Government announces company incorporation with zero fees

With a new set of rules that simplify the process of company incorporation, the government aims to make it easier to do business in India. Here’s a look at the revised process.

 

On the eve of 69th Republic Day, the Government of India has taken another massive step to make it easier to do business in India. The Ministry of Corporate Affairs (MCA) has implemented various rules to simplify the process of company incorporation.

For the last few years, the government has been continuously pursuing initiatives to make the company registration process straightforward and uncomplicated.

The current reforms in the procedures can be described as the most significant ones till date.

Let us have a look at the current and revised processes for company incorporation:

  • Zero fees for incorporation:

To foster and promote new startups and businesses, the Ministry of Corporate Affairs (MCA) has announced zero fees of incorporation for SPICE Forms, e-MoA and e-AoA. This will enable the saving of a few thousand rupees, thereby encouraging more startups to formally register their company. Stamp duty will still be applicable at a rate depending upon the state of incorporation.

  • Introduction of Reserve Unique Name (RUN) Form:

The MCA has further simplified the name reservation process by introducing Reserve Unique Name (RUN) Form.

Earlier, company name could be reserved either in advance through the Name Reservation — INC-1 form or directly through the incorporation application (SPICE Form). Form INC-1 has now been replaced by RUN Form.

Past Scenario Current Scenario
Application for name reservation was being done through e-Form INC-1 which has provision of applying up to six names. Application for reservation will be done through RUN – a web-based form, where only one name choice can be provided at a time.
INC-1 required Director Identification Number (DIN) of at least two directors and at least one DSC to sign the e-form. RUN web-form does not require any prior DIN or DSC, thus making the process extremely quick and easy.
MCA fees for filing INC-1 is Rs 1,000 per form. If the proposed names are not in consonance with the Name Reservation Rules, the MCA provides one another chance of resubmitting the form with fresh names. MCA Fees for name reservation using RUN web-form is Rs 1,000 per form submission – irrespective of the name being approved or not.
The approved name was valid for a period of 60 days for both new and existing companies. An approved name is valid for a period of-          20 days from the date of approval, in case of new company.

–          60 days from the date of approval, in case of existing company.

Hence, proposed companies have the option to apply for the name reservation directly by themselves by submitting the simple RUN web-form and they would be intimated by the MCA on the approval through email. 

It is suggested that RUN Form be used when there is ambiguity on the preferred name being approved due to its similarity with existing companies or LLPs.

Direct application through SPICE form can also be used in cases when the proposed name is unique. It has high chance of acceptance and the applicant can save time and money.

  • Director Identification Number (DIN)

Earlier, DIN could be applied by the proposed director/applicant directly through e-Form DIR-3 or at the time of incorporation through the SPICE form.

However, the new rules state as under:

  • Directors of a new company can now apply for DIN only through the SPICE Forms. Details of such directors have to be filled in the SPICE Forms along with their proof of identity and address.
  • Existing companies can use Form DIR-3 for adding a new director. The new DIR-3 Form has the provision to furnish the CIN of the company for which the director is being appointed and a declaration that the DIN is being obtained for adding the person as a director to the mentioned company.

The government is definitely expecting a spur in company incorporations with the new set of rules, which aim at not only simplifying the procedures but also making them foolproof.

This article was also published on YourStory

Phantom Stock – A smart way of Employee Benefits

Phantom stock is a very interesting concept and is emerging strongly as a powerful tool of Employee Benefits, especially for Startups. It can be described as a type of employee benefit plan whereby employees or advisors of an Organization get various benefits of stock ownership without actually having real ownership of Stock, in exchange for their services.

It is also often known by names such as shadow stock, simulated stock or phantom shares.

Why Companies use Phantom Stock?

Providing employees with a stake in the ownership of the Organization is a very common practice adopted by Companies. ESOPs and Sweat Equity have been a conventional mode of a deferred reward plan for employees. On the contrary, Phantom Stock is a conventional, performance-based incentive plan which entitles an employee the right to receive cash payments after a specific period of time or upon fulfilment of specific criteria and is directly linked to the valuation and the appreciated value of the share price of the company.

Phantom stock gains advantages above real stock on the following points:

  • To prevent diluting the stake of promoters and voting rights as providing voting rights with phantom stock is not mandatory and completely at the discretion of the Company.
  • There are very little complications associated with phantom stock. They are generally paid if employees meet certain terms. If the conditions are not met, there is no responsibility on the part of the companies to pay the same.
  • Setting up a phantom stock plan is much less expensive as compared to setting up ESOPs,
  • It is less time consuming and easy to execute.

