8.starting A Venture - Legal Forms

Prof.B.D.
Gupta
Todays Topic
Legal & regulatory Issues
What are the various legal factors affecting a venture?
What are the different forms of organization?
Selecting a form of organization
1.Sole proprietorship
2.Partnership firm
3.Private Limited company

The Legal Environment
Once a the basic plan of a new business
venture has been drawn up what is the
process of starting it?
Legal & regulatory Issues
Financial issues
People issues

The Legal Environment
What are the various legal factors affecting a venture?

Selecting a form of organization
Getting approval for a new project
Arranging for taxes or duties payable
Protecting or managing intellectual property

Ministry of Micro, Small and Medium
Enterprises
(Government of India)

http://msme.gov.in/msme_aboutus.htm
Define Micro, Small & Medium
scale Enterprises.
Definition of Micro, Small and
Medium Enterprises
A micro enterprise is an enterprise where investment
in plant and machinery
does not exceed Rs. 25 lakh;
Medium Enterprises
A small enterprise is an enterprise where the
investment in plant and machinery (original
cost excluding land and building ) is more than Rs. 25
lakh but does
not exceed Rs. 5 crore;
Medium Enterprises
A medium enterprise is an enterprise where the
investment in plant and machinery
(original cost excluding land and building ) is more
than Rs.5 crore
but does not exceed Rs.10 crore.
What are the different forms of
organization?
2.Partnership firm
3.Private Limited company
4.Public Limited Company

Small Shops and Boutiques
Artisans and Musicians
Independent Contractors

1.Sole proprietorship Business

Sole proprietorship allows you to run and own your
business as an extension of your personal finances
rather than as a separate entity.
If you want to establish a small firm in India
without the complications of corporation
formation and registration, a sole proprietorship
will allow you to do so.
Sole proprietorships are the most common type of
business in India because of the easy procedure
for establishing them.

Characteristics of sole
proprietorship business
Ownership
As the sole proprietor, the business owner makes all
business decisions.
The owner controls and manages the proprietorship
while creating and implementing changes.
The sole proprietor may have several employees, but it
is common for the sole proprietor to be the
business's only employee.

Liability
As the sole owner of the business, the sole proprietor
accepts complete responsibility for the business's
liabilities, as well as its income.
The owner is financially responsible for the
business's debts, expenses and payables and
creditors can garnish the sole proprietor's personal
income if the business falters or fails.
Risk
Since the sole proprietorship accepts all the risk,
the proprietorship is often subject to less
restrictive regulations than partnership and
corporation entities.
The sole proprietorship is not required to charter the
business with the state, though the business may be
required to register the business's name and
operations.

The advantages of sole
1.Ease of formation
2.Complete control
3.Promptness in decision making
4.Flexibility of operation
5.Minimum government interference
The disadvantages of sole
1.Amount of capital is limited
2.Managerial ability can be limited
3.Liability is unlimited
4.Heavy personal risk
5.Uncertainity of continuty
Partnership business
Characteristics
1.It is an association of two or more
persons
2. It is based on agreement
3.The purpose of sharing of profits in
a business
4,It has no separate legal existence
from its owners
Partnership business
The legal implications:
1.It is not a legal entity
2.The minimum no of partners must be two and
maximum no can be 10 in banking business and
20 in case of others.
3.Liability is unlimited, joint or individual
4. Share of interest can not be transferred without
the permission of other partners.
5.Death or insolvency of a partner dissolves the
firm
Corporations
1. Recommended for large scale operation
2. As a legal entity it has a separate life from its
owners.
3, Share
unit of equity ownership in a corporation. This
ownership is represented by a stock certificate,
which names the company and the shareowner.
4.Private Limited Company
5. Public limited company

Private limited company
Characteristics
1. Separate legal entity
2.Ease of operations
3.Has a common seal which is used while dealing with
outsiders.
4.The liabilities are limited
5.Continues to exist even if the shareholders die

Test yourself
A Private Limited Company in India is a company
limited by shares in which there can be maximum 50
shareholders, no invitation can be made to the public
for subscription of shares or debentures and cannot
make or accept deposits from public.
True False
Test yourself
A Private Limited Company in India is a company
limited by shares in which there can be maximum 50
shareholders, no invitation can be made to the public
for subscription of shares or debentures and cannot
make or accept deposits from public.
True False
Prof.B.D.Gupta
IIPM,Kolkata

