March, 2024 | CA B K Goyal & Co LLP

For starting a business in India Private Limited Company is the most popular and an effective medium for higher growth aspirants. It is incorporated under Companies Act, 2013 and has various benefits as it ensures limited liability and separate legal entity which means safeguarding of the personal property. This type of entity is mainly preferred by the start ups and the growing entities.So, if you are willing to start a Company your first priority is to get it registered Once the same is registered it increases its authenticity as well as offers various benefits which can be offering liability protection to protect the Company’s assets, attraction of more and more funds etc.Setting up a business in India often involves choosing a private limited company as a preferred option. This structure offers shareholders limited liability protection while placing specific ownership constraints. In contrast, in the case of an LLP, partners oversee the management. Private limited company registration allows for a clear distinction between directors and shareholders. What is a private limited company? In India, a private limited company is a privately held entity with limited liability, and it ranks among the nation’s most favored business structures. This popularity is primarily attributed to its numerous advantages, including limited liability protection, ease of formation and maintenance, and its status as a distinct legal entity. A private limited company enjoys legal separation from its owners and necessitates a minimum of two members and two directors for its operation. Here are the key characteristics of a private limited company in India: Limited Liability Protection: Shareholders of a private limited company are liable only to the extent of their shareholding. Their assets remain safeguarded, even in cases of financial setbacks incurred by the company. Separate Legal Entity: A private company possesses its own distinct legal identity. It can own property, engage in contracts, and initiate or defend legal actions under its unique name. Minimum Number of Shareholders: A private company must have a minimum of two shareholders and cannot exceed 200 shareholders. Minimum Number of Directors: A private limited company necessitates a minimum of two directors. At least one of these directors must be an Indian citizen. Minimum Share Capital: The company must maintain a minimum paid-up capital of Rs. 1 lakh or a higher amount as specified. Name of the Firm: The private limited company’s name must conclude with the words “Private Limited.” Restrictions on Share Transfer: The right to transfer shares within a private limited company is restricted. Shares can only be transferred with the approval of the Board of Directors or following the company’s Articles of Association. Prohibition on Public Invitation: Private limited companies are prohibited from inviting the public to subscribe to their shares or debentures. Compliance Requirements: Private limited companies are obligated to adhere to various legal and regulatory obligations, including maintaining proper financial records, conducting annual general meetings, and filing annual returns with the ROC. Types of Private Limited Companies: Company Limited by Shares: Shareholders’ liability is limited to the nominal share amount mentioned in the Memorandum of Association. Company Limited by Guarantee: Member liability is limited to the amount of guarantee specified in the Memorandum of Association. This guarantee is invoked only during winding up. Unlimited Companies: Members of unlimited companies have unlimited personal liability for the company’s debts and liabilities. However, they are still considered a separate legal entity, and individual members cannot be sued. Advantages of a Private Limited Company Limited Liability: Shareholders’ responsibility is restricted to the extent of their capital contribution, safeguarding personal assets from the company’s financial obligations and liabilities. Distinct Legal Identity: A Private Limited Company possesses an independent legal identity distinct from its proprietors. It has the capacity to own assets, engage in contractual agreements, and initiate or defend legal actions under its own name. Continuous Existence: The company’s existence persists irrespective of shifts in shareholders or directors. Its existence is not contingent upon the lifespan of its associates. Ease of Funding: Raising capital by issuing shares to investors, venture capitalists, or angel investors is easier. This structure attracts external investment. Tax Benefits: Private Limited Companies may qualify for various tax benefits and exemptions, making them tax-efficient entities. Credibility and Trust: Having “Pvt. Ltd.” in your company name often instills more confidence and trust in customers, suppliers, and partners. Disadvantages of a Private Limited Company Compliance Burden: Face regulatory demands, including financial reporting, filings, and audits. Complex Setup: Process and cost for managing are higher than more superficial structures. Share Limits: Restricted share transfers; max 200 shareholders in India. Public Disclosure: Financial info is publicly viewable, impacting privacy. Exit Complexity: Selling or leaving is more complicated than with other structures. Slower Decisions: The involvement of shareholders and directors may slow choices. Requirements for Registering a Company in India: Directors and Members:-A minimum of two directors and 200 members are required for Private Limited Company Registration in India, as per the Companies Act of 2013.Directors must have a Director Identification Number (DIN) issued by the Ministry of Corporate Affairs (MCA). At least one director must be an Indian resident, having spent 182 days in India in the previous calendar year. Company Name:- When selecting a name for a private limited company, two factors must be considered:The name should reflect the principal activity of the business. Address of the Registered Office:- After the company registration process, the company must provide the permanent address of its registered office to the company registrar. Business operations occur in this office, and all relevant company documentation is maintained. Documents Required for Incorporation PAN Card of the Member and Directors of the proposed CompanyPassport in case of Foreign Nationals Latest passport size photograph of Member and Directors Identity Proof of the Member and Directors of the proposed Company;(Aadhar /Voter ID/Driving License/Passport) Address Proof of the Members and Directors (Utility Bill/Telephone Bill/Mobile Bill/Bank Statement not older than two months) Business Address ProofRented/leased: Rent Agreement, NOC from the Owner, Latest Govt. Electricity Bill or Water Bill) Business Address ProofOwned Property : (Copy of Registry and Latest Govt. Electricity Bill or Water Bill) Company Registration Process Step 1: Acquire a Digital Signature Certificate (DSC) Every director and shareholder must secure a Digital Signature

