. The Ordinance provides that the amount raised from allottees during the sale of a real estate project would have the commercial effect of a borrowing, and therefore be considered as a financial debt for the real estate company (or the debtor). However, it could be argued that the money raised from allottees under a real estate project is an advance payment for a future asset (or the property allotted to them). It is not an explicit loan given to the developer against receipt of interest, or similar consideration for the time value of money, and therefore may not qualify as financial debt.
During a corporate insolvency resolution process, a committee consisting of all financial creditors is constituted to take decisions regarding the resolution process. This committee may choose to resolve the debtor company or liquidate the debtor’s assets to repay loans. If no decision is made by the committee within the tentative time period, the debtor’s assets are liquidated to repay the debt. In case of liquidation, secured creditors are paid first after payment of the resolution fees and other resolution costs. This is followed by payment of employee wages and then payment to all the unsecured creditors.

While the Ordinance classifies allottees as financial creditors, it does not specify whether they would be treated as secured or unsecured creditors. Therefore, their position in the order of priority is not clear.

If you have any questions or would like to discuss more about the Code or amendment bills, our experts can ensure right business insights and best practices for you.
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Company incorporation in India | Company formation in India

Union Budget 2017 highlights

 Finance minister Arun Jaitley presented the Union Budget 2017 in Parliament on Wednesday. The biggest highlight in the 2017 budget was the slashing of income tax by half for individual tax payers, ban on cash transactions over Rs. 3 lakhs and reduction in holding period to 2 years for capital gains. In this article, we look at the highlights of the 2017 Budget with respect to an Entrepreneur or Business Owner in India.

Related : Company formation in India

Income Tax

 Income tax rate has been slashed from 10% to 5% for individuals who earn between Rs.2.5 lakhs to Rs.5 lakhs. Now after rebates, even a person with a Rs.3 lakhs income could enjoy zero tax liability. Since, proprietorship firms are taxed similar to individuals, micro enterprises having income of less than Rs.5 lakh would enjoy the benefits in tax reduction.

Tax Break for Startups

 Continuing to build on the 2016 Budget by extending special support for Startups, the Finance Minister has increased the period of profit-linked deductions available to Startups to 3 out of 7 years from the current 3 out of 5 years.

Budget 2016-17 kick-started the process. Several deductions were reduced and sunset dates put for others along with reductions in tax rates for some categories of businesses – new manufacturing companies set up after March 2016 were given the option of being taxed at 25 percent provided they did not claim any exemption and companies with turnover less than Rs 5 crore got a 1 percent reduction. However, some new exemptions were given to start-ups, with certain conditions.

This year, admittedly, Jaitley has not moved forward on withdrawing exemptions even as he reduced corporate tax rates.

But let’s look at who has got this benefit: the small and medium enterprises sector. Income tax for companies with an annual turnover of up to Rs 50 crore has been brought down to 25 percent. A big chunk of this lot was paying an effective tax rate of 30.26 percent, while the large companies (turnover above Rs 500 crore) paid an effective tax rate of 25.9 percent. So Jaitley has in a way done the tax equivalent of social levelling. Large companies have not got any tax relief this year.

Stimulating Bank Credit

 To stimulate bank credit to businesses, various measures have been announced as follows in the 2017 Budget:

• The allowable provision for Non-Performing Asset (NPA) of Banks has been increased from 7.5% to 8.5% to improve the risk appetite of Banks.
• In line with the ‘Indradhanush’ mission, Rs. 10,000 crores has been allocated in the 2017 Budget for recapitalisation of Banks.
• Lending target under Pradhan Mantri Mudra Yojana hase been increased to Rs. 2.44 lakh crores. Priority under the scheme will be given to borrowers from certain backgrounds like Dalits, Tribals, Backward Classes.

Source : www.ajsh.in/blog

How to Register Foreign Companies in India

India is one of the fastest growing economies in the world with healthy resources and a large market base. In the past few years, there is a great boost in foreign direct investment in India (FDI) because of the changed regulatory environment in the past few years. Therefore, it is very easy for foreign nationals to start a business in India.

Sometimes people get often confused in “Indian Company” and “Foreign Company”. If a foreign national incorporates a company in India then it is an Indian Company. But when a foreign company set up a branch office in India then it is known as Foreign Company.