How do I start my company in India?
Today's Topics

Important Contacts
1. WBIDC :http://www.wbidc.com/

3.Ministry of Corporate Affairs website
(www.mca.gov.in)
2. To Register a Company in India
http://business.mapsofindia.com/india-
company/register.html
West Bengal Industrial Development
Corporation Limited (WBIDC)
What are the basic functions of WBIDC?
WBIDC is a one stop shop that takes care of
the most diverse of needs such as
financing medium and large scale
industries through various loan
schemes;
providing escort services and
facilitating investment proposals
through single window agency called
Shilpabandhu or State Investment
Facilitation Centre (SIFC):
Contact
WEST BENGAL INDUSTRIAL DEVELOPMENT
CORPORATION LIMITED
"Protiti",
23, Abanindranath Tagore Sarani, (Camac Street)
Kolkata - 700017,
West Bengal, India
Phone: +91 33 2255 3700 - 705
Fax: +91 33 2255 3737

Shilpa Bandhu or the State Investment
Facilitation Centre (SIFC)
Shilpa Bandhu or the State Investment Facilitation Centre
(SIFC) acts as the single-window agency of the State Government
for setting up industries.

SIFC offers assistance in the following areas:
Approvals from the Secretariat for Industrial Assistance
and Foreign investment Promotional Board.
Registration by Directorate of Industries.
Clearance from the Pollution Control Board.
All clearances related to Power. Identification, allotment,
mutation / conversion of land and other infrastructural
facilities.
Guidance to entrepreneurs on investment prospects in
more than 200 ready projects developed by WBIDC.
Important Contacts
COMPANY REGISTRATION & INCORPORATION
Registrar of Companies,
Department of Company Affairs, West Bengal
Nizam Palace
2nd MSO Building, 2nd Floor, 234/4, A.J.C Bose Road,
phone: 033-22800409
http://www/mca.gov.in
APPLICATION FOR TRADE LICENCE (KMC AREA)
Kolkata Municipal Corporation
5, S.N. Banerjee Road, Kolkata 700013
Ph: +91 33 2244 7432
www.kolkatamycity.com
Important Contacts
APPROVAL FOR CONSTRUCTION OF FACTORY
SHED / BUILDING, REGISTRATION & LICENSING
UNDER FACTORIES ACT
Chief Inspector Factories, W.B.
New Secretariat Bldg., 8th Floor, 1, K.S. Roy Road,
Kolkata 700001
Tel: 22103274
http://dgfasli.nic.in
Important Contacts
COMMERCIAL TAXES
Directorate of Commercial Taxes, Government of West
Bengal
14, Beliaghata Road, Kolkata 700015
2251-8068
www.wbcomtax.com
Important Contacts
REGISTRATION UNDER EMPLOYEES
PROVIDENT FUND
REGIONAL Provident Fund Commissioner
44, Park Street, kolkata 700 016
Sector-II, Salt Lake City,
Karunamoyee,
Kolkata 700091
www.epfindia.com
Important Contacts
STATE POLLUTION CLEARANCE Consent to
Operate & Establish
West Bengal Pollution Control Board (WBPCB)
Paribesh Bhawan, 10A, Block LA, Sector III, Saltlake,
Kolkata 700098
Phone: (033) 23359088
www.wbpcb.gov.in
How do I start my company in
India?
Step 1: Attain director identification number
(DIN) by filling Form DIN-1.
Step 2: Acquire digital signature certificate ( DSC)
to utilize the latest electronic registration system
under MCA 21
Step 3: Cache the company name with the
Registrar of Companies (ROC) and Google
Step 4 : Finalize the objects and rules for internal
regulation of the company Memorandum and
Articles of Association.

