INTRODUCTION In India, lots of small businesses start as a Limited Liability Partnership (LLP). The LLP structure has been a popular choice for small businesses due to its lower compliance costs, separate legal entity status, and the limited liability of partners. However, as these businesses grow and their operations expand, they often consider converting into a private limited company for more growth and prosperity. Ministry of Corporate Affairs has passed a notification on 31st May, 2016 in such notification its allowed conversion of LLP into Company. WHY TO CONVERT FROM LLP TO A PRIVATE LIMITED COMPANY? LLPs are suitable for small businesses with an annual sales turnover of fewer than Rs 40 lakhs and a capital contribution of fewer than Rs 25 lakhs. Such LLPs do not have to undergo an audit every year, unlike a private limited company which must conduct an annual audit of its financial statement. However, if an LLP’s annual turnover exceeds Rs 40 lakhs or its capital contribution is more than Rs 25 lakhs, the compliance requirements become almost similar for both the private limited company and the LLP. This often prompts the owners of the LLP to consider conversion into a Private Limited Company. Moreover, LLPs attract a tax of 30%, while companies are subject to an income tax of 22%. Additionally, investors cannot hold shares in an LLP, making private equity investors and venture capitalists prefer companies over LLPs for investment. BENEFITS OF CONVERTING AN LLP INTO A PRIVATE LIMITED COMPANY The followings are benefits of converting an LLP into a private limited company: 1. Lower tax rate: Companies pay a lower income tax rate (25%) compared to LLPs (flat 30%). 2. Tax exemption on conversion: Conversion itself is exempt from capital gains tax. 3. Carry forward of losses and depreciation: Unabsorbed losses and depreciation from the LLP can be carried forward by the company. 4. Facilitates growth and expansion: Conversion helps businesses grow and expand their operations. 5. Easier capital raising: Companies attract a wider range of investors, including venture capitalists and equity investors. 6. Flexible share issuance: Companies can increase capital anytime by issuing new shares and offer ESOPs (Employee Stock Ownership Plans) for employee incentives. 7. Potential for public listing: A private limited company can eventually become a public limited company, opening doors to public investment. 8. Limited liability protection: Shareholders’ personal assets are protected from business debts. 9. Easier transfer of ownership: Shares in a company are more easily transferred compared to an LLP’s structure. 10. Flexible ownership structure: Companies can have a more flexible ownership structure with different classes of shares. 11. Enhanced credibility: Becoming a company can improve your business’s perception among stakeholders like customers, suppliers, and investors. 12. Access to wider funding: Companies have access to a wider range of funding sources like bank loans and venture capital. 13. Preservation of goodwill: Conversion allows you to retain your established brand name and goodwill. 14. Attracts foreign investment: Private limited companies are generally more attractive to foreign investors compared to LLPs. PREREQUISITES OF LLP 1. LLP Statutory Returns: Ensure that the LLP has filed all required statutory returns (annual returns, income tax returns, etc.) up-to-date. 2. LLP Agreements: File all LLP agreements and supplementary agreements with the Registrar of Companies (RoC). 3. Approved Forms: Verify that all filed forms have been approved by the RoC. If not, complete all pending filings. 4. Company Name: Decide on a new company name. The same name can be used if available, but “Private Limited” must be added. 5. Capital Contribution: Ensure that the capital contribution in the LLP equals the capital of the new company. There should be no change in the amount. 6. Partner Conversion: All partners in the LLP will automatically become shareholders of the new company. 7. Professional Certificate: Obtain a certificate from a Chartered Accountant (CA) or Company Secretary (CS) confirming the accuracy of the LLP’s financial statements. 8. Partner Resolution: Hold a partner meeting and pass a resolution agreeing to the conversion and authorizing a partner to handle the necessary procedures. 9. Name Application: Apply for a new company name on the MCA Portal under the SPICE+ category. 10. Name Approval: The approved name will be valid for 20 days for a new company and 60 days for a change of name. REQUIREMENTS 1. There must be atleast two members for registration as private limited company. 2. LLP must be registered, if it is nor registered file application for its registration. 3. Approval from all partners is required. 