In this article, Munmun Kadam of Rajiv Gandhi National University of law discusses Legal consequences of non-filing of Income tax return.

Understanding Income tax with these five points

• An income tax (IT) return is the tax form or forms used to file income tax with the Income Tax Department (ITD). It is usually a predefined worksheet where the income estimate details are provided and it is used to calculate the tax liability written in documents themselves.
• The tax returns have to be filed at the end of every financial year. If the tax paid by a taxpayer had been in excess then he/she can claim a “tax refund” by specifically determining the calculations. It is a statement of earnings by various sources of income and thereon the estimated tax liability which is incurred by the taxpayer.
• There is a specified time and date when before which the tax returns have to be filed. It is the reason that August and September are the busiest months for the Charted Accountants. While filing the actual, the total amount that should go to the government as income tax is calculated.
• The various forms available for Income tax Return ranges from ITR1 to ITR7 and are used for different sources or category of income. It is observed that some Income tax forms are longer than the others and the others may require many disclosures of fact than the others such as balance sheets of profits and losses.
• Income tax return filing as perceived by most Indian is a very sturdy task but it is not so because of the fact that government of India has taken measures such as the introduction of E-filing of Income tax return etc.

Did you forget to file your tax returns? Here is the solution

There are instances because of the much busier life we all are living many of us fails to file the Income Tax return within a prescribed period of time. Even after the due dates have been passed you can still file the Income Tax return. There is a provision in Income Tax Act for late filing of income tax return which is called belated return.

Understanding Belated returns

If the taxpayer fails to submit his income tax return:

1. On or before the due date mentioned u/s 139(1) or
2. If the income tax is not filed before the due date and the income tax officer had issued a notice u/s 142(1) directing the taxpayer to file his income tax return within a specified time in the notice and he has not filed the return as required in the notice.

He can still file the income tax return even after the due date. Such an income tax return filed after the due date is called belated return.

Belated return can be filed any time before the expiry of 1 from the end of the relevant assessment year or before the completion of assessment whichever is earlier. An example for this is: The filing of income tax return due date is 31st July  2014 to 31st September 2014 for the Financial Year 2013-2014 and the assessment year 2014- 2015.

If due to any reason the taxpayer has not filed the income tax returns, he can still file the return before the end of assessment year that i.e.  31st March 2016. However, in case you have not filed the tax return and the income tax officer have started conducting the assessment, the taxpayer can file his income tax return any time before completion of the assessment.

Consequences of non-filing of tax returns

There are many people who miss out the dates for filing the tax return or they simply don’t want to file their tax return and save their income. Also, everyone makes mistakes, as there are many people who simply forget it because of the hefty documentation and lowering their tax liabilities legally as much as possible. However, there are many legal consequences for non-filing of the tax returns on or before the due prescribed dates.

Penalty and Interest

 If a person has not filed his income tax returns he/she will be issued notice u/s 142(1) for non-filing of income tax return if the income tax department feels it fit. Further, if the individual fails to furnish his income tax returns after the notice he will be penalized for the same. If there are any taxes which are unpaid, penal interest as per u/s 234A i.e. @ 1% per month or part thereof will be charged till the date of payment of taxes. Also Penalty of Rs. 5,000 may be charged. The penalty is not levied in all cases and depends upon the circumstances of the case.

For the Financial year of 2017-18 and onwards, a penalty of Rs 5,000 will be charged for returns filed after the due date but it should be before 31st December and if returns are filed after 31st December, a penalty of Rs 10,000 shall apply. However, the penalty will be Rs 1,000 for those with income up to Rs 5Lakhs.

Prosecution

The Supreme Court of India in its recent judgment (Sasi Enterprises V Assistant Commissioner of Income Tax criminal appeal No.61/2007) has categorically declared it is taxpayer’s liability to file a tax return and non-filing of the tax return is an action liable for prosecution. If the taxpayer does not pay the income tax return voluntarily as under Section 139 of the income tax act and does not pay even after issuing of notice as u/s 142 an148 of the Income tax act then the taxpayer can be prosecuted u/s 276CC of the Income Tax Act. This judgment by the Supreme Court is the firm reminder that the laws should not be seen as an empty formality and should be attended diligently. The Supreme Court has also held that in case prosecution proceedings are initiated, taxpayers have to prove the circumstances which prevented them from filing the I-T returns and also failing to prove they are liable for prosecution and penalty. The burden as to prove that he/she has not willfully exempted from filing the I-T return is on the Taxpayers altogether.

Concealment Penalty of Income tax Return

If you do not file a return, and there is assessable income, you are liable to a penalty for concealment of income which ranges from 100% to 300 %. It is mandatory on part of every individual to file the Income Tax Return and also the person will be penalized under section 234A of the Income Tax Act. Other than this the Income Tax Act also prescribes a penalty for the offense of concealment of the income and if a person does not pay or file his Income Tax Return he is in a way Concealing his Income which is further Penalized under Income Tax Act.

Delay in tax refund

There is an amount that the government of the country holds after the payment of tax returns also. So if a person is holding on the income tax return of the latest year he will be not be entitled to the Tax Refund of the previous year also.  For e.g.: If a person has paid the extra tax than his income Tax return so the government would be returning the same which is called as Tax refund and if the person delays or not files the income tax return he/she will be forfeited the “Tax refund” for the previous Income Tax Returns.

No easy eligibility in loan applications from Banks

 The basic need for all loan such as housing, business, car or personal loan is the record of last three years I-T return and it is also a declaration of your income. Before issuing the loan, banks want to be well aware of your financial capacity and your income details as shown by you in income tax returns. So it is mandatory for a person to file his/ her Income Tax Return regularly because of the fact that he/she would not be able to grab the facilities like loans easily because banks do not give loans without the statement of income by the person taking a loan. Banks won’t provide a loan if there is no proof of his/her income record for which banks require three-year Income Tax Return statement.

Decreased chances of obtaining visa outside India

There is a high possibility that a person applying for a visa outside India have to produce the records of the Income Tax Return of previous years to the latest years. The Visa authorities and the High commissioner of the various countries around India would ask the applicant to produce his/her Income proof and the best proof of Income in India is the records of his I-T Return. The people issuing Visa’s want to know if you are financially sound before they issue you a visa and for this purpose, they will rely on your ITR. If anyone wants to go abroad then he should file a genuine report and Use it to show your genuine source of incomes, because immigration officers give due weight to your annual income. If anyhow you are unable to produce even a single Income Tax return, this can reduce your chance to get the visa from the visa officer. The main purpose of the Income proof is that it is the officers want to know about the sustainability of the person in his own country because if he is not financially sound in his own country he may not be given the visa. So the genuine filing of the Income Tax return is necessary if a person is willing to go abroad.

No allotment of government tenders, registration on panels

The value of business profiles of various corporate agencies, contractors, professional service providers or individuals is dependent on the yearly income tax returns. Sometimes, this work is checked by the tender scrutiny committee and ITRs for five to seven years are considered to see whether the applicant has done work for that amount earlier. So if one wants to expand one’s business and obtain tenders from a government or private bodies, one needs to file regular returns every year.

Loss not to be Allowed to Carry Forward

Normally, if you file your return on time losses of this year can be set-off against the gain of forthcoming years. E.g. If you have business Loss this year, you can claim set off against business profit next year. But in case a person does not file his Income Tax Return on or before due date he/she will not be allowed to carry forward their losses.

References

1. https://cleartax.in/s/belated-return-not-filed-your-income-tax-return
2. https://cleartax.in/income-tax-efiling
3. http://www.internationaltaxreview.com/Article/3306912/Non-filing-of-income-tax-returns-can-bring-prosecution-Indian-Supreme-Court-rules.html
4. https://money.usnews.com/money/blogs/my-money/2014/04/03/5-scary-consequences-of-failing-to-file-your-taxes
5. https://yourstory.com/2015/08/income-tax-return/
6. http://taxheal.com/consequences-of-non-filing-of-income-tax-return.html
7. http://timesofindia.indiatimes.com/business/india-business/Retail-prices-of-edible-oil-sugar-defy-wholesale-rate-fall/articleshow/29965678.cms

In this article, Khalid Khan pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses what are the various startup contract and agreements every entrepreneur must know.