Step 5 - Seal the company credentials at the State
Treasury (State) or certified private bank.
Step 6 - Attain the Certificate of Incorporation from
the Registrar of Companies, Ministry of Corporate
Affairs
Step 7 - Make a seal (applicable for the private limited
companies).
Step 8 - Attain a Permanent Account Number
(PAN) for submitting IT return
Step 9 - Acquire a Tax Account Number (TAN) for
income taxes deduction at source
How do I start my company in
India?
Step 10 - Enroll with the Office of Inspector, Shops,
and Establishment Act (State/Municipal).
Step 11 - Enroll for Value-Added Tax (VAT) at the
Commercial Tax Office (State).
Explanation : Step 1 & 2
Step 1: Attain director identification
number (DIN) by filling Form DIN-1.
Step 2: Acquire digital signature
certificate ( DSC) to utilize the latest
electronic registration system under
MCA 21

Director Identification Number (DIN)
What is Director Identification Number (DIN) ?

Every person before becoming a director has
to get DIN from MCA by filling e form.

Director Identification Number
(DIN)
Any individual who is a director or intends to
become a director of a company should apply for
DIN. DIN is mandatory for e-filing of forms and
documents.

All the directors of a company must obtain DIN. Application for allotment of Director
Identification NumberSection 266A inserted by the Companies (Amendment) Act, 2006 which,
has been notified by Notification No. G.S.R. 648E dated 19th Oct. 2006 and has come into the force
w.e.f. 1st Nov., 2006. The new section provides that every-

(a) Individual, intending to be appointed as director of a company; or(b) Director of a Company
appointed before the commencement of the Companies(Amendment) Act, 2006, shall make an
application for allotment of Director Identification Number to the Central Government in form DIN-
1.

Every applicant, who has made an application for allotment of Director Identification Number, may
be appointed as a director in a company, or, hold office as director in a company till such time such
applicant has been allotted Director Identification Number.

Digital Signature Certificate (DSC)
What is a Digital Signature Certificate (DSC)?
The Information Technology Act, 2000 provides for use of
Digital Signatures on the documents submitted in
electronic form in order to ensure the security and
authenticity of the documents filed electronically.
This is the only secure and authentic way that a document
can be submitted electronically.
As such, all filings done by the companies under MCA21 e-
Governance programme are required to be filed with the
use of Digital Signatures by the person authorised to
sign the documents.
What is digital
signature?
How do I get DSC & DIN?
Registration for DSC and DIN for Professionals and
Small & Medium-sized companies can be done by
licensed Certifying Authorities for example:
1. SafeScrypt (mcacert.safescrypt.com)
2. (n) code Solutions : www.ncodesolutions.com/

Step 3
Cache the company name with the Registrar of Companies
(ROC) and Google
Guidelines for Name Availability

Step 3: Registration of company name: Select the
name with which the company will be registered and
apply for registration to MCA. Give six (6) proposed
names in the application.
Application :
http://www.elcot.in/document/Form1A_help.pdf
A Company can not use the same name or closely
similar name of another existing company
registered in India.

The name of a company starts with a noun followed by
activity and ends with the words 'Private Limited' in case
of private limited company and the word 'Limited' in case
of public limited company.
For example, 'Tata Consultancy Services Limited' is a public
limited company. The name starts with the noun 'Tata',
activity 'Consultancy Services' and ends with 'Limited'
as it is a public limited company.
No promoter can register a company with the name 'Tata
Consultancy Services Limited' or closely similar to that.
Similarly, a trade mark owner can claim the text of the
mark, if any, for registering a company with that name.

Test Yourself
'Tata Consultancy Services Limited' is a public limited or
private Limited company?
Ans: Public Limited company.
The name starts with the noun 'Tata', activity
'Consultancy Services' and ends with 'Limited' as it is a
public limited company.
Can you apply for a company name: Tutu Consultancy
Services?
Ans: No promoter can register a company with the name
'Tata Consultancy Services Limited' or closely similar to
that. Similarly, a trade mark owner can claim the text of the
mark, if any, for registering a company with that name.

If the proposed name contains words India or Bharat,
Universal etc higher capital will be required.
Test Yourself:
Pratik plans to invest 10 lakhs in a small scale start up
company which will develop software for video games.
Which of the following company names is likely to get
approval from the Ministry of Company Affairs?

Pratik Software Pvt. Ltd.,
International Software Pvt. Ltd.
India Software Pvt. Ltd.
Bharat Software Pvt.Ltd.?

