Updates for February, 21

The budget hangover

We all are still in the hangover of the Union Budget-21, which was presented by Madam Nirmala Sitharaman, the Union Finance Minister. Gone are the days which the budget was presented as an “Income and Expenditure Statement” , with soaps and more soaps. Gone are the days which the Finance Minister and Railway minister were carrying a brief case with a huge pile of papers and read that out to get the standing ovation of the political counterparts. Budget is now transformed into a “Vision Document” and gone paperless. The Budget is no more a document to check your tax fortunes and concessions. Borrowings, income from disinvestment of PSU and accruals from the monetization of the assets shall be pumped into infrastructure sector, which is believed to enhance the speed of propulsion of the economic wings of the Nation. There are still some ‘ifs and but’s’ in it, still it is a progressive and different budget. The budget envisages the Prime Minister as CEO of the Nation and had given a “corporate mood” to the growth strategy of the Nation. So lets fasten our belt and wish for the best.


The End of Companies Fresh Start Scheme- 2020

The Companies Fresh Start Scheme- 2020, a scheme which had tailormade by the Ministry of Corporate Affairs to save the defaulters from the fine pits, has come to a ‘brutal & merciless’ end on 31st of December, 2020. Even though there were many last-minute software glitches which had prevented few 11th hour warriors from filing their returns, I believe that, 10 month was sufficient for a Company to utilize the same in their advantage. So, if you had not yet filed your returns for the previous year, do that now.


Amendment to Companies (Appointment and Qualification of Directors) Rules, 2014

Rule 6 of the captioned Rules is about the eligibility of a person to be appointed as Independent Director. The said rules mandated to have submit an Online Application to the Institute for inclusion of his/her name in the data bank for a period of One year or five years or for his life time. It is mandatory for the Independent director aspirants to qualify an Online Proficiency Self Assessment Test conducted the Institute within a period of Two years from the date of inclusion of his/her name in the data bank, failing of which, the said name shall be removed from the records of the Institute. The qualifications are always good to identify an eligible candidate but the level of independence can be measured only from the character and integrity of the said person. So we can hope that, the Qualified Independent Directors will be independent enough to prevent future Ernon, Srada, Sahara , Worldcomm, Sathyam and much more.


One Person Company.

The budget had given a hard kick to wake the OPC, which was sleeping on door mat for long time. The concept of OPC was introduced in Companies Act, 2013 but had never got deserved attention as it was shadowed by conventional companies and LLPs. The specific reference about OPC had ignited the curiosity of many and hence I would like to jot something about the same here. Hope it helps.


OPC, as name suggest, can be started by an Individual, who is a citizen of India. He should not only be a Citizen of India but should be a resident also. The Resident in India means a person who has stayed in India for a period of not less than One Hundred and Twenty days, thanks to our FM who replaced 180 days in this budget, during the immediately preceding financial year. By reducing the number of days to 120 days to calculate “Residential Status” for this purpose, more NRI’s can use OPC as a business vehicle.


For starting the OPC, the individual have to identify a Nominee, who shall also meet the same criteria with respect to citizenship and residential status. It may be noted that a Minor cannot act as nominee. OPC can undertake all kind of business except NBFC activities and it cannot invest in the shares/securities of other body corporates.


An OPC can get converted into a company(except Section 8 Company). But the said conversion can happen only after 2 years of its incorporation. However, if the paid up capital of the OPC exceeds Rs 50 Lakhs or the Average Turnover exceeds Rs. 2 Crore, it will get converted even before 2 years of incorporation.


One may get it confused with conventional ‘Proprietorship’, which is also a One Man Show. But there are amble differences between the two. The OPC provides the “Limited Liability” protection to the owner, which is alien to Proprietorship. It helps to demarcate the assets of individual from the assets of the OPC.OPC shall be more organized and object oriented that Proprietorship. After all it gives, you’re an identity! Think about it.


Small companies can be bit bigger!

As per section 2(85) of the Companies Act, a company shall be deemed as “small” if its paid up capital does not exceeds Rs. 50 lakhs and turnover are less than Rs. 10 Crore. The budget 2021 had pulled the band further and enhanced the said limits. An amendment had been brought in to Companies (Specification of Definitions Details) Rules as Amendment Rules, 2021, through which the paid-up capital requirement is enhanced to Two Crores and turnover is enhanced to Rs. 20 Crores. So through the said amendment many of the companies which are presently “big” became “smaller” in a day. The advantage of that are not too much. Still it can avoid professional certification requirements under the Act but there are no relaxations in number of forms to be filed etc. In my view, self-certification can be self-harming too, sometimes, life self-treatment!


Enabling E-scrutiny

The Government is planning to launch e-scrutiny of the Corporate filings, which can pull your nerves, if you had made some omissions or careless mistakes. The e-forms that we being uploaded to MCA are being monitored by Artificial intelligence enabled software and violations are automatically being identified. So be careful and ensure compliance to avoid shocks.


Relaxations for LLP

As a step to popularize the LLP as a business vehicle, it is proposed to decriminalize the compoundable offences. It is also proposed to amend Section 69 of the Act with a view to reduce the additional fee of Rs. 100 per day which is presently applicable for the delayed filing of forms, documents. A reduced additional fee is expected to incentivize smooth filing of records and returns of LLPs and consequently result in an updated registry for proper regulation and policy making.


It is also proposed to introduce the new concept “small LLP” which is in line with small companies. Such Small LLPs would be subject to lesser compliances, lesser fee or additional fee and lesser penalties in the event of default. Thus, lower cost of compliance would incentivize unincorporated micro and small partnerships to convert into the organized structure of an LLP and derive its benefits. It is proposed to allow LLPs to raise capital through issue of fully secured Non-Convertible Debentures (NCDs) (as an alternative to equity participation) from investors who are regulated by SEBI or RBI. This will help deepen the Debt Market and enhance the capitalization of LLPs.


BIJOY P PULIPRA

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