The human nature is such that we want to rush into things and not indulge in a cumbersome process. When entrepreneurs start a business, they are too eager to run it, often forgetting how important are the formalities required before commencing the business. But sometimes being over-optimistic leads them into regretful and troublesome situations.[1]

While exploring business possibilities an entrepreneur is bound to interact with lots of people and businesses like investors, employees, vendors, co-founders, clients or customers.[2]These kinds of risks involve lots of complexities and uncertainties. Various issues come up like ownership, profit-loss sharing, liabilities, damages, compensation, breach, decision-making, resolving disputes and so on.  Therefore, in order to reduce the risks involved in these matters these relationships must be formalized which is done through written contracts and agreements. There are numerous formalities which should be taken into consideration which every entrepreneur must be aware of and should not be reluctant to perform while exploring his business relationships.

Legal issues become a big hurdle in the way of founders itself and make them face legal battles. So, to avoid and deal with potential legal battles the entrepreneurs must take into consideration the following contracts and agreements:

Intellectual Property (IP) Assignment Agreement

It goes without saying how inevitable it is to protect an Intellectual Property through ways such as patent, copyright or trademarks. Intellectual Property means works or invention which are a result of a human mind’s creativity or more famously called “the mundane depiction of ideas”. Unlike other assets of the company, Intellectual Property lies in ideas, inventions and concepts therefore it is necessary for an entrepreneur to protect his IP. The protection of the expression of ideas and concepts is generally through written contracts and agreements which provide a contractual remedy for misuse or disclosure of the idea. The startup founders must have a legal ownership of all the intellectual properties at the time of formation of the company. The company has name, names of the products, the design of the products, its specific packaging and so on. In order to protect from infringement, the entrepreneur must register these with the concerned authorities so that no one is able to copy. Also, the assignment agreement is a must for the entrepreneurs. The IP assignment Agreement is one of the most essential documents sought by the investors when they decide to invest in any startup. Types of IP assignment agreement may be Technology Assignment Agreement[3] or Invention Assignment Agreement.[4]

Operating Agreement (Founders’ Agreement)

When the entrepreneur begins his company, it should be kept in mind how important it is to have an operating agreement or a founders’ agreement. This document is similar to the Articles of Association. It contains the duties and liabilities of the founders. Mostly startups need more than one partner and therefore the operating agreement is important in order to decide the powers and functions of the co-founders. It must be prepared very carefully as it the document which relied to in case of potential disputes. The Operating agreement is customized as per the needs of the startup. So whatever clauses the entrepreneurs want to include to regulate the internal affairs of the company may be included in it.

Non-Disclosure Agreements

As the name, itself suggests the non-disclosure agreements(NDA) are the agreements which contains the provisions protecting the information of the company from being disclosed to any third party. The agreement is entered into with the interested parties obliging them not to share the confidential information to any third party. If there is a need to share the confidential information to any third party then prior approval should be sought from entrepreneurs. Sometimes an entrepreneur may need to keep certain information secret but in order to explore further business possibilities is obliged to share that information with the second party. Under this agreement the second party undertakes to keep confidential information confidential. The confidential information is of two types Mutual confidential agreement (it’s a two-way NDA where both the parties undertake not to disclose any information to a third party) and other is one-way confidential (it’s an undertaking by one of the parties to the agreement to keep secret the other party’s information shared with them).

Employee Contracts and Offer Letters

It is but obvious that when a startup expands it needs to hire employees for various tasks. Different people are hired for different positions in the company like HRs, Associates, Accountants and other employees. Thus, again it is very important for entrepreneurs to draw clear cut employment agreements and offer letters which usually contains terms of employment e.g., compensation, job responsibilities, working hours and grounds for termination, reporting structure, IP ownership of work, expectations, commitments, share vesting, remuneration, company policies and so on. It is very important to define these components beforehand as it has led entrepreneurs face millions of employment lawsuits.

Shareholder Agreements

The shareholders agreement defines the rights and responsibilities of the shareholders. Entrepreneurs need funds to start the business and therefore search for investors. It is not possible for every entrepreneur to bootstrap the startup, therefore, the investors are invited to invest in the company in exchange for equity shares. Therefore, when the shareholders invest they apart from shares they have other rights and duties. Hence a cautious approach must be taken in order to protect the company.

Commercial Leases

These agreements are lease agreements for the buildings the startups own. An entrepreneur would definitely need an office to work in order to carry out his activities. If an entrepreneur does not own a land, it is taken on lease. Hence it is very important to have a lease agreement with the landlord. The commercial leases usually contain the address, amount of rent, terms and conditions of lease, termination or expiry of the lease agreement.

Independent Contractor Agreements

Sometimes the nature of business is such that the company needs to enter in to business relationships with the independent contractors. They are not hired by the company as employees but are independently hired by the company for a particular service and for a particular period of time. Therefore, it is essential to have a written agreement with these contractors so that the hassles are avoided.

Client/Sale Agreements

Client agreement is mostly important for the business which are service providers. The client agreements define the nature of the services, the date of commencement and end of services and most importantly contains disclaimers regarding the services. Whereas the Sale agreement is normally used in case of companies selling goods. It must define the dates, prices, use and other details. These contracts also denote the refund policy of the company, if any. All the terms and conditions are clearly under these contracts to avoid future problems.

Not doing so may lead an entrepreneur into trouble. The Facebook litigation that took between Winklewoss and Zuckerberg leaves a remarkable lesson for all the founders to invest a good time in making proper contracts. Some of the important tips to keep in mind while making the contract are making the contract simple and clear.[5] The contract maybe verbal or written but it is best to keep it written. The contract must clearly identify the parties and their obligations.

The above is not the exhaustive list of the contracts and agreements required by a startup[6] but are the basic ones used worldwide. However, there can be more agreements tailored to meet the specific needs of the entrepreneur. The entrepreneur must aware of all the documentation and formalities required at the time of starting his business as this a very complex world on business relationships which might lead to hurdles in the way of business if proper care is not taken before entering into business world. The market is big and the interactions are endless.  Therefore, it is very important to enter into legally binding contracts to secure the company’s future.[7]

References

[1] Richard Harroc, 10 Big Legal Mistakes Made By Startups available at: https://www.forbes.com/sites/allbusiness/2013/10/03/big-legal-mistakes-made-by-start-ups/#5d15b47d497e (Last visited August 26 2017).

[2] Jessica Livingston Founders at Work: Stories of Startups’ Early Days (Apress, USA,2001).

[3] A technology assignment agreement assigns your startup any intellectual property before you form the company. The developer(s) may retain individual intellectual property rights under certain circumstances, or they may sell the rights to you for equity or cash.

[4] An invention assignment agreement assigns a new company ownership of any relevant intellectual property created by employees after the company is formed. The agreement typically includes the founder(s) and employees as signatories to a confidentiality agreement and an invention assignment agreement.

[5] Ten Tips for Making Solid Business Agreements and Contracts available at: http://www.nolo.com/legal-encyclopedia/make-business-contract-agreement-30313.html (Last visited August 25 2017).

[6] 14 Types of Contracts Your Startup Needs available at: http://blog.lawgeex.com/14-legal-contracts-your-startup-needs/ (Last visited August 25 2017).

[7] Jason Mendelson Venture Deals: Be Smarter Than Your Lawyer (Wiley, UK, 3^rd edn., 2017).

In this article, Karuna Santwan Baskar pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses Stress and Mental Health of an Entrepreneur.

To become an entrepreneur is the dream of many people today, fuelled by all the success stories one hears. Success, fame, wealth, and freedom from the shackles of a routine job with all its demands are all certainly aspirational. Entrepreneurial ventures are required for economic growth, and the disruptions and innovations being introduced are changing the way we live and interact. However, when one looks at the lives of entrepreneurs, the picture is not entirely positive. Being an entrepreneur brings with it an immense amount of stress and can also impact one’s emotional and mental health. It is important to understand the stress and challenges that come from this lifestyle in order to take preventive as well as remedial steps to manage them.