Sl.No. Key words in Company name
Authorized Capital Required
(INR)
1 Corporation 5 crores (50 million)
2
Asia, Asian, Asiatic, Continental, Globe, Global,
International, Inter-Continental, Universal, Universal,
World -- being the first word of the company name
1 crore (10 million)
3 Industrial, Industries, Industry, Udyog 1 crore (10 million)
4
Asia, Asian, Asiatic, Continental, Globe, Global,
International, Inter-Continental, Universal, Universal,
World -- used within the company namewith or
without brackets
50 Lacs (5 million)
5
Bharat, Bhrarati, Bharatiya, Bharateeya, Hindustan,
Hindustani, Hindustanee, India, Indian -- being
the first word of the company name
50 Lacs (5 million)
6
Business, Enterprise, Enterprises, Manufacturing,
Manufacture, Product, Products
10 Lacs (1 million)
7
Bharat, Bhrarati, Bharatiya, Bharateeya, Hindustan,
Hindustani, Hindustanee, India, Indian --
used within the company name with or without
brackets
5 Lacs (0.5 million)

Few words are associated with higher authorized capital and are allowed
to be used only if the company is registered with the required capital or
more. Refer to this table for key words and their capital requirements:
Step 4: Memorandum and Articles
of Association
Step 4 : Finalize the objects and rules for internal
regulation of the company Memorandum and
Test Yourself
The Memorandum of Association is a document that
A) sets out the constitution of the company
B) the objectives of the company
C) the scope of activity of the company
D) defines the relationship of the company with the
outside world
E) None of these
F) All of these
Test Yourself
The Memorandum of Association is a document that
A) sets out the constitution of the company
B) the objectives of the company
C) the scope of activity of the company
D) defines the relationship of the company with the
outside world
E) None of these
F) All of these
Test Yourself
The Articles of Association contain
A) the rules and regulations of the company for the
management of its internal affairs
B) the rules and regulations for achieving the company
objectives
C) None of these
D) All of these,

Test Yourself
The Articles of Association contain
A) the rules and regulations of the company for the
management of its internal affairs
B) the rules and regulations for achieving the
company objectives
C) None of these
D) All of these,

Test Yourself
The clause ISSUE OF EQUITY SHARES TO
EMPLOYEES UNDER STOCK OPTION PLAN will be
included in
A) the Memorandum of Association
B) the Articles of Association.

Test Yourself
The clause ISSUE OF EQUITY SHARES TO
EMPLOYEES UNDER STOCK OPTION PLAN will be
included in

Test Yourself
The clause A member may transfer his share(s) to a
member or to his relative(s) as defined in Section 6 of
the Act will be included in :

Test Yourself
The clause A member may transfer his share(s) to a
member or to his relative(s) as defined in Section 6 of
the Act will be included in :

Test Yourself
The clause The Authorised Share Capital of the
Company is Rs. 10,00,000/- (Rupees Ten Lakhs only)
divided into 10,000 (Ten Thousand) Equity Shares of
Rs. 100/- (Rupees One Hundred only) each: will be
included in

Test Yourself
The clause The Authorised Share Capital of the
Company is Rs. 10,00,000/- (Rupees Ten Lakhs only)
divided into 10,000 (Ten Thousand) Equity Shares of
Rs. 100/- (Rupees One Hundred only) each: will be
included in

Test Yourself
The clause THE MAIN OBJECTS OF THE COMPANY
TO BE PURSUED BY THE COMPANY ON ITS
INCORPORATION ARE AS FOLLOWS:
To design, buy, import, manufacture, fabricate,
assemble, distribute, export, sell or lease and/or
otherwise to deal in all kinds of Bio Pharmaceuticals
will be included in
A)the Memorandum of Association

Test Yourself
The clause THE MAIN OBJECTS OF THE COMPANY
TO BE PURSUED BY THE COMPANY ON ITS
INCORPORATION ARE AS FOLLOWS:
To design, buy, import, manufacture, fabricate,
assemble, distribute, export, sell or lease and/or
otherwise to deal in all kinds of Bio Pharmaceuticals
will be included in

Memorandum and Articles of
Association
The Memorandum of Association and Articles of Association are
the most important documents to be submitted to the ROC for
the purpose of incorporation of a company.
The Memorandum of Association is a document that sets out the
constitution of the company. It contains, amongst others, the
objectives and the scope of activity of the company besides
also defining the relationship of the company with the outside
world.
The Articles of Association contain the rules and regulations
of the company for the management of its internal affairs.
While the Memorandum specifies the objectives and purposes
for which the Company has been formed, the Articles lay down
the rules and regulations for achieving those objectives
and purposes.