4. No objection certificate (NOC) is required from ROC where such LLP is registered. PROCESS OF CONVERSION 1. Name Approval: Name Approval has to be obtained from the ROC (Registrar of Companies) by submitting an application in e-format. To apply for this, you need to choose various items that are mentioned in the form INC-1. The name once accepted by the authority will be valid for 60 days. 2. Director Identification Number and Digital Signature: In case all 7 members, who are future directors of the company after conversion, do not have the Digital Signature Certificate (DSC) and Director Identification Number (DIN)for all the future directors of the company must be obtained. For obtaining the DIN, an application form must be filed on MCA portal. DIN application is processed & approved by central government via the office of regional director, the ministry of corporate affairs. 3. The form must be accompanied by self-attested address proof and identity proof with 1 recent passport size color photo of the applicant. All the required documents should be attested by a practicing cost accountant or a practicing-chartered accountant or a practicing company secretary. 4. Newspaper Publication: After the name is approved and DSC is generated, we need to issue newspaper publication related to such conversion of LLP into a Private Company, in at least two newspapers, one in English Language and another in any regional language newspaper of the place of registered office. 5. Form Filing: File Form URC-1,
Step-by-Step Guide to Starting a Food Business in India: Legal and Regulatory Checklist
INTRODUCTION Starting a food business in India involves navigating a complex landscape of legal and regulatory requirements. This guide provides a comprehensive checklist to help you understand and comply with these requirements, ensuring a smooth launch of your food business. STEP-BY-STEP GUIDE TO STARTING A FOOD BUSINESS IN INDIA 1. Business Planning and Concept Development Before diving into the legalities, it’s crucial to develop a solid business plan. This includes defining your target market, establishing your unique selling proposition (USP), choosing your restaurant style, planning your menu, and crafting your brand identity. A well-thought-out business plan will guide your decisions and help secure financing. 2. Business Registration Registering your business is a fundamental step. You can choose from various business structures such as sole proprietorship, partnership, or company. This registration is essential for legal recognition and to facilitate other licensing processes. 3. FSSAI License If you desire to operate a food business in India, obtaining an FSSAI License is mandatory under the Food Safety and Standards Act, 2006. Failure to comply can result in heavy fines and even business closure. This license ensures compliance with food safety standards and is crucial for consumer trust. The FSSAI offers a tiered licensing system based on the business’s scale, and the process is streamlined through an online portal. Step-by-Step Process to Get an FSSAI License Step 1: Determine the Type of LicenseBefore applying, you need to figure out which type of FSSAI License your business requires (Basic, State, or Central). Step 2: Gather Required Documents for FSSAI RegistrationHere’s a list of documents you’ll need for your FSSAI License application: Valid Email ID and Contact Number Identity and Address Proof issued by a Government Authority List of main stakeholders along with their identity proof Declaration of Food Safety Management plan Proof of possession of the location/premise No objection certificate from the local Municipal Corporations or local bodies Kitchen Layout Plan Water Testing Report provided by ISI certified organization List of Food Category Partnership Deed/ Affidavit of Proprietorship (in case of business operated on other premises or case of partnership firm) Medical certificates of employees Types of equipment to be used Step 3: Fill Out the Application OnlineVisit the FSSAI Website and fill out the appropriate application form for your business. Pay the required fee online based on the type of license you are applying for. Step 4: Submit the Application and Track ProgressOnce you submit your application, you will receive a unique application reference number. Use this to track the status of your application online. Step 5: Inspection and ApprovalFor State and Central licenses, the FSSAI officials may inspect your premises to ensure that you comply with the food safety standards. Once approved, you will receive your FSSAI License. FSSAI License Fees The fees for an FSSAI License vary depending on the type of license and the nature of your food business: FSSAI Basic Registration: ₹100 per year FSSAI State License: ₹2000 to ₹5000 per year, depending on the scale of your business FSSAI Central License: ₹7500 per year Renewal of FSSAI License Your FSSAI License is valid for a period of 1 to 5 years, depending on the choice you make at the time of application. You must apply for renewal 30 days before the expiry date. Failing to renew on time can attract a penalty of ₹100 per day until you renew your license. 