Conversion of Proprietorship firm into Private Limited Company

As you are running your proprietorship firm which is not governed by any law. If you are filing Income tax return for sole proprietorship firm and you want to grow your business, then it is good to recommend you for converting it into Private Limited Company. Though there is no specific provision given under Companies Act 2013 for conversion of Proprietorship firm into Private Limited Company, but as a normal practice, we advise for proprietorship firm being takeover by new Private Limited Company while registering it.

 Why conversion:

• The foremost benefit is branding of your business as Private Limited Company is widely accepted business structure in India and also the oldest business Structure. So, if you are converting your stakeholders will have the idea that the business is growing. 
• Automatic transfer- On conversion all the assets & liabilities of the proprietorship firm automatically becomes the assets & liabilities of the Company. 
•  No capital gains tax – No Capital Gains tax shall be charged on transfer of property from Proprietorship firm to Company.
• Perpetual succession – Company enjoys the status of perpetual succession as it does not come to an end if the shareholders or members cease to exist. The company goes on and has perpetual succession. 
• Carry Forward and Set off Losses and Unabsorbed Depreciation - The accumulated loss and unabsorbed depreciation of Proprietorship firm is deemed to be loss/ depreciation of the successor company for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the hands of the successor company. 
• Limited liability – In a company the liability of the members is limited to the amount of shares held by them. 

Procedure for conversion of Sole Proprietorship firm into Private Limited Company: 

• Obtaining Digital signature Certificate: Digital Signature Certificate is required to be obtained by any one of the director of the company. 
• Apply for DIN: The directors should apply for DIN.
•  Uploading form with Registrar : Application is required to be made in Form INC-32. E Form INC-33 and INC-34 deals with the one single integrated application for reservation of name, incorporation of a new company and/or application for allotment of DIN. This e Form is accompanied by supporting documents including details of Directors & subscribers, MoA and AoA etc. Once the e Form is processed and found complete, company would registered. Also DINs gets issued to the proposed Directors who do not have a valid DIN. Maximum three Directors are allowed for using this integrated form for allotment of DIN while incorporating a company. 
• Further attachments to this conversion would be the following; 
• Affidavit by the Sole Proprietor
• Statement of Assets & Liabilities as on date by Chartered Accountant if the proprietorship is doing business from long
•  Income Tax Returns Acknowledgement 
• PAN Card of the Sole Proprietor
• Sales Tax Registration Number, if you have
•  Any other Proof showing the name of the Proprietorship firm

 It is important to note that if you want the same name of the Company running under the new Private Limited Company as well, then, it is recommended to show the proofs of the old name like LOGO trademark receipt, Sales Tax Registration documents, etc., so that the same name can be applied again. Probably, if the old name has not been taken by any Private Limited then, you can register the old name again.

TAXATION: 

The given transaction shall not be subject to any taxation, provided the given conditions are satisfied taken from Income Tax Act;

where a sole proprietary concern is succeeded by a company in the business carried on by it as a result of which the sole proprietary concern sells or otherwise transfers any capital asset or intangible asset to the company : 

Provided that— 

(a) all the assets and liabilities of the sole proprietary concern relating to the business immediately before the succession become the assets and liabilities of the company; 

(b) the shareholding of the sole proprietor in the company is not less than fifty per cent of the total voting power in the company and his shareholding continues to remain as such for a period of five years from the date of the succession; and 

(c) the sole proprietor does not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company;

KLB & Associates

8790418875

Government approves up to 100% FDI in defence, civil aviation
The government introduced on Monday a number of amendments in the FDI policy and put most sectors under automatic approval route, except a small negative list.

The decision was taken at a high-level meeting chaired by Prime Minister Narendra Modi, with objective of providing major impetus to employment and job creation in India.

This is the second major reform after the last radical changes announced in November 2015. Now most of the sectors would be under automatic approval route, except a small negative list. With these changes, India is now the most open economy in the world for FDI.

Officials met earlier at the Prime Minister’s Office to discuss FDI changes that appeared timed to regain the initiative after the surprise announcement by central bank chief Raghuram Rajan at the weekend that he would not seek a second term.

Changes introduced in the FDI policy include increase in sectoral caps, bringing more activities under automatic route and easing of conditionality’s for foreign investment.

These amendments seek to further simplify the regulations governing FDI in the country and make India an attractive destination for foreign investors.

Highlights of changes in FDI

# Up to 100% foreign direct investment in defence sector
# Up to 74% FDI in brownfield pharmaceuticals under automatic route
# 100% FDI in brownfield airport projects under automatic route
# 100% FDI in civil aviation
# FDI up to 49% in civil aviation under automatic route, beyond 49% through government approval
# Local sourcing norms for FDI in single brand retail for products having “state of art” and “cutting edge” technologies
# 100% FDI under automatic route for cable networks, DTH

KLB & Associates

Practising Company Secretary
Hyderabad

Relaxation of additional fees and extension of time and filing of e-Forms by the Companies under Companies Act, 2013 and for filing of Annual Return (Form 11) by the LLPs under the Limited Liability Partnership Act, 2008.

In continuation of this Ministry's General Circular No.03/2016 dated I2.04.2016 and General Circular No.06 /2016 dated 16.05.2016, keeping in view requests received from vadous stakeholders, it has been decided to extend the period for which the one time waiver of additional fees is applicable to all

eforms which are due for filing by companies between 25.O3.2O16 to 30.06.2016 as well as extend the last date for filing such documents and availing the benefit of waiver to 10.07.2016

2. Further, in view of the requests received from stakeholders, it has been decided to extend the time limit prescdbed under the provisions of section 35 of LLP Act, for filing of Form 11 of LLIJ in respect oI Financial Year ending on 31.3.2016 upto 30.06.2016, without additional fees.