Foreign Direct Investment (FDI)

The amount/capital to be invested by any foreign national/NRI shall be classified as FDI in India. In 1990s, there was high number of restrictions on FDI in India where as today, there are amendments in all the rules and regulations of company formation in India.

Read More :- Company Registration in India

FDI is classified as

    Business where FDI is not allowed at all.
    Business sectors where permission is required from Foreign Investment Promotion Board(FIBP)
    Business where no permission required.

All foreign nationals/ NRI’s must go through FDI policy before company incorporation in India in order to check any restrictions, prohibition in the proposed business activity

Entry Strategy into Indian Market

A foreign company can commence operations in India by incorporating a company under the companies Act, 1956 through registration of company or establishing a branch or liaison office.

Establishing a private limited company is the easiest and fastest way to set up in India. FDI of up to 100% into a public limited or private limited is permitted under the FDI policy wherein no approval from RBI or central government is required. For the purpose of registration or incorporation, an application has to be filed with Registrar of companies (ROC). For more information please visit http://dca.nic.in.

Other entry strategy as a foreign company is to open a branch office, liaison office and Project Office. In this case, approval from RBI or central government is mandatory. Therefore, the time and money required for setting up a private limited or public limited company is much less than forming such offices.

Requirements for incorporation of company in India

In order to start a company in India, a minimum of two persons and an address are required in India. A company must have a minimum of two directors and   a minimum of two shareholders. According to Indian rules and regulations, one director must be both an Indian citizen and Indian resident.

One should establish a company with three directors which includes two foreign nationals and one local citizen. In this case, 100% of the shares of the Indian company can be held by foreign nationals/ NRI. The address in India is served as the registered office of the company.  Foreign companies establish their offices in metro cities like Delhi, Bangalore, Mumbai and Chennai etc.

Cost for company registration in India

Company formation services in India are inexpensive. The company formation process can be completed within few weeks. The incorporation process can be easy with the help of tax advisors in India. It would cost you some pennies but the whole process will be easy for you.

Read Original Article here: http://bit.ly/2hSzbw7 

Procedures of Starting a Company in India

The word 'Company' is originated from the Latin word 'Com' meaning "with or together" and 'Pains' meaning "bread". So, originally, it referred to a group of people who dined together. Starting a company requires a lot of planning and activities and more than that a number of formalities needed to be complied. The details  on the procedures and paper works related to starting a company in India are as follows.

Following are the types of business entities in vogue in India:

• Private Limited Company
• Public Limited Company
• Unlimited Company 
• Partnership 
• Sole Proprietorship 
In addition to the above, for foreign investors and companies can form: 
• Liaison Office / Representative Office
• Project Office
• Branch Office
• Wholly owned Subsidiary Company 
• Joint Venture Company

The choice of entity depends on the concept and requirements of the entrepreneurs ranging from a sole proprietorship to a public limited company with many formalities.

Proprietorship and Partnership Firms

Registration is not required for a sole proprietorship entity. But if you are liable for state VAT or service tax registration, you need to obtain VAT / service tax registration. For sole proprietorship, separate income-tax / PAN is also not necessary. The PAN of the proprietor can be the PAN of the firm and proprietor and it can be in personal name also.

For partnership firms also, it is not necessary to register with the Govt. in most states of the country. It is almost compulsory in Maharashtra. Please check the laws in your state to confirm.)

But, if you are not registering your partnership firm, you cannot hire legal protection in the disputes between partners. Even if you choose not to register your partnership, always prepare a Partnership Deed which will help to resolve problems in case of disputes between partners. Partnership Deed can be prepared by any lawyers and can be made on stamp paper as per the laws of the place of execution.
For registration of a partnership firm, partnership deed needs to be prepared along with an application form in the required form and both should be submitted with supporting documents at the nearby “Registrar Of Firms” office for approval.

Procedures for Company Registration

Before starting a new company it is required to register with the Registrar Of Companies ( ROC ) which is under The Ministry of Corporate Affairs (MCA), Government of India. There will be penalties for failures in making returns. For a public limited company, all details of the company are available for public inspection so there can be no secrecy. As the director, you will be treated as an employee and is entitled to pay tax.