It is prudent to carefully plan out the terms and conditions for the phantom stock plan as per the requirements of the Organizations to make the plan effective and profitable for both the parties.

How does it work?

The employer enters into an agreement with employees or advisors for issuing phantom stock in exchange of services. The Agreement should contain all the terms and conditions related to the plan such as:

  • Price of the stock
  • Payout ratio
  • Criteria for eligibility
  • Voting rights associated with the stock
  • Tasks or Goals, if any, that need to be accomplished in order to exercise the option
  • Such other conditions at the discretion of the Company

The Agreement also sets out the mode of redemption of the phantom stock plan. They are usually redeemed in cash. But if the Agreement allows, the payment obligation can also be fulfilled by distributing actual stock to the employees.

Based on the mode of redemption, Phantom Stock can be of two types viz.

  • Appreciation only– In this case, the phantom stock holder receives the difference in the value of the stock at the time of issue and the value at the time of maturity. This means they receive anything above and beyond what the phantom stock was worth when it was granted.
  • Full value– In this case, the phantom stock holder receives the full value of what the stock is worth for, at the time of maturity, instead of the stock appreciation amount as in the former type.

Taxation:

Unlike ESOP’s and Sweat Equity, which can be taxed as Income on the basis of the value of shares issued, Phantom Stocks are not taxed at the time of grant. These are taxed only when there is actual outflow of cash at the time of redemption or maturity of the Stock. This helps in deferring the tax and paying the same only when there is actual benefit arising out of increase in the value of Company’s Shares.

Phantom Stock is a smart scheme to provide benefits without diluting the shareholding and at the same time satisfying employees, advisors and permanent consultants, who wish to gain out of the growth in the Company. It’s a Win-Win for all!

Modes of Funding/Capital Infusion for Startups

A successful business requires investment of time, effort and MONEY for its long term growth and prosperity.  Infusion of funds is an essential pre-requirement, especially for Startups if they want to scale up and make their brand popular and visible.

Innovative and promising Startups or businesses always attract enterprising investors who are ready to stake their money and a get a good return out of the same. The difficult part arrives when the decision on the mode of funding has to be evaluated.

There are a lot of factors which determine the mode of funds infusion. Whether the funds are to be given in exchange of Shares or to be treated as Debt or Convertible instrument depends upon the expectation of return and repayment by the investor and relationship with the Company.

This article will give you a brief about different modes of funds infusion and their applicability:

SHARE CAPITAL

One of the most common methods of raising funds is by issue of shares of the Company.

Share capital is a long-term source of finance. In return for their investment, shareholders gain a share of ownership in the company, access to voting rights and right to participate in the management.  Shareholders are not entitled to any interest on their investment. They can be paid dividend on their investment depending on the profits of the company which is subject to the provisions of The Companies Act 2013.

The purpose of investing in Share Capital is to reap the benefit or gain through increase in value of shares. For example – Angel Investors who invest at early stages intend to exit by disposing off their shares in next bigger round of investment at a higher valuation.

Share capital is generally of two types: Preference Share Capital and Equity Share Capital.

The major difference between Preference and Equity Shares is that the former does not enjoy voting rights and have a preferred right to dividend as well as return of capital at the time of liquidation.

 

Most of the investors prefer to invest in Preference Shares to avoid the risk of loss of initial investment in case of liquidation or bankruptcy of the Company. This goes well with the Company also, as Preference Shareholders do not have management and voting rights and hence, there is no interference in the working of the business.

DEBENTURES/BONDS

Bonds and Debentures are debt securities. They have an implicit level of safety simply because they ensure that the principal investment is returned to the lender at the maturity date with interest or upon the sale of the security.

Generally, a legal agreement is executed between the Company and the Investor at the time of issue of debentures specifying in detail, the term and conditions of repayment and interest.

Also, the Debenture-holders are creditors of the Company who get preference in repayment of liability over the shareholders, at the time of liquidation.

Debentures are further classified as Convertible or Non-convertible.

Convertible debentures can be converted into equity after a specific period of time. You can read about these under the section “Convertibles”.

Non-convertible debentures do not have the option of equity conversion but are generally coupled with a higher interest rate.

CONVERTIBLES

The most commonly used instrument for raising Capital by Early Stage Startups is Convertibles.

Preference Shares, Debentures and Loans – all can come with a convertible option. These instruments provide the benefit of deferring the valuation of the Company to a later stage when the conversion to equity actually takes place.