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Receivables

Business / CA Bhuvnesh Goyal / March 3, 2024

Receivables, also regarded as accounts receivable, are debts owed to a firm by its customers for goods or services used or delivered but not yet paid for.Receivables are created by expanding the line of credit to customers and are listed as current assets on the company’s balance sheet. They are considered as liquid assets since they can be used as collateral to secure a loan to help meet short-term obligations. Receivables are part of the working capital of a company. Effectively handling receivables means promptly following up with any consumers who have not paid and eventually reviewing payment plans if necessary. This is critical as it provides additional capital to fund operations and reduces the net debt of the organisation. What are receivables? Receivables are unpaid customer debt for products or services delivered. It is a current asset that affects a business’s liquidity and working capital management. Receivables are shown as current assets on the balance sheet, and the general ledger shows a debit balance. To boost cash flow, a company can reduce the credit terms of its accounts receivable or take longer to pay its accounts receivable. This lowers the company’s cash conversion time, or how long it takes to turn capital assets, such as inventory, into capital for operations. It can also sell receivables at a discount to a factoring company, which then assumes responsibility for collecting the money owed and bears the risk of default. This form of structure is referred to as the funding of receivable accounts. Basic analysts look at different ratios to measure how effectively a company extends credit and collects debt on that credit. The turnover ratio of the receivables shall be the net value of the credit sales for a given period separated by the average accounts receivable for the same period. The average receivable accounts can be calculated by adding the value of the accounts receivable at the beginning of the period to their value at the end of the period and dividing the sum by two. Another indicator of the company’s ability to recover receivables is the days of unpaid revenue (DSO), the total number of days taken to collect payments after the sale has been made. What is the significance of receivables? Receivable entries are beneficial to businesses and their clients because they allow businesses to maintain a steady supply of products. The relationship between the business owner and the account holder can be documented using various receivable entries. In bookkeeping, the different types of receivables are recorded in the financial statements. When a business has a claim against a customer for a short-term extension of credit, they create a receivable entry in its accounting system and send an invoice to the client to request payment. Receivables can be used as collaterals to secure loans that can enable businesses to meet short-term obligations. They are considered liquid assets and are a key part of the business’s working capital. It is critical for any enterprise to handle receivables effectively as they offer additional capital to fund operations and allow the enterprise to reduce its net debt. What are the different types of receivables? There are various types of receivable entries that can be used to note the relationship between the business owner and the account holder. Majorly, receivables can be divided into three types: trade receivable/accounts receivable (A/R), notes receivable, and other receivables. What is trade/accounts receivable (A/R)? Accounts receivable are the outstanding money owed to a business by its clients or customers for goods or services that have been provided but not yet paid for. It represents the amount of money that a company is entitled to receive and is considered an asset on the balance sheet. The longer your A/R remains unpaid, the more difficult it will be to arrange funds for manufacturing goods for further sales. Uncollected payments reduce working capital and delay business cycles. Collecting all unpaid dues should be a top priority to have a better cash flow. Failure to do so will negatively affect the cash flow available for other business needs. Often, finance leaders tend to overlook the cash that is tied up under the accounts receivable (A/R) entry on the balance sheet while coming up with financial strategies to optimize their business’ working capital. What is notes receivable? Notes receivable is a common type of receivable, and it’s similar to the standard accounts receivable except for the payment deadlines. With a conventional receivable, you would ordinarily give a customer a two-month window to pay you back, but with notes receivable, the payment due date can be extended up to a year or more. In notes receivables, a promissory note is used to agree on a longer payment period between you and the second party (the debtor). A promissory note helps enforce your legal claim to payment from the debtor. For the debt settlements achieved within the agreed time frame, no interest will be charged. If the debtor asks for an extension of the payment period, interest will be set on a monthly basis. This series of journal entries will repeat every year until the note is paid in full. On the balance sheet, notes are normally divided into current and long-term categories. The amount due within the following year is the current component of the notes, and the amount which has more than a year’s time to be repaid is categorized as long-term notes. What are other receivables? Other receivables include interest receivables, salary receivables, employee advances, tax refunds, loans made to employees or other companies, and advances on wages paid to employees. Having an understanding of the different types of receivables can help you track who owes you what and when—in a more structured manner. And that’s an essential step in ensuring you have the finances you need to keep and develop your business! FAQs What Are Receivables? Receivables refer to the money owed to a company by its customers for goods or services provided on credit. Why Do Companies Offer Credit to Customers? Offering credit can attract more customers and stimulate sales, providing flexibility in payment terms. It is a common practice to encourage business relationships. How Do Companies