SOURCES OF STRESS IN ENTREPRENEURSHIP

Stress occurs when the pressures on a person exceed that person’s ability to cope with it. This excessive pressure can sometimes arise from a single event, but more often it is the cumulative effect of a number of situations. Everyone faces stress to a greater or lesser extent, since it is a part of life. Entrepreneurs face certain specific pressures over and above those of non-entrepreneurs.

Uncertainty and instability

One of the aspects of running one’s own business that appeals to many is the absence of routines and structures, as well as the delight of unpredictability. However the very absence of routine, the fact that one never knows what a day may bring, brings its own stress. An entrepreneur cannot count on a fixed salary, specified working hours, regular career growth and so on. This means that they cannot make plans for the future, and if they have family members dependent on them this makes it even more complex. There maybe many slumps with successes being few and far between, and this can take its toll.

High risk of failure

According to research by Shikhar Ghosh, 75% venture-backed startups fail and more than 95% of startups fall short of their original projections. For every success story there are multiple failures, and even those who have made it big often have had many failures along the way. The entrepreneur invests a lot in terms of time, energy, money, passion and back-breaking work into the business. When this ends in failure, or if success is very much delayed, it can be extremely discouraging and depressing.

Responsibility and multiple roles

The typical entrepreneur may be working alone or with a very small team. This means that he or she will have to carry out multiple roles and often bear individual responsibility for the entire business, unlike in a large organisation where it is shared among the leadership. This can cause a great deal of stress.

Financial constraints

In most start-ups, financial constraints are a given. The owner has to manage with limited funds which of course limits all other resources as well and affects the ability to produce as much as planned. The funds crunch can also affect personal life, with the inability to meet commitments, a problem that is exacerbated if he or she has a dependent family.

Social Isolation

With few if any colleagues, and an atmosphere of competition, the entrepreneur is often without a support system at work. Family and social life is often minimal because all their time and energy is focused on work with little or no priority to relationships. As a result the person becomes increasingly isolated.

Self-neglect

Passion for work also results in working long hours, with inadequate time for sleep, a poor and unhealthy diet, no exercise and insufficient breaks and relaxation. Weekends and vacations become a thing of the past. The resulting loss of health and wellbeing is another source of stress. It also lowers the individuals’ resilience, making them more vulnerable to the negative effects of stress.

IMPACT OF STRESS

Excessive stress, if not managed well, results in a range of physical, psychological and social symptoms.

Physical effects

Back, neck and shoulder pain, headaches, increase in colds and flu, hormonal problems, high blood pressure and cholesterol are all seen with increasing frequency at early ages. Continued over a period of time this can result in early onset of heart disease, gastro-intestinal problems like ulcers, migraine, insomnia, infertility and many other serious problems.

Psychological and social effects

Anxiety and despair are a natural outcome of unrelenting tension and stress faced by entrepreneurs. Since their sense of identity and self-worth is so closely tied up with their work, any failure or setback results in low self-worth. Mood swings are also likely as well as depression, something to which entrepreneurs are already vulnerable, as we shall see. Increased difficulties in relationships are likely given the lack of time for interaction with loved ones, and chances of break-up of relationships and even separation and divorce are high.

MENTAL HEALTH CONDITIONS

Evidence indicates a correlation between certain forms of mental illness and entrepreneurship, specifically depression, ADHD, Bipolar Disorder and substance abuse. A study by Freeman, Johnson, Staudmaier and Zisser found that 49% entrepreneurs reported having had a mental health condition sometime in their life, which was significantly higher than the control group. They reported rates of depression (30%), ADHD (29%), substance abuse (12%) , and bipolar disorder (11%) which were significantly higher than comparison participants. 27% of them also reported suffering from anxiety although this was not significantly different from the comparison group.

Depression

Depression is a serious illness which causes feelings of sadness and loss of interest in activities once enjoyed. It results in changes in appetite, sleep and energy levels. It often includes feeling worthless or guilty and may lead to thoughts of death and suicide. These feelings must persist for at least two weeks to justify a diagnosis of depression. According to the WHO, depression is the leading cause of disability worldwide, affecting more than 300 million people globally. Experiences of failure and business setbacks increase the likelihood of depression in entrepreneurs.

ADHD (Attention Deficit Hyperactivity Disorder)

This involves a persistent pattern of inattention and / or hyperactivity and impulsivity that interferes with normal functioning. The person is unable to sustain attention, organise tasks and activities and follow through on instructions, maybe restless always on the go, may talk excessively and could have angry outbursts. They may engage in impulsive and risk-taking behaviour.

Several researchers have noted a relationship between entrepreneurship and ADHD.

Mannuzza et al. in a longitudinal study of children with ADHD found that a significantly higher percentage of them owned and operated their own business as adults as compared to controls. Dimic and Orlov found significantly higher entrepreneurial tendencies and probability of being entrepreneurs among ADHD participants than in the control group. Nicolaou et al. noted that dopamine receptors are associated with novelty seeking, ADHD as well as entrepreneurship.

Substance Abuse and Addiction

This refers to regular use of a drug (including alcohol) in which the substance is consumed in amounts which are harmful to themselves or others.

Researchers have postulated that the psychological and physiological aspects of entrepreneurship may activate neural circuits, which result in disinhibition and compulsive and addictive behavior. It is thought that this could make them predisposed and vulnerable to addiction.

Bipolar disorder

Bipolar disorder causes unusual shifts in mood, energy, activity levels, and the ability to carry out day-to-day tasks. Moods range from extremely elated manic episodes to very sad, depressive episodes. The manic phase involves an abnormally elevated or irritatble mood, symptoms including inflated self-esteem or grandiosity, decreased need for sleep, flight of ideas, increased goal-directed behaviour and risk-taking behaviour. Hypomania is a less severe form with no significant functional impairment whil in hyperthymia there is an abormally increase level of energy and enthusiasm but no negative mood.

Akiskal and his colleagues found that among seven types of jobs, the entrepreneurs or self-made industrialists had the highest rates of hyperthymic traits, which was three times the rate in the comparison group.

Further it appears that several traits, which are beneficial for entrepreneurship, are also clinical features of bipolar disorders, depression, substance abuse and ADHD. These include creativity and innovativeness, which have been found to be associated with psychosis, bipolarity, depression and addiction. Having ambitious goals, expecting to succeed, zealous pursuit of goals are linked to bipolarity. Risk propensity and risk taking, which are characteristic of entrepreneurs, are also features of bipolar disorders, ADHD and substance users.

Gartner states that hypomania could be responsible for the strengths of some entrepreneurs as well as their weaknesses. Hypomanics have tremendous levels of energy and need to be busy, active and overworking. Anything that slows their momentum could lead to depression.

The implication of these studies is that certain characteristics have both strengths and vulnerabilities. The strengths result in positive outcomes for the individual and society, yet there must be some attempt to support and protect them from the co-occurring vulnerabilities.

Whether entrepreneurs are predisposed to certain mental health conditions or the intense stress makes them more vulnerable, the fact is that this is an area of concern.

PREVENTIVE AND REMEDIAL MEASURES

Recognising the stress faced by entrepreneurs as well as the increased likelihood of mental health conditions, It is important to take preventive as well as remedial steps to address the problem. Awareness of the problem is the first step, and beyond this entrepreneurs must learn ways to cope with stress as well as build their resilience.

Make time for relationships

The single most important step that an entrepreneur can take is to make time for loved ones. Those who have survived tough times have expressed that what has helped them most is the knowledge that their families still loved and supported them whether they succeeded or failed. Whether it is spouse and children, parents and extended family or friends, finding time to connect and spend enjoyable time together can be refreshing and energising. Giving importance to primary relationships ensure that they remain strong and a source of support no matter what else may go wrong. Strong support systems are also a defence against depression.