As compared to a Public Limited Company, Private Limited Company has less agreement constraints. Private Limited Company is the best choice when there is no need of elevating investments through a public issue and the proprietorship is projected to be strictly owned by limited number of persons.
The minimum paid up capital at the time of incorporation of a private limited company is Rs 1,00,000/- and there is no upper limit on having the authorized capital and the paid up capital. This can be enhanced at any time by making payment for additional stamp duty and registration fee.
Procedures.

The first step in company registration is submitting an application in Form No. 1A with the Registrar of Companies (ROC) in the concerned state in which the Registered Office of the proposed Company is / to be situated.  The application is to be signed by any of the promoters.

The following details are to be detailed in the application:

1. Four optional names for the proposed company. The proposed names should be indicative of the main objective of the company. Justification for the name also needs to be specified along with the application to take proper care for 'same or deceptively similar names'
2. Names and full addresses of the promoters (Minimum 7 for a public company and 2 for private company).
3. Authorised Capital of the proposed company 
4. Proposed company objective.
5. Names of other group companies ( if any ).

The ROC scrutinises the same and issues an approval letter/ objection within 10 days to the applicant. On receiving the name consent letter from the ROC, the second step is to draft and submit the following credentials before the ROC within six months of the approval.

1. Memorandum of Association (MOA) and Articles of Association (AOA) - These are required to be executed by the promoters in their own hand in the presence of a witness in quadruplicate stating their full name, father's name, residential address, occupation, number of shares subscribed etc. The MOA states the chief, auxiliary and other items of the proposed firm while the AOA incorporates the rules and guidelines of the standard conduct of the firm.

2. Form No. 1 – Form No.1 is a declaration to be executed on a non-judicial stamp paper of Rs.20/- by one of the directors of the proposed company or others like Attorneys or Advocates. It states that all the requirements of the incorporation have been complied with.

3. Form No. 18 - This is to be filed by any of the company directors notifying the address of the registered office of the proposed company.

4. Form No. 29 - This is a consent obtained from all the directors of the proposed company to act as directors of the proposed company. (Not required for pvt ltd company).

5. Form No. 32 – Form 32 states the appointment of the proposed board of directors from the date of incorporation of the company and is signed by any of the acting directors.

6. The name approval letter in original.

7. Power of Attorney signed by all the subscribers of MOA assigning any of the subscribers or others to act on their behalf for the incorporation and accepting of the certificate of incorporation.

8. Power of Attorney in case of subscriber who had appointed another person to sign the MOA on his absence.

9. Filing fees as applicable.

When all the documents are filled and submitted, ROC scrutinizes it and makes corrections if any. On complying with the same, the certificate of incorporation of the company will be issued.

Additional Compliance Required for Public Limited Companies

A Private Company can start its business immediately on incorporation. Public Company has to complete certain legal formalities such as a statutory meeting within 6 months from incorporation, statutory report etc. On completion of the said formalities and on filing of the statutory report with the ROC, the ROC issues a Certification of Commencement of Business to the company. A Public Company can start their business operations on receiving the Certificate of Commencement. 
After the Company has incorporated, if required alternate directors can be appointed, to function on your behalf while you are outside the country. But you should be in India within one month of the incorporation of the Company at least once.

Every public limited company should appoint a qualified auditor. The auditor's duty is to check and report to the treasurer about the books of the company, the balance sheet, profit and loss account etc are a true and reflects a fair view of the company's affairs and also its compliance with the Companies Act. Auditors are appointed or re-appointed at general meetings at which annual accounts are presented, and they hold office from the conclusion of the meeting until the next general meeting.

Companies Act lays down strict rules on accounting that all companies are supposed to maintain a set of records, which reflects the financial position of the company with accuracy. A company's first accounting period begins on its incorporation until the following financial year ending (31st March). Within ten months of the end of an accounting period, an audited set of accounts must be laid before the shareholders at a general meeting and a set delivered to the registrar of companies.

In addition to the accounts books, companies are required to have the following registers:

• Register mentioning its members and share ledger
• Register of directors and secretaries
• Register of share transfers 
• Register of charges
• Register of debenture holders

All companies must have and use engraved seal. It must be impressed on share certificates and should be used whenever the company needs to execute a deed. Again, it is included in the ready-made company package.

If application for registration is done through internet with e-forms, everything should go with the digital signature, requisite fees and also the hard copy of Memorandum and Article of Association should reach to the RoC.  Many problems which earlier related to registration of a Company in India have been substantially cut down with better and user friendly processes.