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Nadakacheri – Income Caste Certificate Karnataka

Government Schemes / CA Bhuvnesh Goyal / March 3, 2024

The Atalji Janasnehi Kendra Project that has been launched by the Government of Karnataka. The main objective of the project is to provide various services to the citizens through the Nadakacheri online portal. Nadakacheri portal provides various services to the citizens like caste certificate, income certificate, land documents, agriculture documents and various Social Security Pensions. Services of Nadakacheri The people who reside in the state of Karnataka can avail following civil certificates from Nadakacheri portal. Name correction to ration card Caste certificate OBC certificate Widow / Not remarried certificate Birth/death certificate Residence/Domicile certificate Non-tenancy certificate Agri services certificate Physically challenged certificate Population certificate Income certificate Survivor certificate / No government job certificate Living certificate Unemployment certificate Social security schemes DWP certificate PHP certificate As per of e-governance program of the Karnataka government, the nadakacheri was launched which helps the community and government in ease of availing the certificates Eligibility Criteria Any citizen can apply for the Caste Certificate if he or she falls under the OBC, MBC, SC, ST communities. Purpose of Caste Certificate A caste certificate is a proof that an individual is belonging to a particular caste. In Karnataka, a person belonging to Scheduled Castes/Scheduled Tribes and Other Backward Classes of citizens can claim for the reservations in jobs at 15% and 3% respectively. In order to support the claim and to avail jobs under various reservations, the applicant must have the caste certificates issued by the component authority. Documents Required for Caste Certificate An application Form Copy of Ration Card or Copy of Voter Card or Name in the Voter List (one of them) A report regarding caste Patwari/Sarpanch Income report Residence Proof Caste and religion report Steps to Apply Online Step 1: Click on the Apply Online option in the portal. Step 2: The Log-in page will appear and then enter the registered Mobile number. Step 3: Click on Proceed button to enter Nadakacheri home page. Step 4: Select the New Request option in the menu bar and click on the Caste Certificates. Step 5: Now enter all the required details and the fields in red are mandatory. Step 6: Select the mode of delivery and then upload all the required documents. Step 7: Click on ‘Save’ button, and then an Acknowledgement number is displayed and the same is also sent to the user’s mobile. Step 8: Click on the OK button. Step 9: Now click on ‘Online Payment’ option to pay the application fees. Step 10: Select the mode of payment and click the make payment option after filling the card details. Step 11: Now the Caste certificate will be received as per the issuing date from the concerned authority. Fees- The fees for issuing the Caste Certificate through Nadakacheri is Rs.15 per certificate. Validity- Caste certificates are valid for a lifetime. There is no expiry date. Process to Download Caste Certificate Click on the first option under the important link in the portal. Now enter your Acknowledgement Number. Click on show certificate. Then your certificate will appear on the screen. Click on “Print or Download certificate”. FAQs What is Nadakacheri? Nadakacheri is an online portal in Karnataka that offers various citizen-centric services, including the issuance of certificates like income and caste certificates. How Can I Apply for an Income or Caste Certificate through Nadakacheri? The application for these certificates can typically be submitted online through the official Nadakacheri portal. Applicants need to register and fill out the required details. Can I Check the Status of my Application Online? Yes, applicants can usually check the status of their application through the Nadakacheri portal using the application reference number. 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Foreign Investment Approval