Step 5
Step 5 - Seal the company credentials at the State Treasury
(State) or certified private bank.
Seal the company credentials at the State Treasury
(State) or certified private bank. The appeal for
stamping the inclusion certificates should be
complemented by unsigned copies of the Articles
of Association, Form - 1 and Memorandum and
The firm must make sure that no promoter has written
anything nor have signed on the documents which are
deposited to the Superintendent of Stamps or to the
certified bank for stamping. The price of stamp duty
differs from state to state.

Step 6 - Attain the Certificate of Incorporation
from the Registrar of Companies, Ministry of
Corporate Affairs.
The forms which are required to be filled online on the
Ministry of Company Affairs website are: e-form 1; e-
form 18; and e-form 32.
Along with these papers, copies of agreement of the
original directors and signed and sealed form of the
Memorandum and Article of Association must be
enclosed in Form 1.
Step 7 - Make a seal (applicable for the
private limited companies).
Making a company seal is not a legal
obligation for the firm to be integrated,
but firms require a seal to deliver share
certificates and other certificates.

Test Yourself
The Tax Account Number (TAN) is required by anyone
accountable for
A) Deducting or gathering tax at source
B) Paying income tax
C) Paying commercial tax
Test Yourself
The Tax Account Number (TAN) is required by anyone
accountable for
A) Deducting or gathering tax at source
B) Paying income tax
C) Paying commercial tax
Test Yourself
What is the difference between PAN and TAN ?
A) While TAN is used for deducting or gathering tax
at source PAN is used for submitting annual
personal tax return;
B) While PAN is used for submitting commercial
tax TAN is used for submitting sales tax
Test Yourself
What is the difference between PAN and TAN ?
A) While TAN is used for deducting or gathering
tax at source PAN is used for submitting annual
personal tax return;
B) While PAN is used for submitting commercial
tax TAN is used for submitting sales tax
Step 8 - Permanent Account Number (PAN) is a ten-
digit alphanumeric number, issued in the form of a
laminated card, by the Income Tax Department.
Attain a Permanent Account Number (PAN) from a certified franchise or
agent allotted by the National Securities Depository Ltd. (NSDL) or the
Unit Trust of India (UTI) Investors Services Ltd., as outsourced by the
Income Tax Department (National).
Each person is entitled to state his or her Permanent Account Number
(PAN) for the purpose of tax payment under the Income Tax Act, 1961 and
the Tax Account Number (TAN) for submitting tax reduced at source.
One can get PAN application from IT PAN Service Centers or TIN
Facilitation Centers using Form 49A with the acknowledged copy of the
certificate of registration, released by the Registrar of Companies along
with the identity and residence proof.

Step 9 - Acquire a Tax Account Number (TAN) for
income taxes abstracted at source from the Assessing
Office of the Income Tax Department.
The Tax Account Number (TAN) is required by
anyone accountable for deducting or gathering
tax.
The prerequisites of Section 203A of the Income Tax
Act state that all individuals who subtract or collect
tax at the source must submit an application for a
TAN. The submission for allotment of a TAN must
be registered using Form 49B and deposited at any
TIN Facilitation Center certified to accept e-TDS
returns.

Step 10- Enroll with the Office of
Inspector, Shops, and Establishment Act
(State/Municipal).
Under this procedure, a proclamation
incorporating the names of employer's
and manager's and the establishment's
name (if any), postal address, and group
must be delivered to the local shop
inspector with the pertinent fees.
Step 11 - Enroll for Value-Added Tax (VAT) at the
Commercial Tax Office (State).
Registration of VAT requires filling up of Form 101.
Other credentials which need to be enclosed with
Form 101 are:

Attested copy of the memorandum and articles of
association of the company,
Residence proof,
Proof of location of company,
Applicant's one current passport-sized photograph,
Copy of PAN card,
Challan on Form No. 210

Thank You

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