Convertible Note – Cheat Sheet !

Planning for fundraising and considering a Convertible Note? Here is a cheat sheet for you:

  1. Check if Convertible Note is the right instrument for you. Click Here to do a quick check!
  2. Well, if you are convinced that Convertible Note is the right instrument for fundraising for your startup, continue reading:
  3. Register with Startup India from DPIT.  Read more here
  4. Draft a Convertible Note Agreement. Purchase LexStart’s Convertible Note Primer to get a template. Purchase Now
  5. Draft a Convertible Note certificate.
  6. If the Articles of Association do not allow the Board to borrow money, amend the Articles of Association to give the Board the power to borrow by passing board and shareholders resolution.
  7. Draft a board resolution for approving Convertible Note.
  8. Draft a shareholders’ resolution for approving Convertible Note.
  9. Convene a Board Meeting for approving issuance of Convertible Note.
  10. Convene a Shareholders’ Meeting for approving issuance of Convertible Note.
  11. Stamp the Convertible Note Agreement.
  12. Procure signature of all Parties concerned on the Convertible Note Agreement.
  13. Upon receipt of investment amount, issue Convertible Note Certificate, duly stamped and executed.
  14. File Form MGT-14 within 30 days of Shareholders’ Meeting.
  15. File Form DPT-3 by 30th June of every year.

Mandatory Compliance for Private Limited Companies

Every company should hold its meeting of board of directors for the fourth quarter on or before March 31, 2019 if the meeting is not conducted yet, please ensure the same is convened before the March 31, 2019.
Penalty for non-compliance: The Company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees, and where the contravention is continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.

Requirements For GST Registration

GST registration is the most fundamental requirement for identification of tax payers, ensuring tax compliance in the economy. GST Registration came into effect from July 01, 2017 under the Act.  GST registration of any business entity under the GST law implies obtaining a unique number from the concerned tax authorities for the purpose of collecting tax on behalf of the government and to avail Input Tax Credit for the taxes on his inward supplies. Without GST registration, a person can neither collect tax from his customers nor claim any input Tax Credit of tax paid by him.

 

Documents Required for GST Registration:-

 

  1. PAN card of all the promoters/directors (Passport in case of foreign individual);
  2. PAN Number of the company;
  3. Aadhaar card of all the promoters/directors;
  4. Proof of business registration or Incorporation certificate;
  5. Identity and Address proof (i.e. PAN card and Aadhaar Card) of Promoters/Director with Photographs;
  6. Address proof of the place of business: (not older than two months)
  7. Own office – Copy of electricity bill/municipal khata copy/property tax receipt/ownership document;
  8. Rented office – Copy of electricity bill/municipal khata copy/property tax receipt/rent agreement/ownership document or No objection certificate (NOC) from the owner. (In case the owner is Body Corporate then a board resolution authorising use of such property by the applicant company is also required);
  9. Letter of Authorization/Board Resolution for Authorized Signatory for GST Application;
  10. Digital Signature (DSC) of any one authorised signatory; and
  11. Main objects with respect to business activities of the company.

 

Persons liable for registration:

 

  1. Every person shall be liable to be registered under GST Law if the total aggregate turnover (including exempt supplies*) crosses 20 Lakhs in a FY (40 Lakhs w.e.f. April 01, 2019). **

However, for Special Category States (i.e. Assam, Arunachal Pradesh, Himachal Pradesh, Uttarakhand, Manipur, Mizoram, Sikkim, Meghalaya, Nagaland and Tripura), the turnover limit is Rs. 10 Lakhs;

  1. Registered person under the Pre-GST law (i.e., Excise, VAT, Service Tax etc.) is required to get registered under GST;
  2. In case of transfer of business by registered person, transferee to get new registration;
  3. Transferee of business to get fresh registration in case of amalgamation or demerger;
  4. Casual taxable person / Non-Resident taxable person;
  5. Agents of a supplier and Input service distributor;
  6. Those paying tax under the reverse charge mechanism;
  7. Person who supplies via e-commerce aggregator;
  8. Every e-commerce aggregator; and
  9. Person supplying online information and database access or retrieval services from a place outside India to a person in India, other than a registered taxable person.

 

*Exempt supplies: Any Goods or Services or both which attract Nil rate of Tax or which may be wholly exempt from Tax.

 

**CBIC has notified the increase in threshold turnover from Rs 20 lakhs to Rs 40 lakhs. The notification will come into effect from 1st April 2019.

Multiple GST registration required in following matter:

 If a business operates from more than one state, then a separate GST registration is required for each state. Further a business with multiple business verticals in a state have to obtain a separate GST registration for each business vertical.

Time frame for GST application:

Every person who is liable to be registered under GST law shall apply for GST registration in every such State or Union territory in which he is so liable within thirty days from the date on which he becomes liable to register.

However, a casual taxable person or a non-resident taxable person shall apply for GST registration at least five days prior to the commencement of business.