Penalty for late filing or failure to file Company’s annual return – Form MGT-7

Penalty for late filing or failure to file Company’s annual return – Form MGT-7

Company’s annual return is to be filed with registrar of companies within 60 days from the date of annual general meeting. Where annual general meeting has not been held for the year then within 60 days from the date on which AGM should have been held.

In this article, we will discuss normal fees that every company is required to pay while filing annual return in form MGT7 with registrar of companies and penalty that gets attracted in case of delay in filing or failure to file company’s annual return. From financial year 2014-2015 onwards, form MGT7 has to be filed in place of form 20B.

Additional fees to be paid for filing of company’s annual return

Additional fee gets attracted when company has crossed the due date of filingi.e. 60 days from the date of AGM and when AGM not held then 60 days from the date when AGM should have been held.

Additional fee is to be paid in addition to normal fee and gets calculated based on the days of delay and normal fees applicable.

Period of delay Additional fee or penalty for late filing annual return or form MGT-7

Delay up to 30 days	2 times of normal fee
More than 30 days and up to 60 days	4 times of normal fee
More than 60 days and up to 90 days	6 times of normal fees
More than 90 days and up to 180 days	10 times of normal fees
More than 180 days	12 times of normal fees

Penalty in addition to additional and normal fee for filing annual return

 Like any other penalty provision, not filing or late filing of company’s annual return also attracts additional penalty and late payment fee. Such penalty provision is specified in section 92(5) of Companies Act, 2013.

As per section 92(5) of Companies Act 2013, if a company fails to file its annual return under sub-section (4), before the expiry of the period (270 days from the date by which it should have been filed) specified under section 403 with additional fee then the company shall be punishable with fine which shall not be less than 50,000 rupees but which may extend to 5 lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than 50,000 rupees but which may extend to 5,00,000 rupees or with both.

CS Khusboo

8790418875

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Checklist for NBFC Incorporation

1.   The first step is to form a new Company registered under the Companies Act, 1956. The name must reflect the character of an NBFC. Words such as Investment, Finvest, Finstock, Finance etc. may be used as part of the name. In general, RBI does not allow names which are not reflecting the characteristics of NBFC.

2.  After the incorporation of a new company the Paid up Equity Capital of the Company should suitably rose either at par or premium so as to attain a minimum Net Owned Fund of Rs. 2 crores. The Capital to be raised here should be Equity Share Capital and not Preference Share Capital.

3.   Opening of a Bank Account: The entire sum of Rs. 2 crores should be kept in a bank in a Deposit Account free from all liens. Normally funds are kept in Fixed Deposit. The RBI at the time of considering the application for the grant of Certificate of Registration verifies the deposits held by the Company with the Bankers.

4.      Apply for Certificate of Registration to RBI alongwith Required Documents.

Foreign Direct Investment

FDI in Non-Banking Finance Companies (NBFC)

FDI in Non-Banking Finance Companies (NBFC)

FDI in Non-Banking Finance Companies (NBFC) is allowed up to 100% under the automatic route in only the following activities:

(i) Merchant Banking

(ii) Under Writing

(iii) Portfolio Management Services

(iv) Investment Advisory Services

(v) Financial Consultancy

(vi) Stock Broking

(vii) Asset Management

(viii) Venture Capital

(ix) Custodian Services

(x) Factoring

(xi) Credit Rating Agencies

(xii) Leasing & Finance

(xiii) Housing Finance

(xiv) Forex Broking

(xv) Credit Card Business

(xvi) Money Changing Business

(xvii) Micro Credit

(xviii) Rural Credit

The other conditions in this regard are:

(1) Investment would be subject to the following minimum capitalisation norms:

(i) US $0.5 million for foreign capital up to 51% to be brought upfront

(ii) US $ 5 million for foreign capital more than 51% and up to 75% to be brought upfront

(iii) US $ 50 million for foreign capital more than 75% out of which US$ 7.5 million to be brought upfront and the balance in 24 months.

(iv) 100% foreign owned NBFCs with a minimum capitalisation of US$ 50 million can set up step down subsidiaries for specific NBFC activities, without any restriction on the number of operating subsidiaries and without bringing in additional capital. The minimum capitalization condition shall not apply to downstream subsidiaries.

(v) Joint Venture operating NBFCs that have 75% or less than 75% foreign investment can also set up subsidiaries for undertaking other NBFC activities, subject to the subsidiaries also complying with the applicable minimum capitalisation norm mentioned in (i), (ii) and (iii) above and (vi) below.

(vi) Non- Fund based activities : US $0.5 million to be brought upfront for all permitted non-fund based NBFCs irrespective of the level of foreign investment subject to the following condition:

It would not be permissible for such a company to set up any subsidiary for any other activity, nor it can participate in any equity of an NBFC holding/operating company.

The following activities would be classified as Non-Fund Based activities:

(a) Investment Advisory Services

(b) Financial Consultancy

(c) Forex Broking

(d) Money Changing Business

(e) Credit Rating Agencies

(vii) This will be subject to compliance with the guidelines of RBI.

(i) Credit Card business includes issuance, sales, marketing and design of various payment products such as credit cards, charge cards, debit cards, stored value cards, smart card, value added cards etc.

(ii) Leasing & Finance covers only financial leases and not operating leases.

(2) The NBFC will have to comply with the guidelines of the relevant regulator/ s, as applicable.

Khusboo Agrawal

KLB & Associates

8790418875

Hyderabad