Establish priorities

With many tasks and responsibilities demanding attention it is easy to become overwhelmed and anxious. The entrepreneur must prioritise, recognise that not all demands can be met, and learn to let go of less important tasks in order to fulfil the most important ones.

Find a balance

Without established working hours it is easy to continue working extended hours with insufficient breaks, often working through weekends and holidays. However having a balance, finding time for leisure, socialising and other activities is important. It helps if one has opportunities for success in areas unrelated to work, so that one’s self-worth is not solely dependent on success at work. One’s self-worth should not be tied only to one’s net worth.

Take care of self

Adequate time for sleep, a healthy and balanced diet and exercise are not optional – they are critical for good health. They have also been found to increase resilience to stress, making the person less vulnerable to the negative impact of stress. The entrepreneur may feel that he or she cannot afford to waste time on sleep or exercise or healthy eating, but in reality he or she cannot afford not to do so.

Ask for help, share feelings

It is imperative for entrepreneurs to be able to seek help, whether it is guidance, or support or just a listening ear. That does mean giving up one’s idea that one is totally self-sufficient. Sharing feelings, instead of bottling them up can also help cope with some of the intense feelings experienced especially when things are not going right.

Recognition of the stress and mental health risks faced by entrepreneurs is the first step towards managing them. While entrepreneurs are being prepared for many other aspects of building up a new business, it would be good if they could also be prepared for the psychological challenges. Access to professional counselling as well as training in lifestyle management would go a long way towards building their resilience to stress, and equipping them to face the challenges on the long road to success.

REFERENCES

~ Diagnostic and Statistical Manual of Mental Disorders, Fifth Edition, (Copyright © 2013). American Psychiatric Association

~ Are Entrepreneurs “Touched with Fire” ? (2015) Freeman, Johnson, Staudenmaeir and Zisser

~ http://fortune.com/2016/12/12/entrepreneurs-depression-mental-health/

~ The Psychological Prices of Entrepreneurship Jessica Bruder https://www.inc.com/magazine/201309/jessica-bruder/psychological-price-of-entrepreneurship.html

~ The 5 Biggest Psychological Hurdles of Entrepreneurship Jayson Demers https://www.entrepreneur.com/article/269883

~ https://www.forbes.com/sites/amymorin/2015/03/24/theres-a-hidden-dark-side-to-being-an-entrepreneur-it-wreaks-havoc-on-your-mental-health/

~https://www.forbes.com/sites/drewhendricks/2015/02/03/entrepreneurial-stress-is-real-and-should-not-be-ignored/#293490af7148

~https://www.forbes.com/sites/thebigenoughcompany/2011/10/16/10-ways-to-avoid-burnout-as-an-entrepreneur/#188e97c38dc7

In this article, Gupta Shubham pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the Difference between loan syndication and a consortium.

Before going into the details and for better understanding, a rough idea about the concepts of Loan Syndication and Consortium is necessary. “A setup in which group of individuals or entities decides to pool resources towards fulfilling a debt or financing a single borrower wherein the setup is governed by a legal contract that delegates responsibilities among its members, is known as Consortium” whereas a Loan Syndication is somewhat a similar process, the term is generally reserved for loans that involve international transactions, different currencies and a necessary banking cooperation to guarantee payments and reduce exposure, this setup is headed by a managing bank that is approached by the borrower to arrange credit.

Loan Syndication

Syndicate as term in general sense has originated in the U.S. Loan Syndication refers to a lending process wherein a borrower approaches a bank for a loan amount that is comparatively heavy and also involves international transactions and different currencies. Here, as and when a bank is approached by a client for availing a loan, the said bank fixes up the interests and other borrowing terms and conditions of the loan with the client and itself approaches other banks for selling of this loan. The other banks, if agree, “Purchase” a part of the loan on the same or different terms and conditions. In a Loan Syndication process, the client deals with one Bank only. The bank approached by the borrower to arrange credit is referred to as Managing Bank that is responsible for negotiating conditions and arranging the loan amount. Here it is important to note that the Managing Bank need not be the “Majority lender” or “Lead bank” but only plays the role of manager in arranging the loan amount in association with other banks. Depending on the terms and conditions of the agreement any bank can play the role of Managing Bank. The lead bank acts as recruiting bank of other sufficient banks in the process of producing of loan, negotiating the terms, negotiating details of the agreement and preparing documentation. The bank that is awarded/ given the mandate by prospective borrower and is responsible for placing and managing the loan process, its terms and conditions and finalizing the same is known as Lead Manager, Lead Bank, Syndicate Bank. They are entitled to arrangement fees and undergo a reputation risk during this process.

The banks that participate in process of lending a portion of total loan amount entitled to receive interest and participation fees are Participating Banks.

Syndication may be termed as Secondary Intermediation between the borrower and other Financial Institutions.

The manager/lead bank is responsible for repayment and disbursement of the loan amount and also for providing the borrower’s financial statements to the banks involved in the syndicate lending process. The manager/ lead bank is paid a fee by the borrower for these services. The Managing bank may hire one or more other banks as co-managers to assist in the process, who share in the fee in return for helping with the manager’s duties.

A research paper on “Why do banks Syndicate Loans?” by Katerina Simons, has found no evidence that lead banks exploit participating banks by persuading them to take a larger share of inferior loans. For better understanding article can be referred to at:https://www.bostonfed.org//media/Documents/neer/neer193c.pdf

A borrower takes resort of Loan Syndication for Working Capital credit, Export Finance, Capital goods financing, Mergers and Acquisitions, Project Finance, Standby facility, Trade finance, guarantees etc.

Advantages

1. Allows the borrower to access from diverse group of financial institutions.
2. Saves funds. The interest rates, other terms and conditions are agreed upon by one bank that has to approach the pool of banks for the loan; this process saves money and time on part of the borrower.
3. Raise substantial financingfacilities on pre-agreed terms which would exceed the capacity of any single bank

Disadvantages

1. Each bank has to come to an understanding about business and how its financial activities take place.
2. Comfort level must be arrived at, that requires time and effort.
3. Negotiating the documents and other terms with one bank takes days. Here the borrower has to negotiate with numerous banks and is time consuming.

Consortium

There arise cases where a borrower approaches a bank for huge loans; this high amount means high risk to a single lender.  In such cases banks resort to a lending mechanism known as Consortium to reduce the risk involved in the Loan Process. A consortium is successful where it is not possible for a single bank to finance the loan amount to the borrower; it has nothing to do with international transactions unlike Loan Syndication, simply the loan amount is too large or risky for a single lender to provide.  Consortium financing occurs for transactions that might not take place with a single lender. Here when a borrower approaches a bank for loan, several banks club together to supervise the said loan amount.  A common appraisal, documentation, joint supervision and follow-up play the key role.

These banks have a common agreement between them. Sometimes the participating banks form a new consortium bank to look after the process of funding of loan, leveraging assets from each institution and ultimately disbanding after completion of the project. The lender who has taken the highest risk (by giving the highest amount of loan) acts act as a leader and administers all the transactions, agreements etc. between the consortium and the borrower. The consortium agreement is a crucial document and not easy to draft. It must be clear on the rights and obligations of the parties, which need to be focused firmly on the purpose of the consortium.

Advantages of consortium

1. No capital is required to create a consortium.
2. Ease of formation, no formal procedures need to be followed.
3. It is easy to terminate because it can be set to expiry on a particular date and happening of an event without any formal requirements.
4. It is easy to terminate, can be set to expiry on a given date or on the occurrence of certain events without the formal requirements needed in the case of dissolution of a corporation.
5. The individual members are subject to tax and not the consortium.

Disadvantages of consortium

1. A consortium member can’t restrict or limit its liability. Members may even become liable to third parties for the non-performance of other members of the consortium or the debts of such members incurred in undertaking the common project.
2. Third parties often find it difficult to enter into contract with a non-legal entity like a consortium. Because it is a non-legal entity funding is also normally only available to the individual members and not the consortium itself. So it becomes difficult to maintain External relationship and funding.
3. The lack of a permanent structure makes it difficult for a consortium to establish long-term business relationships with third parties.