Convertibles are particularly attractive to those investors who want to participate in the rise of hot growth companies while being insulated from a drop in price should the stocks not live up to expectations.

Convertible Preference Shares or Debentures have the advantage of being fixed-income securities that the investor can choose to turn into a certain number of shares of the company’s common stock after a predetermined time span or on a specific date. The fixed-income component offers a steady income stream and some protection of the investors’ capital. However, the option to convert these securities into stock gives the investor the opportunity to gain from a rise in the share price.

The conversion into Equity Stock takes place through a pre-determined conversion price or conversion ratio which represents the number of equity shares, investors may receive for every convertible preferred share or debenture.

UNSECURED LOAN

A loan is when you receive money from any person, bank or financial institution in exchange for future repayment of the principal, plus interest. Loans can be either secured or unsecured.

A secured loan involves pledging an asset (such as a car, house) as collateral for the loan. If the borrower defaults, or doesn’t pay back the loan, the lender takes possession of the asset. These loans enjoy a level of safety because of the collateral attached to them.

An unsecured loan is the one which doesn’t have any security attached to it and supported only by the borrower’s creditworthiness. Though there is a risk of non-repayment of money attached to it, but it is easy and less time taking for a company to raise an unsecured loan. The process does not generally require too much paper works and is easy to execute.

A Private Company can take unsecured loan from its Directors or his relatives ONLY. “Relatives” include the ascendants and descendants of the director and their spouses.

CONVERTIBLE NOTES

The concept of Convertible Notes was recently introduced by the Companies Act making this option exclusively available to Startup Companies.

Convertible notes can be defined as a type of loan or debt security issued in the form of some document or certificate to the investor in return of the money lent to the Company. The amount raised in exchange of Convertible Notes has to be repaid or be converted into equity shares of such startup company at the option of the holder. It should be repaid or converted within a period not exceeding 5 years from the date of issue of the Note. It can also be repaid or converted on occurrence of specified events as per the terms and conditions agreed upon between the parties.

These notes can also be issued to NRIs subject to conditions mandated by RBI in this regard. The minimum amount that has to be raised against issue of Convertible Notes is Rs. 25 lakhs or more in one tranche.

A company can enter into a legal agreement with the Investor at the time of issue of these notes specifying the details of the issue and the terms and conditions of repayment.

Choosing an appropriate mode of funding:

Before choosing an appropriate mode of funding, the pros and cons of each of the methods have to be carefully evaluated. Following points can be kept in mind while choosing the appropriate mode-

  • Whether the company wants to dilute the ownership of the promoters in the Company.
  • Whether the company can afford to include the investors in the management of the entity.
  • Whether the company can afford to pay a fixed sum as interest on debt or loan.
  • Conditions relating to compliances required under different Laws and the cost for the same.
  • Tax benefits available- Interest paid on debt financing is allowed as deduction from profit whereas dividends are paid out of the profits earned and dividend distribution tax is to be paid.

Coworking Spaces in Delhi

As new startup ecosystem is emerged, it is understood that it does not suits the budding entrepreneurs to invest in office space. This creates a great need for affordable Coworking Spaces in Delhi for the young minds. Sometimes investing in an office infrastructure is not possible for early stage businesses.

Coworking spaces involve a shared workplace, say an office, and an independent activity. Unlike a typical office, these coworking spaces are usually not hired by one organization but shared by several startups or freelancers. Shared facilities, namely, WiFi, printers/scanner, parking, IT support, etc. and provisions including cafeteria, kitchens, furnished offices and conference rooms are like the icing on the cake.

Coworking Spaces in Delhi
Coworking Spaces in Delhi

We’ve listed some of the best Coworking Spaces in Delhi that will give any startup, founder or entrepreneur the connectivity, facilities & creature comforts making their work-life more balance and sweet.

1. Innov8

Services Offered: Innov8 offers ready to move in fully furnished office which is consist of modern Bristol and Herman Miller furniture. The bright eccentric lights along with state of the art utilities and several other recreation zones makes it a collaborative shared space of innovation and creativity.
The main amenities offered in Innov8 are Uninterrupted high speed WiFi, Recreational & Breakout Zones, Cafeteria & Lunch Room, Scanners & Printers, Reception & House keeping, Community & Networking Events, Excellent Power Backup, Members only Access Cards, Unlimited Hot & Cold Beverages, Library, Fully equipped meeting rooms, Rooftop garden, etc. It is recognized as one of the top Coworking Spaces in Delhi

Location: Innov8 is located at the heart of the city, Connaught Place (69, REGAL BUILDING, HANUMAN ROAD AREA, CONNAUGHT PLACE, NEW DELHI – 110001) and now is also open in Saket.

