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(F.A.Q.) Frequently Asked Questions

What are the forms of Businesses in India that could be set-up for running business?

OPC (One Person Company)-
Suitable for a very small scale , maximum turnover of Sales could be Rs. 2,00,00,000/- , One person could create this company with benefit of limited liability and lesser regulatory filings and records maintenance than the other forms of companies. it is to be noted that another individual is also needed to be appointed as nominee to the promoter/director to provide continuity to the business in case he /she is incapacitated or dies.

Private company,
Suitable for group of people starting from Minimum 2 and maximum 200 shareholders. This form offers benefit of limited liability and lesser regulatory filings and records maintenance than the public limited companies. However it cannot:
Access Public or capital market for raising funds
restricts rights of transfer of shares by its own articles which govern the relationship between the shareholder inter-se.
accept deposits from public

Public company,
A form of company with minimum 7 shareholders and 3 directors that has got the potential and flexibility of attaining best heights utilizing public fund, accessing capital marketing by way of IPO, FPO and issuance of other instruments such as GDRs/PN/Debentures/Bonds and deposits from public. However it is strictly regulated and the compliance norms are widest and strictest. Thus, the cost as well as the risk of compliance is highest in such a company.

Nidhi Company
This form of company is primarily meant to help people save and invest together, manage and meet their financial goals and needs on the principles of co-operative. There must be 200 members of the company and it can accept deposits, open accounts like banks, lend money and secure it, enforce the claims but all dealing parties must be members/shareholders. It is not allowed to deal with non-members.

Producer company.
This form is suitable for people connected and engaged with production activities like farmers, artisans, artists and handicrafts makers and so on, it could be started with minimum 10 members who must be engaged in or connected with production activity. There must be 5 Directors for the company which may be out of the shareholders.

LLP (Limited Liability partnership)
This concept of partnership with limited liabilities have been introduced in India in recent past and is a better alternative for partnership in general as it offers the benefit of limited liabilities but it also has higher compliance under the Limited Liabilities partnership act. Ministry of corporate affairs (MCA) also regulates LLPs. It can be started with minimum 2 partners/designated partners. For taxation perspective, it stands on the same footings as a general partnership firm.

Partnership firms
It is one of the simplest and oldest form of business combining resources of 2 or more individuals. it has unlimited liabilities against third parties and its registration is optional with the Registrar of firm. There is a flexibility in operation and decision making but because of its less regulated entity feature, large transaction/corporate deals do not happen with it. it is relatively lesser trusted entity compared to the companies/other regulated entities.

Proprietorship firm
It is the oldest form of business where one individual or person is having complete control over operations and assets and also has unlimited liabilities against third parties. There is no definite registration required for forming proprietorship and the PAN and other records of owner could be used to set-up it. However, other legislation like professional tax, shops and establishment act make registration mandatory for such entities in certain cases. There is absolute flexibility in operation and decision making but because of its less regulated entity feature, large transaction/corporate deals do not happen with it. It is least trusted entity compared to the companies/other regulated entities.

Co-operative Societies
10 or more persons could come together to be incorporated or registered as society on the principle of common co-operation for furtherance of a common cause such as housing, transportation, availing goods or services or meeting financial needs and so on. it is set-up, run and managed by the members for the members and the profits/benefits accrue to the members in the ratio of their membership. Registrar of Co-operative societies in the respective states register and monitor their functioning.

Which form of Non profit to choose?

It is always a question as to which form of nonprofit organization we should be forming in India typically the oldest one form off not for profit is a society which is registered under the societies registration act 1860 this form of organization yes a democratic set up well for a society with objective of operating within a state has to have 7 members with proper identification and address proof to form as the founding members Please note bat that none of the executive committee members should be direct blood relationship whereas if it is intended 2 operate in whole of India or abroad then there must be minimum 9 members each representing all different state to form the originel founding members. Thus a society could deformed only when you have got like minded number of people required whether 7 or 9 as the case may be the other form of organization is trust which is simpler less regulated and offers better control of the founding members as a public charitable trust could be formed bye any 2 members initially as trust creator and trustee. This trust is also widely used form wherever the founders basto apon the trust is certain valuable properties to achieve the desired objectives stated in the trust deed a trust deed could be created within a period of 7 days.
the 3rd form of not for profit organisation in India and and regulated bye the ministry of corporate affairs is section 8 company (formerly known as section 25 company ).as it is a company it is having perpetuity flexibility and well drafted provisions of law to regulate the affairs and functioning. It is easy to change the shareholding and the management off a Section 8 company as compared to a society or trust .it is to be noted that there may be some incremental cost of compliance for this company and every filings are to be made online and The same are available for public inspection so while founding Section 8 company promoters must be aware that they will have to govern themselves well and comply with the law in true spirit all the time else there are conspicuous penalties prescribed under the act itself for each of the defaults made. Thus decision points for a person while thinking of forming a not for profit organisation in India will be with respect to,
-> The level of control he or she is willing to exercise
-> The level of disclosures he or she is willing to make
-> the level of compliance is is to be made
-> the time frame within which he wants to start
-> the number of persons he’s willing to start with together

Compliance Regime:
Each of the organisations Have to comply with general commercial and labour laws applicable to their activity and state where they are registered however for society the principle law governing its functioning is the society registration act 1860 whereas for the trust it is Indian trust act with state modifications and for the company the Companies Act 2013. Apart from this each organisation has to comply with the Income Tax Act GST, shops and establishment act, Provident fund gratuity and so on at the same level. audit is mandatory for the company however as most of the organisations get themselves registered for exemption of income tax under section 12 AA and for receiving donations under section 80 g which requires the entities to get their accounts annually audited and hence audit is mandatary for all such organisations .at the end we can conclude that if you have lesser time to start the organisation and you want to have complete control and flexibility on the operations of the organisation number 1 choice shall be trust , in addition to the 2 benefits you are ready to be regulated and have a mindset of being compliant then Section 8 company should be the choice and if you are willing to be democratic enough and have time to start organisation but lesser compliance you should choose society.

The cost of formation for society and the company is almost the same whereas for trust it may be a bit low however for trust all the founding members must physically be present before the registrar of trust at the time of registration whereas in the case of society and the company the physical presence is not required and documentations could be done online .

The documents required for formation of non profit organisation
For promoters and the first set of directors/governing body /board of trustees
-> copy of pan duly self attested
-> copy of Adhar card if available self attested
-> passport size photo -4 nos.
-> Copy of anyone off the below
-> -> Telephone bill
-> -> Electricity bill
-> -> Bank statement
-> -> Gas connection statement not older than 2 months duly attested

Information required:
– the proposed name or names for the organisation
– the major area of operation
– the objectives which the organisation will pursue after incorporation or registration
– the positions to be occupied by the founders such as president secretary treasurer, vice president or so on
– for trusts or the company the amount of initial contribution promoters are willing to make and the details of the property if other than cash being given under the trust
– occupation of each of the promoters. their education, mobile number and the email ID (both should be functional as there may be OTP send by the portal during the process of registration or incorporation
– details of any litigations or criminal proceedings if any against any of the founding members for company existing din
– details of the member who is or have been already director in some other company.

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