4. GST Registration Goods and Services Tax (GST) registration is required for businesses with an annual turnover exceeding ₹20 lakh. This registration is necessary for tax compliance and to avoid legal penalties. There is no fee for GST registration in India. You need to go to the official website of GST for GST registration. Documents required Applicant details Mobile number Email Id Pan card number Proof place of business Copy of valid rental agreement/lease agreement Valid bank account from India Provisional ID and password received from the state’s VAT department 5. Health and Trade Licenses A Health Trade License is issued by the municipal corporation and is necessary for businesses that impact public health. Additionally, a Trade License acts as a work permit for trading goods and services. The cost of the trade license is based on the location of the restaurant. The forms for the application for Health Trade License are available at the State’s Municipal Corporation website or Zonal Citizen’s Service Bureaus. Documents required Three copies of the site plan Electricity and Water bills Rent Agreement or NOC from landlord Sewer Connection Proof Proof of property tax Letter from local police Plan and Layout of the restaurant Indemnity bond for Rs.100 Structural Stability Certificate signed by the concerned Structural Engineer Water Testing Reports Medical Certificates of Employees Lal Dora Certificate, if applicable( only in Delhi) 6. Fire Department NOC A No-Objection Certificate (NOC) from the fire department is required to ensure safety standards are met, protecting both customers and employees. There is no fee required Fire safety license. The NOC should be submitted to the state fire department. Applications can be found online on the state government website. Documents required Arrangements of Building intends to comprise of building format, examination report, the type of oversight. The structure plan should be as per the data recommended by the bye-laws of the state. Checklist survey questionnaire with answers Building Model certified agenda by Architect. Building Stability declaration. Applicant’s id card- a copy of Aadhar Card. Photographs of the setup building clicked from outside. Quantity and finishing endorsement of Electric wiring should be given from a perceived position. 7. Environmental Clearance If your business operations could potentially impact the environment, obtaining environmental clearance is necessary. This clearance ensures that your business complies with environmental regulations. Environmental clearance license cost depends on the type of restaurant. You can apply for the certificate of environmental clearance from the ministry of environments and forests website. Documents required are Letter of intent from the Ministry of Industry and NOCs from the State Pollution Control Board and the State Forest Department if the project talks about forestland 8.
Tax Benefits of Startup India Registration
TAX EXEMPTION ON A LONG-TERM CAPITAL GAIN Startups are eligible for tax exemption on a long-term capital gain if such a long-term capital gain or a part thereof is invested in a fund notified by the Central Government within a period of six months from the date of transfer of the asset. New tax rule helps startups avoid paying taxes on profits from selling assets (long-term capital gains). To qualify, startups must invest a portion or all of these profits in a special fund chosen by the central government. If the following conditions are met ● Investment period: The investment must be made within six months of selling the asset. ● Investment limit: The maximum amount you can invest is 50 lakhs rupees. ● Holding period: The money must remain in the fund for at least three years. ● Tax exemption: If you meet these conditions, you won’t have to pay taxes on the long-term capital gain. Example: Let’s say a startup named “TechInnovations” sells a piece of property for a profit of 70 lakhs rupees. To avoid paying taxes on this profit, TechInnovations can invest 50 lakhs rupees in the government-approved fund within six months of the sale. If TechInnovations keeps the money in the fund for at least three years, it won’t have to pay any taxes on the 50 lakh rupees profit. THE FAIR MARKET VALUE Previously, When investors put money into startups, they sometimes paid