Business Form(ation) .

1. Business Form(ation). Forms of Business Organisation March 2007 Strictly Private and Confidential

2. This document is the property of Deloitte Touche Tohmatsu India Private Limited and contains confidential information that has been provided at your request. This information should not be disclosed in whole or in part without our express written consent.

3. Agenda Need for Business? Business Strategy Types of Organisation Legal Basics

4. Need for Business?

5. Entrepreneurial urge will to do and achieve Professional acumen a blend of qualification and experience Motive profit and/or social motive No boundaries, no limits make your own rules and policies Need for Business?

6. Business Strategy

7. Ownership & control absolute or diluted control Nature of business profession/business, industry type Taxation issues rate of tax, exemptions, deductions Level of business turnover, staff, geographical coverage Regulatory requirements Securities Exchange Board of India (SEBI), Reserve Bank of India (RBI), Ministry of Company Affairs (MCA) Business Strategy

8. Types of Organisation

9. Sole Proprietorship Partnership Firm Private Limited Company Public Limited Company Limited Liability Partnership Types of organisation

10. Oldest and common form of business Accounts for largest number of business concern in India Individual driven Owns, Manages & Controls No separate legal existence Suitable for businesses which involves Moderate risk Small capital requirements Income taxed at individual level Types of OrganisationSole Proprietorship

11. Types of OrganisationPartnership Firm • A relation between two or more persons who have agreed to share profits of business • Non-registration deprives of certain legal benefits • Appropriate for medium sized business • Ceiling on number of partners • Banking business: 10 • Others: 20 • Partners are jointly and severally liable • Independent legal existence • Income taxed at firm level

12. Types of OrganisationPrivate Limited Company • Incorporated under Companies Act, 1956 • Legal formalities for setting up (Registrar of Companies) • Number of members • Minimum: 2 • Maximum: 50 • Separate legal identity • Enjoys certain privileges • No need to obtain certificate of Commencement of Business • No need to file prospectus • Income taxed at higher rates • Dividend distribution tax

13. Types of OrganisationPublic Limited Company • Incorporated under Companies Act, 1956 • Working strictly governed by laws, rules and regulations • Number of members • Minimum: 7 • Maximum: No limit defined • Separate legal identity • Income taxed at higher rates • Dividend distribution tax • Listing benefits

14. Types of OrganisationLimited Liability Partnership* • Registered with Registrar of State (as prescribed) • Provisions of Indian Partnership Act, 1932 – not applicable • Number of partners • Minimum: 2 • Separate legal identity • Effect of registration • Sue and can be sued • Acquire, own and hold assets • Common seal • Prepare and file the Statement of Account and Solvency with Registrar • Options to convert in to Limited Liability Partnership • From firm • From Private Limited Company • Unlisted Public Limited Company *Relevant text is presented here on the basis of Bill No. CXI of 2006 as introduced in Rajya Sabha

15. Types of OrganisationAdvantage Sole Proprietorship • Ease of formation • Maximum incentive for work • Secrecy of business • Quick decisions • Flexibility of operations Public Limited Company • Continuity of existence • Larger amount of capital • Unity of direction • Efficient management • Limited liability Partnership • Ease of formation • Greater capital and credit resources • Better judgement and more managerial abilities Private Limited Company • Continuity of existence • Limited liability • Less legal restrictions

16. Types of OrganisationDisadvantage Sole Proprietorship • Unlimited liability • Limited capital • Limited managerial ability • Limited life Public Limited Company • Subject to strict regulations • Scope for directors for personal profit • Undemocratic Control • Scope for frauds Partnership • Absence of ultimate authority • Liability for actions of other partners • Unlimited liability • Limited life Private Limited Company • Restriction of transferability of shares • Prohibition on invitation to public • Undemocratic Control • Scope for frauds

17. Legal Basics

18. Legal BasicsProcedure Sole Proprietorship • No agreement is required • Registration not compulsory • Business specific license to be obtained • Total estimated procedural time: immediate Private Limited Company • Select a name and apply to Registrar of Companies • Post name approval, apply for registration of new company • Submit Memorandum of Association and Article of Association along with other documents • Pay prescribed registration and filing fees • Obtain incorporation certificate • Total estimated procedural time: 6-7 weeks Partnership • Application of section 58 of Indian Partnership Act • File an application with Registrar of Firms • Registration is optional • Total estimated procedural time: 2-3 weeks Public Limited Company (in addition to Private Limited Company points) • Obtain certificate of commencement of business • Total estimated procedural time: 6-8 weeks

19. Legal BasicsIncome Tax

20. Legal BasicsIncome Tax (…contd)

21. Legal BasicsApplicability of Other Laws • The Payment of Wages Act, 1936 • The Minimum Wages Act, 1948 • The Payment of Bonus Act, 1965 • The Employees’ State Insurance Act, 1948 • The Employees’ Provident Fund & Miscellaneous Provisions Act, 1952 • The Payment of Gratuity Act, 1972 • Law/act(s) specific to the line of business

22. Our Contact

23. Our Contact Kalpana Jain Senior Director Deloitte Touche Tohmatsu India Private Limited New Delhi 110016 Email: kajain@deloitte.com phone: + 91 11 46021403

24. Member of Deloitte Touche Tohmatsu