Starting Price: Dedicated Desks are available at Rs 12,999/- per month and Hot Desks at Rs 7,999/- per month.

Innov8
Innov8

2. 91springboard

Services Offered: This coworking space is also equipped with a garden room as well as a library. Other essentials provided to all the members of 91springboard includes High Speed WiFi, Receive Mail c/o 91springboard, Open 24*7 with Professional security, 24*7 Power backup, Comfortable workstations, Phone booths, Photocopy & Printing, Housekeeping service, Free or Discounted access to events, Company registration documentation, Access to acurated list of service providers, Tea and coffee, Cafe, lounge and games.

Location: 91springboard is a mere kilometer away from Govindpuri Metro Station (E-43/1, OKHLA PHASE II, NEW DELHI, DELHI – 110020).

Starting Price: Rs 6999/- per person/month for own workstation, Rs 7999/- per person/month for a private cabin that can accommodate 4-5 people, Rs. 4999/- per person/month for Part-time (12 days a month)

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91springboard

3. Awfis

Services Offered: Awfis provide exclusive offers across categories like Health & Wellness, Retail, business services, Tech and more alongwith the Complimentary Amenities, like High Speed Internet, Meeting Room Usage, Printing Credits, Hot Beverages, etc.

Location: They operate in several locations including CP, Vasant Vihar, Jangpura, Aerocity etc. Their spaces are known to be some of the best Coworking Spaces in Delhi.

Pricing: They provide coworking spaces as per the coworker’s budget and requirement.

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Awfis

4. ONE Co.Work

Services Offered: The various services provided by ONE Co.Work are aligned with the vision of startups and thus help them move from an idea to a successful venture. They provide Supportive Co-working, Virtual Office, Funding, Networking Events, IT / HR / Admin support, and Mentorship.

Location: ONE Co.Work is located at two prime locations in Delhi, i.e. Connaught Place (G- 36, G-BLOCK, OUTER CIRCLE, CONNAUGHT PLACE, BLOCK G, NEW DELHI – 110001) and Netaji Subhash Place (605, D MALL, NETAJI SUBHASH PLACE, RING ROAD, PITAMPURA, NEW DELHI – 110034)

Starting Price: The palns at ONE Co.Work are flexible with membership options. They start with Rs 1999 per month for 4 day access which also includes access to open sitting & common area, High Speed Internet [LAN/WiFi] and access to Meeting/Conference Rooms at 10% discounted price.

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ONE Co.Work

5. CoworkIn

Services Offered: The services in CoworkIn includes Fibre-internet, Hot Desk, Team Rooms, Pet friendly, Unlimited Tea & Coffee, Printing facilities, Conference Rooms, Event spaces, Calling rooms, Flexible plans, weekly events, virtual office, etc.

Location: CoworkIn have four branches in the city, namely, in Greater Kailash-II (W – 129, GREATER KAILASH 2, NEW DELHI), Lajpat Nagar (22A, OUTER RING ROAD, LAJPAT NAGAR-4, NEW DELHI), Nehru Place (39 KUSHAL HOUSE, NEHRU PLACE, NEW DELHI 110019), and Patel Nagar (13/28 GROUND FLOOR, EAST PATEL NAGAR, NEW DELHI – 110008).

Starting Price: Daily Drop-In starts with Rs 399/- per day which includes 1 Day Access, Unlimited internet, Unlimited Tea/Coffee, and Access to Hot Desking area.

CoWorkin
CoWorkin

6. CoWork

Services Offered: Cowork provide personal spaces and shared spaces for a group of 4-5 peaople to sit together. They can also customize the spaces as per the requirements. Conferences room facility, 24*7 power backup, WiFi, Tea/Coffee, and Networking with other business are other highlights of Cowork.

Location: Cowork is conveniently located at a walking distance from the Mayur Vihar Metro station (101, PRATAP NAGAR, MAYUR VIHAR PH. 1, NEW DELHI).

Starting Price: They have a plan for every work infrastructural need. Starting with Rs 499/- Day Pass to Rs 5999/- for Monthly Plan, Cowork have various subscription plans depending on one’s need and requirements.

