Its not unknown that India ranks abysmally low on the Ease of Doing Business parameters and does not come as a great surprise that the World Bank ranked India 142nd among 189 economies in its Ease of Doing Business Report, 2015. Between 2014 and 2015 despite the promises to make India the biggest business destination, India has actually slipped by two spaces to 142 out of 189 in the World Bank Report.
The Government has adopted a slew of amendments and improvisations presumably to improve such rating.
On May 1, 2015 the Ministry of Corporate Affairs (MCA) has purported to razor off the protracted and inconvenient process of filling out 8 different forms for incorporating a new business in India. In a paper titled “Good Governance”, the MCA has listed various initiatives taken by it to ease procedures and reduce penalties for non-compliance for doing business in India.
To make compliances and reporting easy and convenient to companies the following major initiatives have been said to be taken:
- Four prescribed forms have been discontinued along with substitution of a simple declaration instead of affidavits for several purposes.
- Procedural requirements for foreign nationals to be Directors in Indian Companies have been drastically reduced.
- Arrangements have been completed for integration of Name Availability, allotment of Direct Identification Number (DIN), Company Incorporation and Commencement of Business with the unified e business portal being developed by the Ministry of Industries and Commerce.
- Fee payable by small companies for various services significantly reduced.
- Arrangements to enable Indian companies to follow new Accounting Standards, i.e. IndAS (compatible with the International Financial Reporting Standards–IFRS) completed. This will facilitate access for Indian companies to international capital markets.
The most interesting of these is the amendment to Companies (Incorporation) Rules, 2014 (which is yet to be notified in the gazette) on May 1 2015. Following are the separate forms that were required to be filled and documents required to be submitted:
- Applications for obtaining DIN
- Application for obtaining a DSC (Digital Signature Certificate)
- Form INC-1 for Approval of the Name of the Company
- Form INC-7 for Registration of the Company
- Memorandum of Association
- Articles of Association
- Form INC-22 for Intimation of Registered Office
- Form DIR12 for each Director.
The MCA has brought forth that a new company can be incorporated by filling out a single e-form; the Integrated Companies Incorporation Form – INC-29. As opposed to the earlier period of approximately one month, a Company can now be incorporated within 24 working Hours after the form has been filed with the MCA portal.
An Instruction Kit provided by the MCA to help with the process of filling this form purports that only eForm INC-29 will be required to be filled out for the application for reservation of name (for single name only), incorporation of a new company and/or application for allotment of DIN (for maximum 3 Directors). This eForm is also accompanied by supporting documents including details of directors and subscribers, memorandum and articles etc which can be adopted by the Company by simply choosing the relevant form and signing and scanning the same to be submitted to the website. Once the eForm is processed and found complete, company will be registered and CIN will be allocated. Also DIN 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.
It is to be noted that Section-8 Company cannot be incorporated by INC-29. The information required to be mentioned in Form INC-29 includes inter alia
- Main division of industrial activity of the company (as per the instruction kit)
- Authorised capital
- Subscribed capital
- Address for correspondence (which can be converted to the registered office, if no separate application for notifying registered office is filed by the company)
- Proposed name
- First subscribers / directors
DSC of the Director will be affixed on the form and where such director does not have DIN, then the company may mention PAN No. of director at the place of affixing of DSC.
The e-Form will not be auto approved (STP). The Registrar may seek further information or amendments to the form filed. The Company will be required to comply and will be provided a maximum of 2 chances to rectify the form, after which the form if still found incomplete will not be accepted.
Companies however always have the option to go by route of e-form INC-29 or earlier route INC-1, INC-7, DIR-12 and INC-22.
In addition, several amendments towards the ease of doing business in India are said to have been moved by the Ministry of Corporate Affairs in the Lok Sabha, some of which are described below:
- Bring provisions for minimum capital and company seal at par with international best practices.
- Make approval for related party transactions simpler without unduly diluting safeguards for minority shareholders.
- Provide explicit penalties for failure to honour terms and conditions of deposits.
- To retain the stringent bail provision only for the serious offences of fraud.
- To rationalize procedural aspects to deal with frauds detected during the course of audit.
In sum, there is much to look forward to in the financial year 2015-2016 in terms further amendments and clarifications. Some of the procedures prescribed for simplifying business border of reduced KYC compliance and certain others are vague such as the provision of correspondence address that may be converted to a registered address. Having said that, these minor changes are bound to ease out the process of setting up a business in India through a corporate structure. The key to improving business however, lies in simplifying the tax structure and labyrinth of laws that affect each business.
In this light, the efforts of the Karnataka government towards their e-karmika initiative are laudable. The online system, known as the ‘e-karmika’ portal, which was first introduced in Bangalore (revenue division) in 2013, has been recently extended to allow for labour law compliances including registration and renewal of the certificate of registration, as per the Karnataka S & E Act. This reform, introduced by the Department of Labour, Government of Karnataka, is expected to significantly ease compliances and allow for automation of the services of the Labour Department. Commercial establishments including information technology, software services and outsourcing companies in the State of Karnataka need to use the e-karmika portal to ensure compliances such as (i) application for registration, (ii) renewal of registration certificate; (iii) amendment in registration certificate; (iv) issuance of duplicate registration certificate; (v) filing of annual returns; (vi) applying for exemption on weekly holidays; (vii) exemption for women working in night shifts and (viii) submission of appeals.