Bumpy road to register a firm The time taken to start a business is the first factor that World Bank considers in its report on ease of doing business. India was at 158th position this year (2015) compared to 156th last year (2014). According to the latest report, it takes almost 30 days to incorporate a company in India. This is an increase of three days compared to last years average time of incorporation (27 days). The government is talking about reducing the average number of days to register a company from 27 to 1. However, according to professionals and experts who help businesses get registered, it is easier said than done. The number of procedures The first step in registering a company is to get a digital signature certificate (DSC). According to the World Bank report, it takes one day. But companies and experts have a different story to tell. The time is not fixed. It can take anywhere between one and three days, says Paras Mehra, a chartered accountant who deals with such matters almost on a daily basis at quickcompany.in. After getting DSC, the company needs to get Director Identification Number (DIN), which is normally given by the end of the day. The company then has to get the name approved by the ministry of corporate affairs (MCA). The World Bank report says the average number of days for name approval is two, but company professionals hold a different opinion. It depends on the MCA. The average time taken is seven to 10 days, says Mehra. Company law experts Business Standard spoke to were baffled with the delay in such a simple process of name approval. The most important step is incorporation through Application for Incorporation of Company (Form INC-7). This form requires the company to attach a number of meticulously prepared documents. Some of these have to be properly inscribed on a stamp paper and duly notarised. There are just too many affidavits and documents. Nobody reads these documents anymore, says a chartered accountant. World Bank report says that this whole process of incorporation takes five days on an average. Companies, which have gone through the process, peg it anywhere between seven and 10 days. After getting the incorporation certificate, the company has to get commencement of business certificate from MCA. This whole process is quite complex and cumbersome in nature, so mistakes do happen, says Lionel Charles, CEO, indiafilings, which claims to register around 100 companies every month. When such mistakes happen, MCA reverts, asking for correction and re-submission, which adds to the overall duration of the registration process. Bureaucracy blues Charles highlights some mistakes that are often pointed out by MCA officials. While registering a company in India for a British client, in one of the procedures, MCA officials asked for documents related to PAN card as well as business visa, where the passports photocopy is enough as proof, says Charles. Application for Incorporation of Company (Form INC-7) requires company to attach articles of association (AoA) with it. The format of AoA is given by MCA. While Mehra was trying to register one of his clients private limited company, the MCA rejected the application for not having the provision of private company in its AoA. The ministry wanted his client to make some corrections and resubmit the form. Offices of Registrar of Companies (RoC) are spread across different regions in India. One RoC office in the eastern region had to shut down registering of companies as its digital signature had expired. I am trying to incorporate one of my clients, but the office told me that it will take 15 days more, said a tax professional. Corporate law professionals that Business Standard spoke to were critical about the corporate seva kendra, on MCAs helpline. Says a dejected professional: My application (for incoporation) has been rejected. I have been calling and mailing for the past two days. But there is no response till date. What is the use of such a helpline? Corporate law professionals say while the whole process has become digitised, officials still hold the discretionary power on when to give the approval and what is required to give the approval. Professionals say the stringent requirements for registering a company have not come down with the implementation of the Companies Act, 2013. According to one UK study, which gave its report in May, India is home to the second largest number of unregistered businesses in the world - with the ratio of 127 unregistered companies to every registered company. These unregistered companies do not pay any tax and are outside the ambit of government rules and regulations. Cracking the Top 50 club A senior MCA official, when asked about these issues, says: We are looking into these very seriously. We will do our best to reduce the number of days required to incorporate a company in India. The government has set a target to bring India among the Top 50 nations in the ease of doing business index over the next two-three years. As it gears up to promote entrepreneurship and improve the business environment in the country, cutting down on bureaucratic red-tape will take immense will power. Nine-point action plan recommended to the Prime Ministers Office that could change the ease of doing business landscape: STREAMLINE INVESTMENT APPROVALS AND PROVISION OF UTILITIES Implement effective single-window mechanisms Implement legislations that ensure time-bound government service delivery Ensure industrial parks get prior environment and other clearances FACILITATE LAND ACQUISITION PROCESS Simplify the land acquisition process Rationalise the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 Transparency in land dealings and allow easy verification by acquirer Expedite the National Land Records Modernisation Programme (NLRMP) to usher in the system of conclusive titles CREATE APPROPRIATE LABOUR DEVELOPMENT ECOSYSTEM Reduce compliance burden and inflexibility in manpower deployment Do away with overlap of statutory provisions in labour laws CREATE APPROPRIATE SKILL DEVELOPMENT ECOSYSTEM Implement National Skills Qualification Framework and National Occupational Standards Expedite establishing and defining Sector Skill Councils for all sectors Expand the apprentice system EFFICIENT AND EFFECTIVE ENFORCEMENT OF LAWS E-enable all courts Strengthen commercial arbitration by reducing scope for judicial intervention FACILITATING GREATER CROSS-BORDER TRANSACTIONS Resolve port-related issues CREATE CLEAR EXIT GUIDELINES Cut down on procedural formalities Lower compliance costs Faster unlocking of funds and capital assets in non-viable businesses RATIONALISATION OF TAX REGIME Establish tax regime stability Implement GST to drive growth in manufacturing sector Facilitate minimisation of tax disputes and improve tax administration TECHNOLOGY-ENABLEMENT ACROSS GOVERNMENT Appoint a CTO at the level of Joint Secretary who could be made responsible for technology adoption and enhancement of e-governance business-standard/article/opinion/bumpy-road-to-register-a-firm-114110200706_1.html
Posted on: Mon, 03 Nov 2014 08:03:32 +0000
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