Role of Lead Bank in Consortium

1. Conducting consortium meetings.
2. Obtaining of necessary documents, clarification etc. from the borrower.
3. Making arrangements for joint appraisal of loan proposal by all member Banks. Preparation of joint appraisal report and sending the same to all member Banks and finalization of decision after discussions.
4. Fixing and Deciding of Loan limit.
5. Custody, Verification of documents, securities etc., on behalf of itself and consortium Banks.
6. To maintain mutual interest between consortium Banks and term loan lending institutions, making correspondence with National/State level Financial Institutions.
7. Obtaining stock statement and other legal obligations every month and ensuring maintenance of adequate stock for the loan.
8. Passing on recoveries on pro rata basis to the entire consortium Banks.
9. Ensuring of all transactions by borrower through Cash Credit A/c maintained with the Lead Bank and that the utilization of the loan advanced is only for production activities.

Role of Consortium Banks

1. Participating in consortium meetings and using their expertise in the general interest of consortium.
2. Authorizing the Lead Bank to take decision in the interest of consortium Banks.
3. The Consortium Banks are not supposed to demand the loss incurred and change their lending share without obtaining prior approval from the consortium members.
4. Act in accordance with the terms and conditions agreed upon between the Lead Bank and other banks.

Faced with higher defaults, banks have become more cautious on non-investment-grade corporate loans. They have started pushing more corporate loan accounts to enter into consortium lending arrangements, to improve the access to information and avoid surprises.

Conclusion

To conclude, every syndicate is a consortium, but not every consortium is a syndicate. When it comes to loans, the big difference (in my opinion) is when the lender cannot repay. With a consortium the lender can repay one bank and fail on another. With a syndicate there is only one loan, the lender will have to fail on the whole loan which may create legal complexities and make the borrower face other legal consequences. They may look alike and both the terms are used as synonyms to each other yet there exist technical differences when it comes to operations, procedures, relationships, legal complexities etc.

In this article, Gaurav Dayal, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses when should you incorporate a society.

Purpose for incorporating a society

Under the Indian Societies Act 1860, a society is formed for any literary, scientific or charitable functions, or the other such purpose made public below Section twenty of the Act. It is usually a particular cause that brings people along to create a society. It may be native society that together represents the cause that individuals of that specific local area are involved, or it may be a national society performing on an interstate basis. Now, the Indian Societies Act may be a pre-independence era Act that has already been amended varied times. Therefore, the explanations that an exact society was shaped long ago could vary from nowadays owing to the evolution of society, and there are varied economic changes that have an effect on however society functions.

What we tend to even have connected in mind is that the cause and reason for incorporating a society may additionally vary. The aim may be something as long because it coincides with the provisions of the Indian Societies Act. There should be a minimum of seven members so as to create a society as per the Act. An incorporated society is outside the governmental prejudice, that essentially suggests that the state or the central government cannot regulate the workings of the society.

It is ruled by the note of association that is signed by the members of the society. To elaborate, society works during a dependent manner, so the elementary purpose is resolution issues round-faced by individuals with the assistance of individuals among specific lots of individuals in a personal social unit. It might be for the protection of a shared belief or illustration of the art and culture of bound communities. Therefore, purpose is what unites and drives an exact set of individuals to return along and symbiotically enhance their reach in terms of their beliefs, that basically forms their society.

Although a society doesn’t ought to incorporate, there are many blessings to formally incorporating the society. One advantage is that a member of a society might not be controlled answerable for the debts of the society. A society could own property and will enter into contracts itself, as critical its individual members getting in the contract. The public’s perception of a society is one having a lot of permanent standing than AN unorganized cluster. AN incorporated society is also eligible for presidency grants and to become a registered charity with Revenue.

Evolution of societies from the eighteenth century resulting in amendment in purpose

It is believed that the construct of society firmly hit ground round the eighteenth century owing to amendment within the economic infrastructure that resulted within the major step-up within the earning of the common lots, and the liberalisation of the western world. This era saw huge scientific advancements within the world resulting in an exact section of individuals not considering the methodology of the church. They wished a rather totally different approach towards specific subjects. These individuals with a typical approach completed that their influence on the planet at massive is restricted if they stand against the church severally, they understood that only if they unite along for his or her cause can they be ready to create an exact impact within the world.

In the early nineteenth century, owing to the first war, the structure of society disintegrated, it saw a collapse in regimes followed by people with a can to voice their opinions. Everything in this amount turned around war and its effects. By the middle 90’s, the speculation of Bowling Alone was given by Robert D Putnam. In his theory, he surveys the decline of social capital within the US since 1950. He has delineated the reduction altogether the varieties of in-person intercourse upon that Americans want to found, educate, and enrich the material of their social lives. He argues that this undermines the active civil engagement that a powerful democracy needs from its voters. After the decline within the early and also the mid-19th century, the aim of forming a society modified once more however now within the late 90’s, individuals became a lot of tuned in to their rights and so became active within the field. Once such individual from came along for reason behind common interest, it, later on, result in a coffee revival of the societies. This era saw the steady rise in communitarianism; the association between people and also the community became higher as a result of individuals interactions inflated owing to common interests.

But, this can be not the 18^th or the 19^th century. The aim of forming a society might not be entirely totally different however their agendas could vary from time to time. The aim of contemporary society still remains to expeditiously solve problems with individuals on a collective level, however the fulfilment of this agenda has not been destitute of challenges. The laws are amended various times and there are bills passed to boost the inter-state functions of societies. Each state has enacted its own law for the aim of textile its regional wants.

Societies Registration Act, 1860

The Societies Registration Act, 1860 is a legislation in Republic of India that permits the registration of entities usually concerned with the good thing about society – education, health, employment etc.

The British Indian Empire, with a want to encourage such activities and to market the formal organisation of teams of similar individuals, incorporated the Act twenty one of 1860, in different words, The Societies Registration Act, 1860 (21 of 1860), that came into force on twenty one could 1860. The Act continues till nowadays and being an Act of Parliament, comes below the proper to data Act, whereby the govt. is lawfully accountable to allow any data requested by any national of Republic of India with regard to any society.

The Republic of Indian Societies Registration Act of 1860 was enacted below country rule in India, however is basically still effective in Republic of India nowadays. It gives for the registration of literary, scientific and charitable societies.

Under the Act societies could also be shaped, by manner of a memorandum of association, by any seven or a lot of individuals associated for any literary, scientific or charitable purpose. The memoranda of association must be filed with the Registrar of Societies. The memoranda must contain the name of the society, its objects, and therefore the names, addresses and occupations of the members of the organisation, by no matter name it’s going to be known as, punctually signed for consent by all the members forming the society. A replica of the foundations and laws of the society additionally must be filed together with the memoranda of association. A fee of Rs. 50/-is owed for registration.

Trustees

A Society wants a minimum of seven managing committee members; there’s no higher limit to the amount managing committee members. The Board of Management is within the variety of the organisation or council or a managing or Government committee.

Application for Registration

Registration is done either at the state level (i.e., within the workplace of the Registrar of Societies) or at the district level (in the workplace of the District jurist or the native workplace of the Registrar of Societies).

The procedure varies from state to state. but usually the applying ought to be submitted along with: (a) memoranda of association and rules and regulations; (b) consent letters of all the members of the managing committee; (c) authority letter punctually signed by all the members of the managing committee; (d) an legal instrument sworn by the president or secretary of the society on non-judicial stamp paper, along with a court fee stamp; and (e) a declaration by  the members of the managing committee that the funds of the society are going to be used just for the aim of furthering the aims and objects of the society.

Conclusion

Therefore, to include a society, there must be a way of purpose, a commonality while not that the complete structure of a functioning society is disintegrated. The rationale of a whole community moving towards a particular goal with cooperative effort and commitment is that the drive of a society. Once an exact cluster reaches that level, and is keen to place in effort for a typical benevolent cause, a society is established.

