India 'one-person company' proposal

Business Standard reports that the draft Companies Bill 2007 has proposed a new entity called one-person company (OPC) that will be a private limited type of entity for an individual promoter. Currently, many individuals conduct business through proprietorship or partnership entities - both these forms have simpler compliance requirements but pose unlimited liabilities on the promoter(s). The OPC is expected to provide individual entrepreneurs the flexibility and low cost of proprietorship/partnership concerns while restricting their personal liabilities similar to a private limited company.

This bill is being studied by various departments of the government and if approved would go to the Parliament for legislative approval at some point in the near top medium term future.

This is a positive move for business people and will boost entrepreneurship in India.

Infosys: the startup business that made India proud

NR Narayana Murty has acquired legendary status not only for spearheading a group that turned a startup business into a $4 billion colossus in 25 years, but also for the ethics that he and Infosys stand for.

He will receive the ET Lifetime Achievement Award for corporate excellence in a couple of day’s time. In an interview to the paper he talks about his unique recipe for success (see excerpt below).

But a lot of people are interested in knowing how you made Infosys such a success?

In 1981, when I sat down with my six colleagues, I said three things to them. One, this company would make profits from day one, because we will spend less than we earn. Two, we will declare dividends from year one and three we will pay taxes from that dividend and put that back as equity. We were starting with an equity of only Rs 10,000 and we wanted to go public in 10 years. So we had to grow the equity from Rs 10,000 to Rs 2-3 crore. I am so happy and so grateful that everybody agreed.

Each year we would declare dividend and immediately put that back in the company after paying taxes. It was sometimes very painful. These people didn’t have cars and telephones and when the moment of taking that cheque from them came, I used to feel bad about what I was doing to them.

But I did not see a trace of disappointment in any one of them. They took such low compensation when they went to the US because I had the stupid rule that we had to make profits from day one.

Naming your new business in India

Choosing the right name for your business is both important and tricky. A name must be such that it prompts recall of your business; it must also be “right” from the legal point of view to avoid trademark skirmishes.

If you are starting a new business by setting up a company in India, the registration procedure with the Registrar of Companies (ROC) will begin with a name search. You will have to propose a set of names in order of preference, and the ROC will approve the one deemed appropriate.

Obviously, this process ensures that you are not violating some other company’s intellectual property by using a name identical or similar to theirs, whether on purpose or by accident. Bear in mind too that the ROC asks that the company name be sufficiently descriptive of the nature of the business. Also, names that contain “India/Indian/Hindustan” are usually reserved for public sector corporations.

Even if your startup is a sole proprietorship or partnership, it is very important to choose an appropriate business name. Your business’ name must fulfill at least some of the following objectives:

Reflect business activity or company values. In this context, it is worth mentioning that a number of new Indian businesses wear their “Indian-ness” on their sleeves and adopt ethnic or Sanskrit names. While this may well set them apart, the significance of an esoteric name usually escapes most people, and if the business is looking overseas, it may create needless complications.

Appeal to the customer. If your business caters directly to end users, and your company name is the same as the brand, consider the specifics of your client base (for example, sophisticated versus youthful).

Have no negative connotations. History is rife with examples of name-disasters, especially when the company ventured into another culture or country. Also steer clear of any names that could be perceived as being controversial or offensive.

Be easy to remember. The name is a huge part of your business’ identity, so ensure it is easy to recall. Short, simple, universal generally works.

If a website is central to your new business, the same logic applies when it comes to choosing a name. In addition, use a “.in” extension to improve the search engine rankings when someone is searching for your type of business in India.

Basics of starting a company in India

Since starting a business in India involves a number of formalities, it is best to be aware of the nature of requirements at the outset.

In an earlier post, we discussed the simple sole proprietorship, which can work under certain, limited circumstances. Most of you will want to set up a company.

Broadly, you need to the tick off the following big items on your list:

Apply for registration (with the Registrar of Companies in the location of the business) along with the important documents namely Memorandum and Articles of Association, particulars of directors etc., along with the registration fee.

A name search will be conducted on the company name options that you submit. People have experienced some difficulty in this area, with the ROC coming back with the objection that names are not sufficiently descriptive of the intended business activity. Also remember that names starting with “India/ India/ Hindustan” are the preserve of the public sector.

Remember that you need a minimum capital of a lakh of rupees.

You can expect the registration procedure to take 3 to 4 weeks.

A Permanent Account Number (PAN, from the Income Tax Department) and a Tax Account Number (TAN) will be needed.

Depending on the location, you may need registrations for Profession Tax.

Likewise, you will need a VAT or service tax registration depending on the nature of business activity. Different services are classified differently, so make sure you’ve got all of them covered, and have a registration for each of the locations where the service is being rendered/ invoiced.

Also check whether any license is required for your specific business.

In case you have more than 20 employees, you will need to register with the Employee Provident Fund office as well.

Given the number of agencies and procedures involved, you will do well to sign up an experienced chartered accounting firm.