CoWork
CoWork

7. The Founder’s Cafe

Services Offered: Their amenities include seamless and holistic platform compelling an ecosystem for productivity, Biz Grade Internet for superfast connection with back up line, Cafe, Meeting Rooms, Free Parking, Dedicated Work Desk, Breakout zone, 24*7 Access & Security, Stationary & printing support, Lockers & Mailing address and much more.

Location: The Founder’s Café is located at the heart of South Delhi, on the outer ring road with Okhla Phase 3 Metro escalator at the door step.

Starting Price: A personal desk to create magic starts at Rs 8,000/- per month.

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The Founder’s Cafe

8. Stirring Minds

Services Offered: Stirring Minds have a lot to serve at their coworking space. High Speed Wifi, 24/7 Working, Power Backup, Conference Rooms, Mentorship, Rooftop Cafe, Warehousing, IT/HR Admin, Lockers, Inhouse Courier, Printing/Scanning, Library, Video/Sound Studio, 3D Printers, Fitness Equipment, Bunk Beds, Funding Support are to name a few amenities provide by the Stirring Minds.

Location: 2-A/3 Kundan Mansion, Asaf Ali Road, Delhi – 110002

Starting Price: Stirring Minds provide monthly, quarterly and yearly plans for their coworkers. They start with Rs 799/- for a virtual office light, Rs 4000/- for 30 days and many more such plans according to the number of days and amenities required.

Stirring Minds
Stirring Minds

What is Sweat Equity

The term Sweat Equity has recently gained immense importance in the corporate world. In simple terms, Sweat Equity shares refer to Equity Shares given to the employees of an organization in favorable terms, generally at a discount or for consideration, other than cash, for providing their know-how or making available rights in the nature of intellectual property rights or other value additions to the Company.

Sweat Equity shares enable companies to increase directors’ and employee’s stake in the ownership of the company, thus encouraging them contribute more towards the development of the Company.

The issue of Sweat Equity Shares is regulated by Section 54 of the Companies Act, 2013 read with Companies Rule 8 of (Share Capital and Debentures) Rules, 2014

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Sweat Equity Shares

Who is eligible for Sweat Equity Shares?

  • A permanent employee of the company, its holding or subsidiary, whether working in or outside India for at least one year.
  • A director of the Company except Independent Directors.

Conditions for issue of Sweat Equity:

Quantum of Sweat Equity Shares:

  • The value of shares issued should not be more than 15% of paid up capital of the company in a year or Rs. 5 crore; whichever is less.
  • Total value of sweat equity shares issued by a Company shall not exceed 25% of the paid up capital of the company at any point of time.

Valuation of Sweat Equity Shares:

  • Sweat Equity Shares shall be valued at a price determined by a registered valuer.
  • When shares are issued in lieu of making available intellectual property rights or providing know-how, valuation of such Services or Know how shall also be carried out by Registered Valuer. Valuation of services or assets is important as that will determine the number of shares which are to be allotted.

Other Conditions:

  • For issue of Sweat Equity, the company should be in existence and carrying on business for a period of one year or more.
  • The sweat equity shares issued to directors or employees shall be locked in i.e.non-transferable for a period of three years from the date of allotment.
  • The amount of sweat equity shares issued shall be treated as part of managerial remuneration.
  • Only the class of shares which is already issued to the shareholders can be issued as sweat equity shares and all the conditions applicable to that class of equity shares shall be applicable to the sweat equity shares.
  • A listed company can issue sweat equity shares as per the rules and regulations prescribed by SEBI in this regard.

Procedure for Issue of Sweat Equity Shares as per Companies Act 2013

  • Obtain Approval of the Board of Directors for Issue of Sweat Equity
  • Obtain the Approval of the Shareholders of the Company for such issue through a Special Resolution.
  • Allotment of Sweat Equity is to be completed within 12 months of the date of passing the resolution by fulfilling all the applicable conditions.
  • File necessary e-forms with the MCA for such allotment.
  • Once the approval of MCA is obtained, the process of Issue of Sweat Equity Shares stands complete.
  • Maintain a Register of Sweat Equity Shares in Form No. SH.3
  • There should be a detailed disclosure in the Board Report of the Company about the terms and conditions of the Sweat Equity Shares issued.

It is suggested to formalize the agreement of issue of Sweat Equity on paper to avoid confusion and miscommunication. Building a restricted stock agreement, with a buy-back right can bring down risk. It is a good idea to hire a legal consultant or a finance expert to understand the fine lines better.

VenturEasy can help startups with sweat equity procedures. Email at [email protected].