But the collaborated efforts shouldn’t be loosely structured and therefore the purpose behind establishing a society ought to be upheld with propriety and therefore the holiness of such purpose should be maintained throughout. These efforts ought to be aimed toward breakdown conflicts expeditiously and achieving a way of larger smart of the globe.

Advantages of Society

• Simple method of registration.
• Simple record-keeping and even less complicated laws.
• Low chance of interference by the regulator.
• A society becomes a separate legal entity once incorporated.
• An incorporated society will lease, rent, get and sell property, borrow cash and enter contracts in its own name. No member of the society will have personal rights or interests in any of the assets of the society.
• An incorporated society can continue as a separate entity albeit its membership changes.
• Members won’t be in person responsible for the debts, contracts or alternative obligations of the society unless:
  • The debts or obligations square measure incurred from activities undertaken to get cash for medium of exchange gain (profit), within which case each member concerned are in person responsible for those debts or obligations; or
  • The debts and obligations square measure incurred through unlawful activities, within which case each member concerned are in person responsible for those debts or obligations.
• Because the foundations governing the incorporated society should meet the minimum needs commenced within the Incorporated Societies Act 1908, members is assured that there’ll be certainty to the method the society is run.
• An incorporated society could also be entitled to any taxation exemption.

In this article, Gurshabad Singh Sandhu pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses Law firm management software that are most popular in India.

Introduction

Every Law Firm requires management of its work and affairs and for managing such operations it needs software’s which could reduce the workload and enables easy access to the case laws, precedents and judgements. Topic wise research, research through names and dates are provided in these software’s which makes the task easier. Following are such kind of software used by the Law firms in India.

AIR Infotech

All India Reporter has always proved to be very helpful when it comes to the decisions of High Court and Supreme Court. Receipt of judgments, selection of judgments, to the point Head-Notes and final dispatch of every book is done in-house. The need of software and technology was felt when it was realized that it is very difficult to go through the endless number of case laws and judgements then such software were developed which could save a lot of time and effort by searching the case laws and judgements in no time.

A new version of AIR Comprehensive Software (SC+HC+CRLJ) was launched which incorporated the following new searches & additional features:-

• Nominal Index, Subject Index, Act Index, Judges Index Remarks Index.
• Vide searching of head-Notes and Judgments
• Search is possible through giving citations or page numbers and even through date of decision
• Information with reference to the case is updated frequently through net
• Bookmark tagging is also done, further Bare Acts are also available along with links.

Jurisnet

Jurisnet is considered to be one of the most reliable software as it gives an automatic reminder regarding the pending work. At times it is not possible to keep a track of each and every task, here the role of jurisnet comes into action when it views all your tasks right from the calendar and sets a reminder to the same. It helps you to keep a hand on what has to be done for a particular case. Jurisnet acts as a surveillance which keeps a continuous check on your Juniors or Staff. You would be notified if anyone has completed his task.

Case posting details every day on your phone

Jurisnet has eased the daily routine of the advocates, for saving their time and effort it sends  SMS everyday which consists the information of the case postings for that day. SMS also includes the Case number and Court with the information regarding the judge.

Client reminders

You can choose to send SMS reminders to your clients. Just enter their mobile number and Jurisnet will automatically send them reminder before a case.

Legal Document Management

Stay organized and on top of your documents with Jurisnet’s robust and easy-to-use legal document management. There are no storage limitations – you can upload all of your company’s files! And, you can view your law company’s documents in Jurisnet no matter where you are, day or night. You can share case documents within your company or with other Jurisnet members.

Lawyer notices

Keep track of all the lawyer notices you have sent or received in Jurisnet. Jurisnet will also remind you to file cases for all lawyer notices sent by you.

Access from any device, anywhere

Case posting dates, Acts, FIRs, clients and orders will be pulled from e-Courts and ConfoNET. Once a case is added, posting dates will update automatically. If a case is not present in e-Courts/ConfoNET, you can add posting date manually.

Permission control and Audit Trail

With user roles and permission control, you can choose which users or groups can access certain parts of the site. Jurisnet activity feed tracks all the changes that happen in a matter. This detailed listing informs you who touched your matter and when they did so. From new documents to time entries, if someone works in your matter, it is captured in Activity Feed. Keeping an eye on your case has never been easier.

CLIO

Clio is a software which makes the management of the law firms easy by features to manage cases which includes the dates of the case, purpose for which the case has been set for, the names of the clients, documents which are required by the advocate, bills, etc. Clio helps in the management and organization of the firm. Some of the tasks performed by the CLIO include workflows with dynamic tasks, fixing the schedule of the meetings, and sharing of the documents with the clients. Operating quickly and efficiently becomes comparatively easy when everything is accessible through one software only.

Clio is considered to be one of the most useful and dependable cloud-based practice management software for the legal industry. With the help of the cloud, Clio eases the process of managing the advocate’s relationship with his client and keeps a record of the documents which would be required during the trial, the software streamlines administration, and optimizes marketing initiatives for law firms of all sizes. Clio is used by legal professionals in over 50 countries. Clio tracks down each and every moment which has been spent on the case, and it also takes command of the firm’s finances.

How Clio functions?

Gets to the heart of the case

Clio helps in organizing all the information that is related to the matter, and it also sees that the information collected is kept in such a way that it is easily accessible. The information regarding the matter contains contacts of the parties or necessary persons, details of the meetings, tasks which have been performed or which are yet be performed, expenses incurred, and the list of documents specified to that case.

Customize your matters with custom fields

It is not possible that two cases have exactly the same facts and the same circumstances therefore Clio adds custom fields to every matter. Clio matters will reflect your practice, showing the information important to your firm. Clio’s custom fields can be organized into sets to easily track the information you need by practice area.

Know everything happening in your case

Clio software Feed tracks down all the changes that happen in a matter at every hearing. This detailed listing informs about who had touched your matter and when was that matter touched. If anyone is working or has worked on your matter the software will inform you regarding the same, it is captured in Firm Feed. This is the best way in which one can very easily with the help of this software keep an eye on the case.

Document Management software

This software is used by the Indian Lawyers and Law firms Software for managing documents, emails, papers, etc. this software has gained a lot of popularity in the recent time. Before purchasing this software a person shall not feel that he is wasting his money on something which is just not worth rather this software would prove to be an investment to them, as it would save their lot of time by making their work easier and manageable. This helps law firms in organizing the data and tracking data easily. Document management is a compulsory system of case management. The software helps in increasing the efficiency of the firm and reduces the overall costs of the firm. It’s the software that allows users to track information and files about a case. It increases productivity by creating documents which support information from an attached case management system. It allows them to manage documents by the client regardless the document type, creator, or area of practice.

Law Office Manager

Law Office Manager Software is a cloud based Legal office management software used by the Indian Legal Eagles to manage their legal affairs the Law Office Manager helps Law firms, Advocates, Legal Department of any corporate office in managing all the information related to the case and the software keeps updating the information on regular basis. Record information is always relevant and important to the case so one can anytime share documents required, orders of the court and it also sends texts and it also helps to maintain previous history of the case so that in any situation they can be referred if a similar like situation arises in another case.

Law Office Manager has created a wonderful platform to share information with associates, clients and branches and helped in many different ways. The software is such that it is completely secured and it can be operated over multiple devices, simultaneously used by all users.

Conclusion

Software applications have become increasingly important in modern law practice. Picking the best software for a law office depends on many variables as the work, management and the organization of the firm depends upon the type of software chosen. Attorneys/Solicitors often buy their software based on their practice area suiting their work and key skill.

Practice Management software are now days very popular and necessary in the law firms, some of the basic features of practice management software are:

• Case management (databases, checking conflicts of interestand statutes of limitations)
• Time tracking(for billing)
• Calendaring
• Docket management
• Client communication

In this article, Gitanjali Balakrishnan pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses All you need to know about One Person Company.

WHAT IS AN OPC?

