Why India has become a hotspot for foreign investments?
Foreign direct investment (FDI) is an important source of non-debt finance and hence a factor in the economic development of a country. Apart from supplementing domestic investment, it brings with it internationally available technologies, managerial skills and practices, and new employment opportunities. Although India has been a preferred destination for foreign investors for long, the recent upsurge in flow of funds into the country is quite remarkable and encouraging. According to the World Investment Report, 2020 of the United Nations Conference on Trade and Development (UNCTAD), India jumped from 12th spot in 2018 to 9th spot in 2019 on the list of global top 20 recipients of FDI. In other words, India was among the top 10 recipients of FDI. FDI inflows into India increased from US$ 44 billion in 2018 to US$ 51 billion in 2019. Similarly, as per the quarterly Fact Sheet on FDI released on November 27, 2020 by the Department for Promotion of Industry and Internal Trade (DPIIT), Government of India, FDI into India totaled US$ 30 billion during the first half (April to September) of the current fiscal year (2020-21) as compared to US$ 26 billion for the same period last year (2019-20), recording an increase of 15 percent. Why India has become a hotspot for foreign investments? There are several good reasons for investing in India. Let’s see them:- Large and Expanding Size of the Market India as an Alternative to China Ease of Doing Business Digital Revolution Well-managed Public Finances Robust and Resilient Financial System Strong and Diversified Industrial, Infrastructural and Logistics Base Innovations and Startup Hub Exchange Rate Policy and Foreign Exchange Reserves Political Stability and Cordial International Relations Similarly starting a company in India for the foreign investors is not a huge hindrance. Minimum 2 directors and shareholders are required out of them one must be resident in India. But the incorporated companies as well as the investors have to ensure that they have complied with all the laws and regulations which are applicable to them. Now let’s see what the newly incorporated company and the foreign investors have to comply with. Compliance for the Newly Incorporated Companies under the Companies Act 2013 First meeting:As per Section 173(1), of The Companies Act 2013, the company shall hold a meeting of the Board of Directors in less than 30 days from the date of its incorporation. Directors are permitted to attend the meeting either in person or through video conferencing. Bank account: Companies need to have a bank account even before approaching the authorities for company incorporation. Since the company is an artificial entity, the transactions cannot be done in the name of any natural person. Official address: As per Section 12(1), a company shall have a registered office within 15 days from the date of incorporation. This address shall be used to receive all official communication from the various authorities. The company shall inform the same to the registrar within 30 days from the date of incorporation. It’s all in the name: Every company shall be required to affix its name at all places from where it carries on its business operations. It shall be displayed in the language which is generally used in the locality. Additionally, the company has to get a seal with its name engraved on it, letterheads with appropriate information and printed negotiable instruments. Auditor: According to Section 139(1), the first auditor shall be appointed by the Board of Directors (BOD), except for a government company, within 30 days from the time the company is registered. Failing which, the members shall appoint the auditor within 90 days at an extraordinary general meeting. The term of the first auditor shall be until the conclusion of the first annual general meeting. Interest disclosure:At the first board meeting, every director shall disclose his interest in any company/firm/body corporate/association of individuals as outlined in section 184(1) of the Companies Act 2013. Any changes in the disclosures shall be intimated to the board in its first meeting held during each financial year. An independent director, if any, must give a declaration that he meets the criteria of independence during the first board meeting as a director. Statutory registers: The Company shall be required to maintain statutory registers at the registered office of the company. The same shall be maintained in the prescribed form failing, which the company will be subject to penalties. Infusion of initial capital by subscribers to memorandum :The subscribers to the Memorandum of Company has to bring the amount of subscribed capital as stated in the Memorandum of Association at the time of company registration within 60 days of incorporation. There is no explicit conditions in Companies Act as to this time limit 60 days for bringing the capital. However, the company is required to issue share certificate to the shareholders within 60 days of incorporation. In order to comply requirements of issue of share certificates in time, it is advisable to bring the subscribed capital with 60 days of incorporation. Infusion of capital to the Company bank account should happen preferably from the respective shareholder’s account. Also, the shareholder has to bring the entire amount of subscribed capital as stated in the Memorandum of Association. Share certificate: The share certificate shall be issued to a shareholder within 60 days from the date of incorporation. In case of additional shares being allotted, the time period is taken as 60 days from the date of allotment. Within 30 days from the date of allotment of share, Return of Private Placement is required to be filed with ROC in Form PAS-3. If shares are not issued within 60 days, then the money is required to be refunded within 15 days otherwise 12% p.a. Interest is payable from the 61st day of allotment. Books of Accounts: As per section 128, every company shall maintain proper books of accounts which shall represent an accurate and fair view of
Relief for statutory compliances under GST, Income Tax and others