Time frame for GST registration process:

 Once the GST registration process starts a TRN is generated and remains valid for 15 days within which the process needs to be completed.

GST registration usually takes between 2-6 working days.

A person, though not liable to be registered under GST law may get himself registered voluntarily, and all provisions of this Act, as are applicable to a registered person, shall apply to such person.

 

 

 

Update On Company Incorporation

*Companies (Incorporation) Second Amendment Rules, 2019*

1) Shifting of Registered Office: (a) advertise in the Form No.INC.26 in the vernacular newspaper in the principal vernacular language in the district and in English language in an English newspaper with the ~widest circulation~ *With wide Circulation* in the State in which the registered office of the company is situated.

2) Incorporation of a Company: There will not be any ROC fees payable on eForm INC 32 (SPICE Form) for Incorporation of a Company with Authorised capital of less than or equal to rupees ~ten lakhs~ *Fifteen Lakhs* w.e.f. March 18, 2019.

Disclosure of Significant Beneficial Ownership

The Ministry of Corporate Affairs (MCA) on February 8, 2019 has notified amended Companies (Significant Beneficial Owners) Rules 2018. This rule came into effect on February 08, 2019. These provisions require certain compliances to be followed by the Significant Beneficial Owner and the reporting company.

 

Who is a ‘Significant Beneficial Owner’?

 

First Condition:

 

“Significant Beneficial Owner” means an individual who acting alone or together, or through one or more persons including a trust and persons resident outside India, holds indirectly or together with any direct holdings have beneficial interest of not less than ten per cent in shares of a company or voting rights or of the total distributable dividend, or any other distribution or the right to exercise, or the actual exercising of significant influence or control in a company.

 

If an individual does not hold any right or entitlement indirectly he shall not be considered to be a significant beneficial owner.

 

Second Condition:

 

An individual shall be considered to hold a right or entitlement indirectly in the reporting company, if he satisfies any of the following criteria:

 

 Sr. No. Where Member is Who is Significant Beneficial Owner?
A. Company Significant Beneficial Owner is the Individual, who holds majority stake (more than 50%) in that member; or holds majority stake in the ultimate holding company (whether incorporated or registered in India or abroad) of that member.
B. Partnership Firm Significant Beneficial Owner is the Individual, who is a partner; or holds majority stake in the body corporate which is a partner of the partnership entity; or holds majority stake in the ultimate holding company of the body corporate which is a partner of the partnership entity.
C. Trust The Significant Beneficial Owner is an individual who is a trustee in case of a discretionary trust or a charitable trust or is a beneficiary in case of a specific trust or is the author or settlor in case of a revocable trust.
D. HUF The Significant Beneficial Owner is an individual who is a the karta of the HUF
E. Investment Vehicle The Significant Beneficial Owner is an individual who is a is a general partner; or (B) is an investment manager; or is a Chief Executive Officer where the investment manager of such pooled vehicle is a body corporate or a partnership entity.

 

 

What is the obligation of Significant Beneficial Owner?

  • Every individual who is a significant beneficial owner in a reporting company, shall file a declaration in Forrn No. BEN-1 to the reporting company within ninety days from such commencement of this rule i.e. by May 09, 2019.

 

  • Every individual, who subsequently becomes a significant beneficial owner,or where his significant beneficial ownership undergoes any change shall file a declaration in Form No. BEN-1 to the reporting company, within thirty days of acquiring such significant beneficial ownership or any change therein.

 

What are the obligations of the Company?

 

  • The company receiving the declaration has to maintain a register of Significant Beneficial Owners.

 

  • The company has to file a return in Form No. BEN-2of significant beneficial owners of the company and changes therein with the Registrar within 30 days from the date of receipt of the declaration.

 

  • Maintain a register of significant beneficial owner in Form No. BEN – 3.

 

  • Also, if the Company knows or has reason to believe that someone is a Significant Beneficial Owner (or has been a Significant Beneficial Owner in last three years) and is not registered with the company as a Significant Beneficial Owner then, the company is required to give notice to such person seeking information in Form No. BEN-4.

 

What happens if I don’t follow the disclosure norms?

 

  • The Shares may be made subject to the restriction on transfer;

 

  • Suspension of all rights attached to shares example voting rights, dividend etc;

 

  • Imprisonment upto 1 year or fine of INR 1,00,000 upto INR 10,00,000/- and on continuation default with INR 1,000 per day; and

 

  • Can be charged with fraud under Section 447 of Companies Act, 2013.

 

What are the penalties for the company?

 

Fine up to INR 10,00,000/- to INR 50,00,000/- for company and defaulting officer and on continuation with INR 1,000 per day.

 

Who is exempted?

 

  • Shares held by IEPF;
  • Shares held by Holding reporting company;
  • Government Authority;
  • Mutual Funds;
  • Alterative Investment Funds (AIFs);
  • Real Estate Investment Trusts(REITs) and Infrastructure Investment Trusts (lnvlTs);
  • Investment vehicles regulated by RBI.