 ‘One Person Company’ was not provided for under the Companies Act, 1956. It was introduced by the Companies Act, 2013. A One person Company, as the name suggests, is a company that has only one member (as per s. 2(62)). It is not a ‘proprietorship concern’[1] and is a business vehicle that seeks to remedy some of the problems faced by businesses run as sole proprietorships, such as unlimited liability, and to balance the extensive procedural requirements of incorporating and conducting business as a Company, to make the arena more conducive to entrepreneurial ventures. Therefore, it can be incorporated by a person who wants to start a business venture with the structural and organizational advantages that a company has to offer for e.g., s/he can access credit facilities, etc. with only the bare minimum procedural requirements.

The Ministry of Corporate Affairs vide its G.S.R. Notification No. 250(E) dated 31st March, 2014 notified the Companies (Incorporation) Rules, 2014 under the Companies Act, 2013 which provide for formation of One Person Company.[2]

HISTORY

This concept of the One Person Company was first recommended by the expert committee of Dr. JJ Irani in 2005.[3] The Committee had suggested classifying companies on the basis of size, membership, control, etc. In reference to the One Person Company, it said that “it is time that entrepreneurial capabilities of the people are given an outlet for participation in economic activity”. It also recommended that a simpler regime through exemptions be made applicable to OPCs in order that an entrepreneur is not required to expend excessive time and resources on procedure that could otherwise be applied to its business activities.

The counterparts of Indian OPCs in Europe, United States and Australia have resulted in further strengthening of the economies in the respective countries.[4]

FEATURES

One Director

Every such company compulsorily requires one director.

One shareholder

Every OPC should have one shareholder (although it may have up to 15).

Nominee for the shareholder

The shareholder shall nominate another person (specified in the memorandum) who shall become a member of the OPC in the event of the death or incapacity of the shareholder.

WHO CAN FORM A ONE PERSON COMPANY?

Only a ‘natural person’ who is an Indian citizen and resident in India, i.e., a person who has stayed in India for a period of not less than one hundred and eighty two days during the immediately preceding one calendar year can incorporate a One Person Company and a nominee for the sole member of a One Person Company.

As per One Person Company (Rule 3 of Companies (Incorporation) Rules, 2014)

1. A person cannot incorporate more than one OPC or be the nominee of more than One Person Company
2. A minor shall not become member or nominee of the One Person Company or can hold share with beneficial interest.
3. Such Company cannot be incorporated or converted into a company under section 8 of the Act.
4. Such Company cannot carry out Non-Banking Financial Investment activities including investment in securities of any body corporate.
5. No such company can convert voluntarily into any kind of company unless two years have expired from the date of incorporation of One Person Company, except when threshold limit (paid up share capital) is increased beyond fifty lakh rupees or its average annual turnover during the relevant period exceeds two crore rupees.

HOW TO FORM A ONE PERSON COMPANY?

Section 3(1)(c) provides for the incorporation of a one-person company. It states that a company may be formed for any lawful purpose, by one person, where the company to be formed is a one person company, that is to say, a private company. [5]

The member(s) of a One Person Company have to subscribe his/her/their name(s) to the memorandum of the Company. The memorandum of a One Person Company has to indicate the name of one other person, with prior written consent in the prescribed form. Such person shall become a member of the One Person Company in the event of the subscriber’s incapacity to contract or death. Such person’s consent, in writing, must be filed with the Registrar at the time of incorporation of the OPC along with the Memorandum and articles of association. Such a person may withdraw his consent in the manner prescribed. The name of such a person may also be changed by the subscriber, in such a case, the same must be intimated to his nominee by specifying it in the memorandum or otherwise. Such a change will not be taken as an alteration in the memorandum but the Registrar must be notified of the same.

A One Person Company may either be a company limited by shares or a company limited by shares or a company limited by guarantee or an unlimited company.

CONVERSION OF A ONE PERSON COMPANY INTO A PRIVATE LIMITED COMPANY AND VICE VERSA

Where the paid up share capital of a One Person Company exceeds fifty lakh rupees or its average annual turnover during the relevant period exceeds two crore rupees, it shall cease to be entitled to continue as a One Person Company. Such One Person Company shall be required to convert itself within the prescribed period of time.

Conversely, A private company other than a company registered under section 8 of the Act having paid up share capital of fifty lakhs rupees or less or average annual turnover during the relevant period is two crore rupees or less may convert itself into one person company by passing a special resolution in the general meeting.

ADVANTAGES

Legal Identity

One Person Company has a separate legal identity from its shareholders i.e., the company and the shareholders are two different entities for all purposes.

Limited Liability

One of the main reasons that the Sole Proprietorship model is risky is unlimited liability of the Proprietor. Therefore, on the failure of the venture, the Proprietor risked losing his personal assets along with the capital invested in his business. In a One Person Company the liability of the member is limited to the extent of the value of shares held by such person in the company. Therefore, the only risk is that of losing capital invested in the business.

Sole decision maker

No shareholder meetings consensus or majority opinion etc., if there is more than one member shareholder meeting need only be held once in 6 months with a gap of at least 90 days between two meetings. Personal commitment to the business which is a sole idea of the person and close to his heart.[6]

Capital requirements

A One Person Company has minimal capital requirements as compared to other business vehicles.

Compliance

The financial statements of a one person company can be signed by one director alone. Cash Flow Statement is not a mandatory part of financial statements for a One Person Company. Since it has only one member, provisions relating to voting, proxies, meeting, etc., do not apply.

DISADVANTAGES

Investment

An investor may be wary of investing in a One Person Company as the territory is new and fairly untested. He can become a member (as a One Person Company can have 1-15 members) by amending the Articles of Association accordingly.

Taxation

Taxed as a company both on income and distribution of profits. It does not enjoy the tax benefits that an LLP, for instance, enjoys.

EXEMPTIONS AVAILABLE TO OPCs UNDER THE COMPANIES ACT, 2013

• Section 96. Option to dispense with the requirement of holding an AGM.
• Section 98. Power of Tribunal to call meetings of members.
• Section 100. Calling of extraordinary general meeting.
• Section 101. Notice of meeting.
• Section 102. Statement to be annexed to notice.
• Section 103. Quorum for meetings.
• Section 104. Chairman of meetings.
• Section 105. Proxies.
• Section 106. Restriction on voting rights.
• Section 107. Voting by show of hands.
• Section 108. Voting through electronic means.
• Section 109. Demand for poll.
• Section 110. Postal ballot.
• Section 111. Circulation of members’ resolution.

PROCESS OF INCORPORATION OF ONE PERSON COMPANY

1. Obtain Digital Signature Certificate for the proposed Director(s)
2. Obtain Director Identification Number [DIN] for the proposed director(s)
3. Company Name, application (Form INC-1) to the Ministry of Corporate Affairs for availability
4. Draft Memorandum of Association and Articles of Association (MOA & AOA)
5. Sign and file various documents including MOA & AOA with the Registrar of Companies
6. Payment of Requisite fee to Ministry of Corporate Affairs and also Stamp Duty Scrutiny of documents at Registrar of Companies (ROC)
7. Receipt of Certificate of Registration/Incorporation from Registrar of Companies (ROC)

CONCLUSION

Therefore, a One Person Company is an efficient vehicle for entrepreneurs as it combines the benefits of a sole proprietorship with that of a company. The procedural requirements are fewer as many exemptions are provided under the Act. Although the territory remains fairly uncharted, theoretically, it provides a balanced approach to new businesses in the present economic environment.

References

[1] https://www.icsi.edu/Docs/Webmodules/ONE%20PERSON%20COMPANY.pdf

[2] Ibid

[3]http://www.mondaq.com/india/x/278154/Corporate+Commercial+Law/One+Person+Company+A+Concept+For+New+Age+Business+Ownership

[4] Supra Note 1

[5] Company Law, Sixteenth Edition, Avtar Singh

[6] Supra Note 1

In this article, Dipti Khatri pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses Arm’s length Principle in Transfer Pricing.

