Context
India as the destination for manufacturing, it’s
ranking in World Bank's ‘Ease of Doing Business’ has slipped further. It takes
30 days and 13 procedures to register a company in Mumbai, while in New Zealand
it takes just half a day. India has been ranked at 142 among 189 countries in
the latest World Bank's "Ease of Doing Business" report, a drop by
two places from the last year's ranking. A high ranking (a low numerical rank)
means that the regulatory environment is conducive to business operation.
Government
policies for reforms
The Companies Act, 2013 aims to pave the way for a
more modern and dynamic legislation, to enable growth and greater regulation of
the corporate sector in India. The revolutionary new concept of ‘One Person
Company’ (OPC) is a step forward to facilitate more business friendly corporate
regulations in India. OPC will give the young businessman all benefits of a
private limited company which categorically means they will have access to
credits, bank loans, limited liability, legal protection for business, access
to market etc. all in the name of a separate legal entity.
Till recently, if you wanted to set up a private
company, you needed at least one other person because the law mandated a
minimum of two shareholders. So, for the person wanting to venture alone, the
only option was proprietorship, an onerous task since it is not legally
recognized as a separate entity. The concept of One Person Company (OPC) in
India was introduced through the Companies Act, 2013 to support entrepreneurs
who on their own are capable of starting a venture by allowing them to create a
single person economic entity. Now, after the recent amendment to the Companies
Act, there may be hope for the budding entrepreneur. The bill that aims to
bring in sweeping changes in the corporate world has also opened the doors for
the entrepreneur looking to set up a company all by himself. This has been made
possible by bringing in the concept of One Person Company (OPC). OPC provides a
whole new bracket of opportunities for those who look forward to start their
own ventures with a structure of organized business.
Though the concept of OPC is new in India but it is
a very successful form of business in UK and several European countries since a
very long time now. Currently, it is a grey area, and only time will tell how
well this works in India. A one person company is a paradigm shift in the
Indian corporate regime, bringing it at par with global standards. But other
than the technical change that the minimum membership been reduced from two to
one, no purpose is being served with respect to relaxation in paper works and
procedural formalities.
Of course, India made starting a business easier by
considerably reducing the registration fees, but at the same time also made it
more difficult by introducing a requirement to file a declaration before the
commencement of business operations.
Features
of the UK model of company law
Here comes the significance of a developed country
like UK which stands in the 8th position in the World Bank’s Index when it
comes to ease of formation where most small private limited companies don’t
need an audit of their annual accounts - unless the company’s articles of
association say it must or enough shareholders ask for one. The principal
concessions available to a small company in the United Kingdom are:
• reduced
statutory disclosure requirement for the full accounts;
• exemption
from the requirement to prepare group accounts;
• the
eligibility to apply the Financial Reporting Standard for Small Entities
(FRSSE);
• the
eligibility to file abbreviated accounts;
• additional
exemptions for dormant companies; and
• exemption
from audit.
• cost
of forming a company in the UK is only £14 which is nearly about 1400 INR
• All
the filings only after 18 months
Proposals
for reform
Even though our Company law is amended recently, the
amendment couldn’t serve any beneficial purpose for the new businesses and
entrepreneurs, apart from the new concept of One Person Company. The basic
reform to be brought about is that the existing companies act may be
progressively amended to streamline following the registration formalities and
relax the minimum registered capital requirements when setting up a company in
India.
(i) Minimum
24 month’s may be granted as a settling period for new companies as free from
all the filings costs except formation cost
(ii) No
audit requirements for companies with turnover up to 10 lacs.
(iii) In
turn provide opportunities to the new companies to utilize the settling period
to find more market, sales and business opportunities
(iv) Facilitate
an alternative to the new born companies to dissolve within the initial
settling period itself in case if unsuccessful
(v) Unlike
the other developed countries as most of the government policies are not
properly communicated in our country, it is high time that an Automatic Digital
Reminder is needed as part of the Digital India Program to inform the
entrepreneurs of the plain law and procedures to be followed with respect to
formation so that there can be no confusion or bureaucratic delay which will
ultimately help the entrepreneurs to know in advance what to do.
These reforms if brought about properly, could save many a businesses in India, a
considerably good amount of money, a year, in accountancy and administration
costs by relaxing the requirement to conduct a financial audit whereby it would
be seen as a big advantage of being a small company. This would serve to foster
and encourage the entrepreneurship spirit of the youth of the state whereby
ultimately resulting in more employment creation rather than formalities
creation.
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