more than what the startup was actually worth (above fair market value). This extra amount was subject to tax. Now, The government has changed this rule. If you’re an individual investor, a family member, or a fund that isn’t a venture capital fund, you can invest more than the fair market value in an eligible startup without having to pay taxes on the extra amount. This also applies to investments made by incubators. Example: Let’s say a startup called “TechInnovations” is valued at 1 crore rupees. If an investor named “Mr. Patel” believes in TechInnovations’s potential, he might invest 2 crores rupees. In the past, Mr. Patel would have had to pay taxes on the extra 1 crore rupees. But now, thanks to this new rule, he won’t have to pay any taxes on that extra amount. CARRY FORWARD LOSSES A startup can carry forward losses from one year to the next to offset future profits. However, there’s a condition: all the shareholders who owned the company on the day the loss occurred must still be shareholders when the loss is carried forward. Previously, there was a rule that a single shareholder must own at least 51% of the company’s voting rights. This rule has been relaxed for startups, meaning they don’t have to follow this strict ownership requirement. Example: Imagine a startup called “TechInnovations” that had a loss in 2023. If all the shareholders who owned TechInnovations on December 31, 2023, are still shareholders on December 31, 2024, TechInnovations can carry forward this loss to offset its profits in 2024. And, importantly, TechInnovations doesn’t have to worry about any specific shareholder owning 51% of the company. GOVERNMENT MARKETPLACE The government has created an online platform where startups can showcase and sell their products. This helps startups reach more customers. Example: A startup called “TechInnovations” sells eco-friendly products. They can list their products on the government’s e-marketplace to reach a wider customer base, including government departments and agencies. EASIER TENDERS Startups participating in government tenders don’t need to have prior experience, a high turnover, or provide security deposits. This makes it easier for startups to win government contracts. Example: TechInnovations might want to bid for a government tender to supply solar panels. Because they are a startup, they don’t need to have years of experience in the solar industry or meet strict financial requirements to participate. TAX BENEFITS FOR ANGEL INVESTORS Angel investors, who are individuals or groups that invest in early-stage startups, get tax breaks. They can invest up to 25 crores rupees in qualifying startups without having to pay a special tax called “angel tax.” Example: An angel investor named “Ms. Sharma” believes in TechInnovations’s potential and invests 15 crores rupees in the company. Due to the angel tax exemption, Ms. Sharma won’t have to pay any extra taxes on this investment. PATENT AND TRADEMARK FILING DISCOUNT Rebate on filing of application: Startups are provided an 80% rebate in filing of patents vis-a-vis other companies bringing down the cost from INR 8,000 to INR 1,600. This helps them cut down on costs in their early years. 50% rebate is also provided in filing of Trademarks vis-a-vis other companies decreasing the cost from INR 10,000 to INR 5,000. REDUCED REGULATORY BURDEN The government has made it easier for startups to comply with various laws and regulations. This means startups can spend less time on paperwork and focus more on growing their business. Self-Certification: Startups can declare themselves as compliant with certain labor and environmental laws without needing official checks for 3 to 5 years after they start. Startups in specific industries (listed on the Central Pollution Control Board’s website) don’t need to get special approvals for environmental regulations for the first 3 years. TAX BREAK If a private limited or LLP incorporated on or after 1st April 2016 can apply for income tax exemption. Startups that receive a government certificate recognizing them as a startup can apply for a tax break. This tax break allows them to avoid paying taxes for 3 consecutive years out of their first 10 years of business. Example: A startup called “TechInnovations” was started on May 2, 2017. After getting recognized as a startup by the government, TechInnovations can apply for a tax break. If approved, they won’t have to pay taxes for any 3 consecutive years between 2017 and 2026. GOVERNMENT INVESTMENT IN STARTUPS The government has created a fund worth 10,000 crores rupees to help startups grow. This fund is managed by a government organization called SIDBI. The government invests in
Thing you should remember before starting a online gaming business in India.