Introduction

The definition of “arm’s length pricing” relates to pricing where the amount charged by one of the party is not related to each other for a given product. Therefore, the price is charged in accordance with the open market. It makes the price of the product comparable to the other price as if the parties are not related to each other. However, when pricing of intangibles, proprietary goods are to be done it generally becomes difficult to arrive at arm’s length transactions.

US transfer principle generally applies the best method rule for determining the price of a given transaction. The official definition given by United States is as follows:-

1. Arm’s Length standard- In determining the taxable income, the arm’s length transaction is applied.  However, as arm’s length transactions are rarely located, as it is difficult to determine whether it is an arm length transaction. Therefore, best rule method is applied to determine the same.
2. Different methods are applied to the arm’s length transactions. Therefore, it becomes important to calculate the most appropriate types such as loans, advances, rentals, services and property. For example, if certain methods are applied for the transactions it is considered to be appropriate to select the most relevant method.

3. Relevance of Arm’s length transactions and the real estate

In the real estate business, arm’s length transactions generally play a pivotal role. While determining the fair market value in the real estate of the property, the price of the property is generally determined by the potential buyer and the seller operating by an arm’s length transactions. Otherwise generally there can be ambiguity where the people know each other. The actual price may differ from the market value. The simple logic is where the parties have equal bargaining power, generally the buyers and sellers have the power to under influence each other. The sellers would generally like to have low price and buyers would like to seek high price. Generally, it is important to determine the arm’s length transactions as it has a direct impact on the different transactions, stamp duty, or the other municipal or local taxes. This in turn also affects the taxation structure of the parent company, and affects the transfer pricing of all the transactions.

Different arm’s length method

There are different arm’s length method which are available. The different methods are:-

1. The comparable uncontrolled price method (CUP);
2. The resale price method (RPM);
3. The cost plus method (CPM);
4. The profit split method (PSM); and
5. The transactional net margin method (TNMM).

1 Comparable Uncontrolled Price Method (CUP)

CUP method generally compares the price charged and that of paid for different products of similar nature. Therefore, it is also required that the different accounts be adjusted so as to accrue from the International transaction. It is also required to take into account the price in the open market. The adjusted price is required to be as per the arm’s length price applicable to International transaction.

2 Resale Price Method (RPM)

The Resale Price method requires the product acquired from within the Associated Enterprises. This resale is generally reduced by the normal gross profit margin and incurred by the seller. The amount of gross profit margin has to be taken into consideration.

3 Cost Plus Method (CPM)

Cost Plus Method, helps in discovering the transferred or services by an associated enterprise. The amount should be determined as comparable uncontrolled transactions. The costs are therefore to be increased by the adjusted profit mark-up, which are to be taken as per the arm’s length property.

4 Profit Split Method (PSM)

Profit Split Method has to be described as per unique tangibles and inter-related multiple transactions. It is also required to be separately evaluated. For further applying the method, the combined net transaction is required. The relative contribution has to be considered taking into account the functions performed, assets employed and the risks which are resumed. The relative contribution has to be employed in similar circumstances.

5 Transactional Net Margin Method (TNMM)

This method is applied to net profit margin from an International transaction which is applied for incurred sales, assets employed etc. Also, the net profit margin is to be applied through incurred sales, assets employed etc. The net profit is to be realized as per the adjustment margin:-

• The uncontrolled transactions and International Transaction; or
• The enterprises should enter into transactions, which should materially affect the opposite transactions and the open market net profit margin.

Optional remedies advance pricing agreements (APA)

An Advance pricing agreements are between the taxpayer and BIR to consider an appropriate set and determine the transfer prices for a fixed period of time. Where transfer pricing document is required to include the following:-

1. Organizational structure;
2. Different industry/ business and market conditions;
3. Different cost contribution arrangements;
4. Application of the different transfer pricing methods;
5. Different comparable, risk and functional analyses;
6. Index to documents.

Further, it is recommended that the transfer pricing should be contemptuous or it may raise transfer pricing review when they are preparing tax reviews. Generally, the failure to conduct transfer pricing leads to penalty. Moreover, in the case of certain deficiencies, surcharges are also to apply.

5. OECD transfer pricing guidelines

The transfer pricing guidelines become important when associated enterprises are involved in the cross border transactions. To deal with the taxing requirement, MNE group’s income becomes relevant. Also, due to the increase in International Commerce an active interest in transfer pricing has become relevant as it generally helps to protect the general taxes which are enforced by the transfer pricing guidelines. The OECD principle is generally applied for establishing the intercompany prices i.e. to determine how the price allocation and transfer should be done while dealing with the arm’s length transactions with the unrelated parties. This also forms the important part of the OECD pricing guidelines and helps in allocating and enforcing the pricing legislation and enforcing in virtually every countries.

However, generally critics have argued that the rules relating to arm’s length transactions are usually manipulated towards the lower- tax jurisdictions for financial advantages. Developing countries generally express the concern relating the economic activities in those jurisdictions. Others critics have generally argued that the new approaches relating the arm’s length standard require further new approaches for the corporate tax pie among different countries. It helps in creating simpler rules, and also helps in protecting the local taxes more effectively and at the lower cost. It also becomes important in the globalizing world, to follow a particular standard in determining the different prices. Therefore, it becomes important for the country to follow a globalizing economy and also follow a consistent standard of transfer pricing. This also has the power of inhibiting the best standard in the transfer pricing. Also, proliferation of different taxing statute can lead to various transfers pricing which could easily lead to double non-taxation i.e. where corporate income can be furthered sheltered to individual country rules. Also, it has been in view that the arm’s length transactions provides the most effective and global approach to transfer pricing.

Need for improvement in the transfer pricing

• Rules which are regarding the difficult transfer pricing needs to be regularly updated and clarified.
• Different ways are to be formed to simplify the existing transfer pricing practices and to limit the administrative burdens.
• Transfer pricing guidelines should continuously improve to achieve certain outcomes and get relieved from the double taxation system. It is also focused on different on different objectives. Therefore, pursuing the objective and developing the best of clearer rules becomes important for most of the transfer pricing guidelines. OECD has also recently published the guidelines on the pricing of intangible assets.

This discussion draft generally addresses the definition of intangibles, the manner in which the MNE arm length prices are to be determined and interest of both the parties in the intangibles. It also states separate income from the taxpayers, assets and risk involved.

The other discussion draft that has been initiated is relating to the revised guidance on the transfer pricing safe harbours. It emphasizes on how to resolve lower risk cases and limit administrative burdens. It also focuses upon the bilateral safe harbours and simultaneously protects the tax bases. Further work focuses upon the simplification project, assess transfer risk and deals with the pricing risk and heavy compliance for the taxpayers.

OECD also believes that the transfer pricing issues can be streamlined and become more effective. Success will require the active involvement of both the parties OECD members, taxpayers, development organizations and different interested groups.

The goals of the OECD are as follows

1. To neutralize the mismatches;
2. Improve or clarify the different pricing rules and address the current rules which in recent scenario provides undesirable results;
3. Update solutions to the questions of tax jurisdictions in relation to the digital goods and services.
4. Provide more effective anti-avoidance measures in domestic rules and anti-avoidance guidelines;
5. Draft rules on the working of intra group finance transaction, include deductibility and withhold taxes;
6. Propose better solutions to the harmful regimes more effectively, taking to the best of the account transparency and substance.

Bibliography

1. Joseph Andrus, Transfer Pricing and the Arm’s length principle http://www.worldcommercereview.com/publications/article_pdf/625.
2. Transfer Pricing Guidelines, IRAS e- tax guide https://www.iras.gov.sg/irashome/uploadedFiles/IRASHome/eTax_Guides/etaxguide_CIT_Transfer%20Pricing%20Guidelines_4th.pdf.
3. Arm’s length standard https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dtt_tax_armslengthstandard_130408.pdf.
4. Saurabh Malhothra, Transfer Pricing: Arm’s Length And Alternative Methods http://www.manupatrafast.com/articles/PopOpenArticle.aspx?ID=54fb5991-3f92-433f-971f-ddd47118602b&txtsearch=Subject:%20Taxation.