Highlights of FM Press Meet dated 24th March 2020 GST Due date extensions – The due dates for GSTR-3B for March 2020, April 2020 and May 2020 is extended up to 30th June 2020 for those with an annual aggregate turnover of up to Rs 5 crore. The due date for filing annual returns are extended to the last week of June 2020 from 31st March 2020. Late fee and Interest Exemptions: ○ Companies with an annual turnover up to Rs 5 crores will be exempted from interest, late fees, and penalty. ○ Companies with an annual turnover of more than Rs 5 crores are exempted from late fees and penalty if any. However, the interest will be levied at a reduced rate of 9% if paid between 20th March to 30th June 2020. The filing date of CMP-02 extended: The date for opting composition scheme for the FY 2020-21 has been extended to 30th June 2020. The time limit for any compliance under the GST laws has been extended to 30th June 2020 where the time limit is expiring between 20th March 2020 to 29th June 2020. Sabka Vishwas Scheme gets extension: The legacy Sabka Vishwas scheme is now extended to 30th June 2020 from 31st March 2020. No interest will be levied if you pay dues by the 30th of June 2020. Relief for a smooth EXIM trade: Customs clearance will operate 24×7 up to 30th June 2020. Income Tax Due date extension: The last date for ITRs for FY 18-19, extended to 30th June 2020 instead of 31st March 2020. For delayed payments of tax made till 30th June 2020, penal interest reduced from 12% to 9%. TDS Compliance: TDS will have to be complied with, with no deadline extension. The interest rate on delayed TDS deposit reduced to 9% instead of the earlier 18%. Reduced rate allowed till 30th June 2020. Aadhaar-PAN linking due date extended to the 30th June 2020. Vivad-se-vishwas scheme has also been extended to 30th June 2020. No 10% additional charge from now till 30th June 2020. Earlier there was no additional charge till 31st March 2020. Due dates for issue of notice intimation/notification/approval order/sanction order/filing of appeal/applications/reports any other documents, extended to 30th June 2020. Any compliance by the taxpayers, including investment in tax-savings instruments, capital gains for investment to claim capital gains exemption, compliance with STT law, equalization levy law compliances, all extended to 30th June 2020. Awaiting press releases and relevant notifications. MCA MCA 21 registry, the moratorium being issued from 01 April 2020 till 30th September 2020. There will be no late fee for the late filing during this period. Relaxation of board meetings for the 60 days and this relaxation is for the next 2 quarters. CARO 2020 will be applicable from FY 2020-21 instead of FY 2019-20. Even if the independent director has not attended a single meeting in FY 2019-20, it will not be considered a violation. The newly incorporated companies will get additional time of 6 months for filing the forms related to the commencement of business. Directors who have not stayed in India for more than 182 days will not be considered as a violation. Banks No charges if minimum balance requirement is not met in bank accounts, relief for the next 3 months No debit card charges for ATM transactions
What is CFO Service? How to know if you need one?
Customers and money are two things that fuel every business. But, having money alone doesn’t suffice. There are several factors and risks that revolve around money. So, you need someone who can manage your finances at the enterprise level, and maintain the financial health of your organization. No, we aren’t referring to hiring an accounts manager. You need someone more visionary and experienced here. You need a Chief Financial Officer (CFO)! Of course, hiring CFO, especially with the salaries they demand, may not be as feasible. But, you can opt for a CFO Service. So, if you’ve been searching for a CFO Services in India , you’ve come to the right place. This blog walks you through the concept of CFO Service and also helps you understand how to know if you need one. What is CFO Service? Hiring a CFO Service helps you leverage the benefits of hiring a full-time CFO for your company. Outsourcing CFO operations to an external agency covers the following services. Preparing budgets Devising cost control strategies Improving internal financial processes Taking part in management decisions. Structure deals appropriately. Comprehensive fund management Financial planning Investment consulting Ensuring statutory and tax compliance Assist the organization in private equity, debt, IPOs, Joint Ventures, etc. How to know if you need a CFO Service? Your business indicates the need for a CFO through various situations. So, it is all about identifying those indications to keep your business financially healthy. Your Financial Health is Deteriorating If you are not from a financial background, you may not have the time and technical expertise to understand various aspects such as cash flows, budgets, payroll, balance sheets, etc. So, you may not get the time to access and assess your organization’s financial performance. As a result, your finances may start to suffer. And, if it does, it is time to hire a CFO Service. Your business isn’t Growing as Expected Sometimes, everything is right. Your strategies, plans, business forecasts, and the market situation are all promising. But still, your business doesn’t grow as expected. In such a case, it is possible that your business is bleeding on the financial front. Here, you need a CFO to heal the monetary wounds. Your Business is Growing Too Quickly It is good to grow. But, uncontrolled business growth is like an uncontrolled vehicle. It may crash at any point in time. So, if you feel your business is growing quickly, but in an unplanned manner. You need a CFO to manage the cash flow, budgets, and other financial documents to strike the growth balance. When you are about to exit the business Exiting a business requires complying with a lot of government laws, regulations, and completing various financial and administrative formalities. Hiring an external CFO helps you comply with all the necessary formalities in the most appropriate manner. The CFO takes you through all the processes, right from assessing the financial position of the company, negotiating with the buyers, and closing the books. Conclusion CFOs are critical to the business from the viewpoint of managing finances, devising financial strategies, and securing the company’s financial position. Staying mindful of all of the above indicators will help you hire CFO services for your company in time. Connect with us for CFO services for your company.