INTRODUCTION A few days ago, a client approached me with an ambitious gleam in their eyes and a question that hinted at the promise of fortune: “How do I open an online gaming business related to bets and lotteries?” As someone who has been continuously entangled with the online gaming industry due to my profession, I knew the journey was filled with challenges and opportunities. I advices him that you need to understand the legal landscape. As each State has its own regulation regarding online gambling. You need to comply with these laws, which might involve obtaining licenses or setting up your operations in a jurisdiction where online betting is legal. One of the most important determinant in setting up online gambling business is to distinguishes games of skill from game of chance. I also shared additional insights as follows, that could assist in setting up your own online gambling business. The online gambling industry in India makes a lot of money. The market size of online gambling in India was $2.7 billion in 2023. A group called IMARC Group thinks that by 2032, market size will be $5.49 billion. This means that the amount spent on online gambling will grow at a rate of 8.10% each year between 2024 and 2032. IDENTIFY EXACT NATURE OF BUSINESS In India, gambling laws are largely determined by individual states, leading to a variety of regulations across the country. For instance, states like Goa and Sikkim have legalized and regulated certain types of online gambling, allowing them to operate under specific guidelines. On the other hand, Maharashtra, Telangana, and Andhra Pradesh have taken a much stricter approach by banning online gambling entirely. In Tamil Nadu, the situation is more fluid; the state had banned real money games such as rummy and poker, but these bans were recently overturned by the Madras High Court. Meanwhile, states like Kerala and West Bengal are more lenient, permitting games that are based on skill rather than chance. This diverse regulatory landscape reflects the different attitudes towards online gambling in India. Games of chance are primarily determined by luck or random events. Players have little to no control over the outcome, and winning is largely based on chance. Examples include slot machines, lottery, and bingo. Games of skill rely heavily on the player’s physical or mental abilities. The player’s expertise, strategy, and decision-making significantly influence the game’s outcome. Examples include chess, rummy, poker (to an extent), and fantasy sports. In legal terms, the distinction between games of chance and games of skill is crucial. Games of chance are often regulated or prohibited by law, while games of skill are generally considered legal activities. A key factor in determining whether a game is a game of chance or a game of skill is the degree to which skill influences the outcome. If skill plays a substantial role in determining the result, the game is more likely to be classified as a game of skill. BUSINESS STRUCTURING a) Sikkim: The Sikkim Act and Rules lays down requirements, the operator must only function in Sikkim and can only be a company incorporated in India. The requirement include: i. The firm/company must be registered in Sikkim. ii. Application to be made to the government (Form I). iii. Application fee of INR 500/-. b) Nagaland: The process of obtaining a license has been goven in the Nagaland Prohibition of Gambling and Promotion and Regulation of Online Game and Promotion and Regulation of Online Games of Skill Rules, 2016. The requirements include: i. The person/entity must be registered in India and have a substantial holding and controlling stake in India. ii. The company should not be engaged in any form of ‘gambling’’ iii. No criminal record. iv. Application should be filed in the prescribed format along with the application fees of INR 50,000/-. v. Required documents need to be submitted. c) Goa: Section 13A of the Goa, Daman and Diu Public Gaming Act allows for five-star hotels and offshore vessels to set up casinos without the same being prohibited under the definition of ‘common gaming house’. STATE SPECIFIC LAWS In India, gambling laws are primarily governed at the state level, with each state having the authority to regulate gambling activities within its borders. This means that the legality of online gambling can vary significantly from one state to another, with some states like Goa, Daman, and Sikkim allowing certain forms of gambling, including online casinos, while others impose strict prohibitions. The following state specific laws relating to online gambling: a) Sikkim: The state of Sikkim permits the offering of casino games such as roulette and blackjack by obtaining a licence under the provisions of the Sikkim Online Gaming (Regulation) Act, 2008 (“Sikkim Act”). Sikkim has a licensing regime for all online games – whether of chance or a combination of skill and chance. It is pertinent to note that the licensees are permitted to conduct their gambling activities only in five-star hotels. The state of Sikkim offers licences for intranet games under the Sikkim Act and Rules. The intranet games include: (a) super pan 9; (b) roulette; (c) keno; (d) blackjack; (e) backgammon; (f) punto banco; (g) chemin-de-fer; (h) bingo; (i) baccarat; (j) poker dice; (k) casino brag; (l) poker; (m) pontoon; and (n) other sports games that involve prediction of results of sporting events and placing a bet on the outcome, in part or whole, of such sporting event. The duration of the licence is five years unless it is surrendered or cancelled. The licence may be renewed on application for the same. The licensees under the Sikkim Act and Rules are required to pay a provisional fee of INR 1,00,000 (approx. USD 1,210) and INR 1,00,00,000 (approx. USD 121,048) as a licence fee for a five-year licence with an online gaming levy at a percentage as may be notified from time to time by the state