Case Companies Act - What things must one consider before setting up a business /firm /company ? Video Link - https://youtube/watch?v=lKSsjXzAzIE The answer is Understanding the liability in each case and capital requirement in general and hovers over also understanding how taxation , nature of business , management preference , compliance set up , business risk etc plays a major role in determination of what would be the perfect case for each client based on his setup and readiness of things. Let me elucidate few other things that you need to know through a case study ....... (1) Understanding the Registration hassles Lets first look at the registration hassles ...... Now , say i have a propietory business Bring Kindness back mission ...for setting this up ,no registration is required - a simple service tax application is needed In partnership firm, registration needs to be done under partnership act 1932---deed needs to be made To incorporate a company , registration needs to be done under company act 2013 and subsequently memorandum and articles of association need to be submitted to Registrar of companies(ROC) (2) Understanding the Liability picture (A)Proprietorship business - Unlimited liability so ,coming back , i run my proprietorship business on my capital of say 3 lakhs and borrowed capital (debt ) say 10 lakhs from axis bank---- i use this funds(total of capital + debt ) to invest in a shop etc etc to carry out my business ... Say at the end of the year, my business gets doomed and i file bankruptcy ...in such a case , whatever liabilities the business has , as the proprietor, I am responsible ....say , that 10 lakhs loan from Axis was my only liability ( assuming no other liabilities), It is found out , that at the time of solvency , the capital from the business is just 50000 Rs ....so the business has no capital to meet the liability , in such a case i (Amlan), the proprietor has to sell my personal assets (My own Home , washing machine , Fridge , TV etc ) to meet the business liability ...... (B) Limited Liability - LLP or company (Limited ) After this experience i am shaken up and therefore form something with limited liabilities i.e a LLP (Limited liability partnership firm u/s partnership act , 1932 or a company (Under companies act 2013 (barring unlimited companies ) knowing that my liabilities get limited ... SO I FORM A BRING KINDNESS BACK CONSULTANCY PRIVATE CO LTD ... In the same earlier example , had it been a company , my liability would have been restricted to my share (stake ) in the company (so i would be responsible for just that 3 lakhs ). My personal assets will have not stake for the business ....so my home , washing machine , fridge etc would have been safe even if business goies bankrupt and if the business has no capital contained to meet out the liabilities ....... This is how Vijay maaliya cares a dam of what happens in Kingfisher Private Limited ..,despite running into 100s of crores into bad debts for his private limited company .The answer is simple , as far he is concerned , he is liable just for his 8 % stake ---thats it ....if Kingfisher was a proprietory business , he would have been doomed because he would be then responsble for all the liability of the business ..... So , anyone who is entering a risky business and wants to raise capital and who very well understands the impact of liabilities therefore forms a entity (LLP , company etc ) to restrict his liability in case of solvency ... A private and public limited are just types of companies ...the company is termed private, when the capital(Money )is raised from the promoter and his close relatives by issuing them shares.... If the company goes phoosh, my stake is however now in case of solvency restricted to my share only in the company --- The company is termed public when the capital is raised from the public (FII. govt , Retail ) in return of shares issued to them (3) Understanding the Taxation Aspect As far as taxation is concerned ,.proprietory business taxation is as per tax slabs (the highest of the slabs is 30 % ) whereas in company taxation (domestic )is always at 30 % and foreign is at 40 % ---so that ways companies have higher taxation if thought bluntly ----- But companies get many allowable expenses and deductions for businesses ...this allowances reduce the taxable income from business Also , in companies and firms the concept of MAT and AMT comes in picture (4) Understanding the Compliances Aspect Making a Company and firm is not easy , you have to adhere to the IAS accounting system and prepare quarterly reports , get audited , do ISO etc etc Hope you enjoyed reading the note as much as i did writing it , Peace , Amlan Dutta
Posted on: Sun, 29 Jun 2014 06:59:41 +0000
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