For more Information: http://bit.ly/2gBC96Q

Direct Foreign Direct Investment (FDI) in India

After hearing enough rambling on FDI’s and its urgent need to stop Indian rupee fall, one is very curious to know about FDI and trying to understand what qualifies as FDI and what routes are available for them to invest in our country. Doing business in India

Foreign Direct Investment (FDI)

 FDI as the name suggests, it is an investment directly made by a foreign company into business in another country. Such investment could be either in the form of business expansion in another country or could be a result of buyout of the company. Direct Foreign investments in India were introduced by the then Finance Minister Dr. Manmohan Singh in 1991 under Foreign Exchange Management Act to promote such investments thereby increasing supply of domestic capital & increase the economic growth. As per Foreign Exchange Management Act, ‘FDI’ means investment by non-resident entity/person resident outside India in the capital of an Indian company under Schedule 1 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations 2000. LLP registration in India

 In India, foreign investments can be made through any of the following methods:

 1. Incorporate a wholly owned subsidiary (WOS) or a company 

 2. Result of merger or an acquisition of an unrelated enterprise

 3. Acquire shares in an associated enterprise

 4. Participate in an equity joint venture with another investor or enterprise

New Company Registration in India

 Who can invest in India?

1. A Non-resident entity means a person resident outside India

2. Non Resident Indian or Person of Indian Origin (PIO holder) or Overseas Citizen of India (OCI holder)    

3. A body corporate means a company incorporated outside India 

4. Foreign Institutional Investor (FII) means an entity established or incorporated outside India which proposes to make investment in India and which is registered as a FII in accordance with the Securities and Exchange Board of India (SEBI) (Foreign Institutional Investor) Regulations 1995.

5. Foreign Venture Capital Investor (FVCI) means an investor incorporated and established outside India, which is registered under the Securities and Exchange Board of India (Foreign Venture Capital Investor) Regulations, 2000 {SEBI(FVCI) Regulations} and proposes to make investment in accordance with these 

Company incorporation in India

 ENTRY ROUTES FOR INVESTMENTS

 There are two important routes specified by Government of India through which an investor can apply for FDI. These are “Automatic route” and “Government approval route”.

 “Automatic route” means Non Resident entities can invest in the capital of resident entities without the prior approval of Government i.e. Foreign Investment Promotion Board (FIPB), Department of Economic Affairs (DEA), Ministry of Finance or Department of Industrial Policy & Promotion, as the case may be. Some of the major sectors in which Automatic route is permitted: Agriculture, mining, petroleum and natural gas, manufacturing, information services, trading, e-commerce activities. The investment percentage under Automatic route is permitted depending upon the nature of business.

 “Government approval route” means that investment in the capital of resident entities by non-resident entities can be made only with the prior approval of Government i.e.

 Foreign Investment Promotion Board (FIPB), Department of Economic Affairs (DEA), Ministry of Finance or Department of Industrial Policy & Promotion, as the case may be. The sectors which are not covered under automatic route shall require approval of Government before any investment.

Tax Consultancy Services in India

Income Tax and Service Tax are liable to be paid on income earned from blogging in India. In this article, I would mainly be focussing on the manner in which income tax is levied on blogging and in my next article I’ll try to explain service tax on blogging. The manner of computation of Income Tax has been explained in detail below in this Article.

Benefit of filling Income Tax

The most important benefit of paying taxes and filing your income tax return is that only the income disclosed by you in your income tax return is considered your true income. If you are required to show your income at any place in future, only the amount disclosed in your income tax return would be considered as a valid proof of your income.

Moreover, even if you apply for any Loan from a Bank, you are mandatorily required to show them your income tax return and only the income disclosed in this income tax return would be considered as a valid source of income.

Computation of Income Tax in India/ Tax Consultancy

Any person earning income from any source is liable to pay income tax as per the tax rates prescribed by the govt. While computing the income on which tax is to be paid, the total of all Incomes earned by a Blogger are to be taken into account. You are requested to note that Income Tax is not payable on the Total Revenue earned but is payable on the Total Income earned. Total Revenue is the Gross Amount received and Total Income is the amount earned after Depreciation and Payment of Expenses incurred for the purpose of earning the Revenue.

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