How to deal with a Fraud Suspect in your Company?
It’s shocking to discover a fraud suspect in your company. But, you should know what to do after suspecting it. It will help you minimize damage, and prepare you for its effects on 0your business. So, here are the 5 steps you must take after suspecting a fraud. Step-by-Step Guide to deal with a Fraud Suspect Secure Potential Proof At the outset, you must secure evidence in every possible way. It is relatively easy to manipulate electronic proof. Hence, you must secure computers, mobile phones, CCTV camera footages, biometric devices, etc. to ensure no one alters, modifies, or manipulates the existing data. You get everything in its original form. Besides, it simplifies investigation for the forensic accounting team. Hire an External Financial Investigator Next, you must mobilize a team to conduct various investigative tasks for you. You’ll require a forensic accountant, and computer forensic expert to gather, analyze, and preserve the data. Hiring an external, experienced financial investigator will help you dig into the fraud. Avoid including an in-house resource in the investigation team, as he or she may have some connection with the fraud. Also, hire a legal expert to explore the legal angle and safeguard it. Take the Appropriate Action on the Employee Involved Anger and disappointment may compel you to fire the employee involved in the fraud. But don’t do so. Firing the employee may complicate the investigation. Limit the employee’s access to company data, monitor movements. Don’t let him or her handle critical customer documents, data, and reports. Inform Your Insurance Provider Inform your insurance provider about the fraud within 30 to 60 days to avoid loss of coverage. Document the Proof of Loss You must document any damage with your insurance provider within the stipulated time frame. It takes time to document and record the claim. You may file an extension based on the situation. However, in every case, ensure you don’t lose any coverage. You may be unable to prevent fraud completely. However, you can minimize them and monitor every employee’s action through the application of technology and fool-proofing every business process. Taking the right steps when you suspect it will help you keep away from any further damage to your business and reputation.
Valuation of ESOPs and Accounting of ESOPs
Important Definitions: Employee Stock Option is a contract that gives the employees of the enterprise the right, but not the obligation, for a specified period of time to purchase or subscribe to the shares of the enterprise at a fixed or determinable price. Exercise means making an application by the employee to the enterprise for the issue of shares against the option vested in him in pursuance of the Employee Stock Option Plan. Exercise Period is the time period after vesting within which the employee should exercise his right to apply for shares against the option vested in him in pursuance of the Employee Stock Option Plan. Expected Life of an Option is the period of time from the grant date to the date on which an option is expected to be exercised. Exercise Price is the price payable by the employee for exercising the option granted to him in pursuance of the Employee Stock Option Plan. Fair Value is the amount for which stock option granted or a share offered for purchase could be exchanged between knowledgeable, willing parties in an arm’s length transaction. Grant Date is the date at which the enterprise and its employees agree to the terms of an employee share-based payment plan. At the grant date, the enterprise confers on the employees the right to cash or shares of the enterprise, provided the specified vesting conditions, if any, are met. If that agreement is subject to an approval process, (for example, by shareholders), the grant date is the date when that approval is obtained. Intrinsic Value is the amount by which the quoted market price of the underlying share in case of a listed enterprise or the value of the underlying share determined by an independent valuer in case of an unlisted enterprise, exceeds the exercise price of an option. The vest is to become entitled to receive cash or shares on the satisfaction of any specified vesting conditions under an employee share-based payment plan. Vesting Period is the period between the grant date and the date on which all the specified vesting conditions of an employee share-based payment plan are to be satisfied. Volatility is a measure of the amount by which a price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The volatility of a share price is the standard deviation of the continuously compounded rates of return on the share over a specified period. For accounting purposes, employee share-based payment plans are classified into the following categories: (a) Equity-settled: Under these plans, the employees receive shares. (b) Cash-settled: Under these plans, the employees receive cash based