Government Schemes / CA Bhuvnesh Goyal / March 3, 2024

Foreign direct investment (FDI) is a category of cross-border investment in which an investor resident in one economy establishes a lasting interest in and a significant degree of influence over an enterprise resident in another economy. Ownership of 10 percent or more of the voting power in an enterprise in one economy by an investor in another economy is evidence of such a relationship. FDI is a key element in international economic integration because it creates stable and long-lasting links between economies. FDI is an important channel for the transfer of technology between countries, promotes international trade through access to foreign markets, and can be an important vehicle for economic development. The indicators covered in this group are inward and outward values for stocks, flows and income, by partner country and by industry and FDI restrictiveness. Basic principles of FDI into India India’s business sectors may be divided into three for the purposes of FDI inflow: prohibited sectors – prohibited from receiving FDI. Includes atomic energy, real estate business, lottery business, manufacturing tobacco products, gambling and betting; automatic route – no prior approval required from the government for receiving FDI. Includes airports, construction, industrial parks, mining, manufacturing and IT; and government approval route – prior approval required from the government for receiving FDI. Includes air transport services, satellites, print media and public sector banks. The FDI Policy further imposes sector-specific FDI thresholds based on the sensitivity of the sector, regardless of whether the sector falls under the automatic route or the government approval route. These are, generally: up to 100% FDI allowed (includes manufacturing, construction and IT); up to 74% FDI allowed (includes pharmaceuticals and defence); up to 49% FDI allowed (includes air transport services and private sector banking); and up to 26% FDI allowed (print media). If the NDI Rules and FDI Policy do not specifically prescribe any conditions for any sector, 100% FDI under the automatic route is allowed for that sector. Where an Indian entity is neither ‘owned’ nor ‘controlled’ by resident Indian citizens, any investment made by that entity in another Indian entity will be considered downstream foreign investment, and governed by the NDI Rules and FDI Policy. For the purposes of the NDI Rules, ‘owned’ refers to a beneficial holding of more than 50% of the equity instruments of a company, and ‘controlled’ refers to the right to appoint a majority of directors or to control the company’s management or policy decisions. Under the NDI Rules, FDI includes any investments made by a person resident outside India in equity instruments of Indian companies. For listed entities, investments of at least 10% or more of the post issue paid-up capital is treated as FDI. The NDI Rules permit investment into: equity shares (including partly paid equity shares, provided that at least 25% of the consideration is received upfront and they are fully called-up within 12 months of issuance); convertible debentures which are fully and mandatorily convertible, and fully paid; preference shares which are fully and mandatorily convertible, and fully paid; and share warrants, for which at least 25% of the consideration is to be received upfront and the balance is to be received within 18 months of issuance. While FDI is only permitted in these equity instruments, a recent exception applies to start-ups, as discussed below. Recent amendments to India’s FDI regime On 17 April 2020, the Indian government amended the FDI Policy making it mandatory to obtain government approval for FDI received from countries that “share a land border” with India, which include China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar and Afghanistan. While the move was ostensibly intended to “curb opportunistic takeovers / acquisitions”, the intention has been widely held to have stemmed from the need to limit the inflow of Chinese investments since FDI from Pakistan and Bangladesh was already subject to similar restrictions. As a result of this amendment, FDI inflow from these countries has been restricted, with only 80 of 388 proposals received as of July 2022 granted approval, However, other than this protective limitation, India has been on the path of liberalisation since 1991. Even as recently as 2021, and going against the tide of the prevailing protectionist trends, India has brought about relaxations in several key sectors, including: insurance – the FDI limit in the insurance sector was raised from 49% to 74% under the automatic route. defence – the FDI limit in the defence sector was significantly liberalised by raising the FDI limit for investment under the automatic route from 49% to 74%. telecoms – as a much-needed boost to the telecoms sector in India, the government increased the FDI limit into the sector from 49% to 100% under the automatic route. oil and gas – while the overall cap for FDI into the oil and gas sector continues to remain at 49% under the automatic route, a window has been created for 100% FDI in oil and gas public sector undertakings (PSU) that have obtained ‘in-principle approval’ from the government for strategic disinvestment. Further, and in line with government policy to create an ever-burgeoning start-up ecosystem in India, the ‘Start-up India Initiative’ has introduced two further changes targeted at start-up investment. While FDI is generally permitted only through equity instruments, eligible start-ups have the benefit of issuing convertible notes (CN): instruments evidencing receipt of money initially as a debt, and which are either repayable at the option of the holder or convertible into such number of equity shares of the company upon occurrence of specified events and as per the other terms and conditions agreed to and indicated in the instrument. For start-ups to be eligible to issue CNs, the minimum amount of investment required from a single investor is INR 25 lakhs (roughly US$ 30,000) in a single tranche. The maximum tenor of conversion or repayment of a CN is 10 years. Eligible start-ups can also benefit from the ‘angel tax’ exemption under Income Tax Act if their aggregate paid-up share capital and share premium after the issue or

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March 2024