on the price (or value) of the enterprise’s shares. (c) Employee share-based payment plans with cash alternatives: Under these plans, either the enterprise or the employee has a choice of whether the enterprise settles the payment in cash or by the issue of shares. ESOP Cycle – Grant Vest Exercise Issue/Settlement Equity-settled Employee Share-based Payment Plans Determination of vesting period: Valuation: Fair Value of Options: Accounting of Options: No of Employees 50 No of Grants to Each Employee 500 Contractual Life of Options 5 Vesting Period: 3 Years Exercise Period: 3 Years Expected Life: 5 Years Exercise Price: 50 Market Price: 100 Expected forfeitures per year % 3% FV as per Option Pricing Model 25 At the grant date, the enterprise estimates the fair value of the options expected to vest at the end of the vesting period as below: No. of options expected to vest = 500 x50 x 0.97 x 0.97 x 0.97 = 22817 Fair value of options expected to vest = 22817 options x 25 = 342252 Per Year Cost allocation (for three Years) Employee compensation expense A/c Dr. 1,90,140 To Stock Options Outstanding A/c 1,90,140 Read more here about our valuation services
Practical issues in Share Valuations for Companies under Companies Act and Income Tax
With effect from 1st February 2019, Companies Act, 2013 has brought in effect Valuations from Registered Valuers duly registered with Insolvency and Bankruptcy Board of India (IBBI). There are three categories of Valuers and an approximate number of valuers registered with IBBI as on 22nd Feb 2019 are as under: Plant & Machinery – 90 Land & Building – 599 Securities or Financial Assets – 19 Total – 786 It is seen that there is an acute shortage of Registered Valuers though the number is gradually increasing. About IBBI Registered Valuers u/s 247 of the Companies Act, 2013 It is prevalent for many years, especially post liberalization of the economy in 1992. However, valuation as a profession was neither under the purview of any authority nor any specific guidelines or standards were issued for the same. For the first time, Companies Act, 2013 incorporated provisions of Registered Valuers and made mandatory to obtain reports from Registered Valuers w.e.f. 1st February 2019. In this regards, Ministry of Corporate Affairs (MCA) has issued notification dated 18/Oct/2017 to notify section 247 of the Companies Act, 2013. Section 247 is governing section for Registered Valuers. MCA has issued The Companies (Registered Valuers and Valuation) Rules, 2017 for procedural matters. Accordingly, IBBI is appointed as Authority to overall supervision, management and registration of Valuers under the Act. Provisions under Income Tax: Under Income Tax, three persons can get affected under various provisions of the Income Tax, if Shares are issued or transferred at a consideration less than Fair Market Value (FMV) i.e. Buyer, Seller or Company itself. Examples are given below. FMV can be calculated under the DCF Method certified by a Merchant Banker or under NAV method with certain adjustments u/r 11UA. Therefore, for every fresh allotment or wherever there is a need to arrive FMV, valuation from Merchant Banker under DCF method shall be required if the party opt the option. As such there shall be 2 separate valuators for the same purpose i.e. Registered Valuer as well as Merchant Banker. There is thin possibility that both valuations shall be same. Registered Valuer shall arrive the valuation as per Valuation Standards and Methodologies, whereas Merchant Banker shall arrive only under DCF Method. So Companies shall bear unnecessary costs for two valuations for a single transaction. Scenario Transaction Effect for Company Effect for Buyer Effect for Seller 1 Issue of Additional Shares:Valuation from Registered Valuer – Rs. 10 Lakhs i.e. Actual Transaction Value Valuation under Income Tax Rs. 8 Lakhs Company shall pay tax on Rs. 2 Lakhsas Other Income u/s 56. No Effect NA 2 Issue of Additional SharesValuation from Registered Valuer – Rs. 8 Lakhs i.e. Actual Transaction Value Valuation under Income Tax Rs. 10 Lakhs No Issue Will pay on Rs. 2 Lakhs as additional Income u/s 56. NA 3 Transfer of SharesRs. 10 Lakhs i.e. Actual Transaction Value Valuation under Income Tax Rs. 8 Lakhs No Effect No Effect Seller shall pay tax on Rs. 10 Lakhs 4 Transfer of SharesRs. 8 Lakhs i.e. Actual Transaction Value Valuation under Income Tax Rs. 10 Lakhs No Effect Will pay Tax on Rs. 2 Lakhs as in Other Income u/s 56 Will pay Capital Gains Tax on a deemed Sales price of Rs.10 Lakhs Conflict: There is a need to align provisions of laws i.e. Companies Act as well as Income Tax so that there is uniformity in the valuation process and Companies do suffer from the extra cost or tax demands. Registered Valuers are supposed to carry out valuation as per International Valuation Standards and Methodologies including DCF Method. Whereas, under Income Tax, FMV shall be calculated under the DCF method certified by Merchant Banker.
Registered Valuers u/s 247 of Companies Act, 2013 – Securities Or Financial Assets
What is Registered Valuer ? Section 247 of the Companies Act, 2013 mandates that all valuations required under Act shall be carried out by Registered Valuers only. Similarly, as per Insolvency and Bankrupcy Code, only Registered Valuers shall be eligible to carry out the valuations. Insolvency & Bankrupcy Board of India (IBBI) shall be the Authority to grant licenses to act as Registered Valuers. CA Anandkumar Gawade, Managing Partner of the Firm is IBBI Registered Valuer for Securities or Financial Assets Class. His Registration Number is IBBI/RV/05/2019/10746. I also would like to bring to your notice circular of IBBI dated 17th October 2018 which mandates as under : “In view of the above, every valuation required under the Code or any of the regulations made there under is required to be conducted by a ‘registered valuer’, that is, a valuer registered with the IBBI under the Companies (Registered Valuers and Valuation) Rules, 2017. It is hereby directed that with effect from 1st February, 2019, no insolvency professional shall appoint a person other than a registered valuer to conduct any valuation under the Code or any of the regulations made there under.” Hence the Valuation Reports under Companies Act, 2013 after 1st Feb 2019 has to be obtained from Registered Valuers registered with IBBI only. Usually Valuations reports are required for following: a. Issue of Shares & Securitiesb. Fair Value Determination as per IND-AS / IFRSc. Valuation of Intangiblesd. Related Party Transactionse. Issue of Shares for Non-cash considerationf. Valuation of Goodwill and Intangibles.g. Fairness opinion for Scheme of Amalgmation & Arrangementh. ESOP Valuationi. Valuations for special purposes such as disputes, exits, etc. As per Companies Act 2013, following sections requires valuation from Registered Valuers in following areas: Sl. no. Section Particulars Details 1 62(1)C Valuation report for Further Issue of Shares If any company proposes to issue new shares (except a rights issue to existing shareholders or to employees under employees stock options), the price of such shares should be determined by the valuation report of a Registered Valuer. 2 192(2) Valuation of Assets Involved in Arrangement of Non cash transactions involving Directors In case of sale or purchase of any asset involving a company and the directors of the company (or its holding, subsidiary or associate company) or a person connected with the Director for consideration other than cash, the value of the assets has to be calculated by a Registered Valuer. 3 230(2)(c)(v Valuation of shares, property and assets of the Company under a scheme of Corporate Debt Restructuring In case of a compromise or arrangement between members (such as in mergers or amalgamations) or with creditors (such as in corporate debt restructuring), a valuation report in respect of shares, property or assets, tangible and intangible, movable and immovable of the company, or a swap ratio report by a Registered Valuer is required.In case of mergers, the directors are also required to circulate a report to members specifying, inter alia, any 4 230(3) Valuation report along with Notice of creditors/shareholders meeting –Under scheme of compromise/Arrangement In case of a compromise or arrangement between members (such as in mergers or amalgamations) or with creditors, a valuation report in respect of shares, property or assets, tangible and intangible, movable and immovable of the company, or a swap ratio report by a Registered Valuer is required. 5 232(2(d) The report of the expert with regard to valuation, if any, would be circulated for meeting of creditors/Members Same as above 6 232(3)(h) The Valuation report to be made by the tribunal for exit opportunity to the shareholders of transferor Company –Under the scheme of Compromise/Arrangement in case the Transferor company is Listed Company and the Transferee-company is an unlisted Company Same as above 7 236(2) Valuation of equity shares held by the Minority Share Holders In case an acquirer or person acting in concert with the acquirer acquire 90% or more of the equity capital in a company, they can offer to the minority shareholder (or the minority shareholder can offer to the acquirer) to acquire the minority shareholding at a valuation determined by the Registered Valuer. 8 281(1) Valuing assets for submission of report by liquidator A valuation of assets of the company prepared by the Registered Valuer is required in case of winding up, voluntarily or otherwise.