Monday, November 27, 2023

Can Companies Give Away Everything as Gift or Otherwise donation ?

Introduction: Delving into Corporate Generosity

In the business world, companies are like big family ventures owned by their shareholders. But can these owners decide to generously give away the whole business and assets of the company? This article dives into the legal side of such corporate benevolence.

1. Shareholders and Their Giving Spirit

Shareholders, the owners of a company's shares, can indeed donate their shares. We've seen big shots like Mark Zuckerberg sharing their wealth for a good cause. However, when it comes to giving away the entire business or assets of a company, things get a bit tricky.

2. Unwrapping Corporate Gift Rules

In the legal world, giving without getting something in return can be a bit complicated. But there are exceptions, like gifts made out of love, compensations for past services, or dealing with old debts. Understanding these exceptions helps us figure out if companies can be generous too.

3. Companies Can Gift? What the ITAT Says

The ITAT Mumbai bench has said that companies can indeed give and receive gifts. They pointed out that companies can meet the essential requirements for a valid gift – transfer, voluntary intent, and acceptance.

4. Giving Away Assets: What Shareholders Need

Even though companies can give, shareholders can't just empty out the whole company without limits. The rules laid out in the Memorandum of Association (MoA) and the need for shareholder approval are crucial. These rules protect the company's interests.

5. Considerations for Giving Away Everything

If a company wants to donate all its assets, here are some important things to think about:

  • Getting Approval: Shareholders need to agree, especially for significant donations under Section 181 of the Companies Act.
  • Big Disposal Rules: Disposing of substantial parts of the company needs special approval under Section 180(1)(a).
  • Clearing Debts: Donating assets without settling debts could lead to legal trouble under the IBC and the Companies Act.

6. Taxes and Giving: What Companies Should Know

When it comes to taxes on corporate generosity:

  • No Capital Gains: Giving assets as a gift usually doesn’t attract capital gains tax. But pretending to gift while restructuring might raise eyebrows.
  • Other Sources Income: If gifts go beyond limits, Section 56 of the IT Act may tax them as 'income from other sources.' Companies need to follow the rules.

Conclusion: Finding the Right Balance

While it's okay for companies to be generous, they need to follow the rules. Giving away everything is legally okay, but companies must be careful not to look like they're avoiding taxes. Philanthropy is good, but it has to go hand in hand with the law

A Guide to Liaison Office Operations in India - Operations and compliances

The World of Liaison Offices

Foreign investors exploring opportunities in India have various entry points, with unincorporated entities like Liaison Offices (LO) being a popular choice. This article sheds light on the compliance aspects surrounding Liaison Offices, offering a simplified understanding of their role and obligations.

1. Understanding the Liaison Office (LO)

Foreign investors often choose Liaison Offices to gain initial insights into India's business landscape. LOs, defined under FEMA 22, act as communication channels between the foreign entity and Indian businesses. However, they are restricted from engaging in any commercial, trading, or industrial activities.

Activities Permitted for LOs:

  • Representing the parent company/group in India
  • Facilitating export/import activities
  • Encouraging technical/financial collaborations
  • Acting as a communication bridge between the parent company and Indian entities

2. Tax Implications: The Income Tax Act, 1961

Initially exempt from filing Income Tax returns, LOs faced changes in 2011 with the introduction of Section 285. Now, they must submit an annual statement of activities within sixty days from the financial year-end using Form 49C.

Form 49C Information Requirements:

  • Financial year details
  • Non-resident person's information
  • LO registration details
  • Nature of activities undertaken
  • Details of transactions with Indian parties
  • Employee details, including salaries
  • Details of agents/representatives in India
  • Specifics on liaisoning activities and more

3. Foreign Exchange Management Act, 2000 Requirements

LOs must adhere to the Foreign Exchange Management Act, submitting an Annual Activity Certificate (AAC) by September 30 each year. The AAC, obtained from a Chartered Accountant, certifies that the LO has complied with RBI guidelines.

Precautions for Compliances:

  • Regular Internal Audits: Conduct regular internal audits to ensure ongoing compliance with RBI guidelines and other regulatory requirements.

  • Document Retention: Maintain comprehensive documentation to demonstrate the purpose and intent of activities, minimizing the risk of unintended tax implications.

  • Proactive Review: Periodically review LO activities to prevent any unintentional deviations from permissible activities, reducing the risk of constituting a Permanent Establishment (PE) in India.

4. Companies Act, 2013 Compliance

As per the Companies Act, foreign companies must prepare financial statements, audited by an Indian Chartered Accountant, and file Form FC-3 within six months of the financial year-end. This form includes details of related party transactions, repatriation of profits, and fund transfers.

Precautions for Compliances:

  • Timely Filing: Adhere to the filing timelines to avoid penalties. Seek extensions, if necessary, through written applications.

  • Comprehensive Record Keeping: Maintain detailed records of related party transactions, profit repatriation, and fund transfers to facilitate smooth auditing and filing processes.

Conclusion: Navigating Year-End Obligations for LOs

Compliance is the key for Liaison Offices. Filing Form 49C, AAC, and Form FC-3 are essential, and any lapses can result in penalties. Regular reviews of LO activities ensure adherence to RBI guidelines, preventing unintended tax implications for the parent company. Remember, the RBI won't grant closure permission until all statutory requirements under the Companies Act, 2013 are met.

By staying informed, conducting regular audits, and proactively addressing compliance challenges, foreign entities can successfully navigate the compliance maze and make the most of their liaison office presence in India

Friday, November 24, 2023

Procedural Compliance for eForm BEN-2: Filing Return of Significant Beneficial Owners


Section and Rule Overview

  • Section 90(4): Every company is mandated to file a return of significant beneficial owners with the Registrar, containing names, addresses, and other prescribed details, as per the Companies Act, 2013.

  • Rule 4: In accordance with Rule 4 of the Companies (Significant Beneficial Owners) Rules, 2018, upon receiving declarations under Rule 3, the reporting company must file a return in Form No. BEN-2 with the Registrar within 30 days of receiving the declaration.

Purpose of eForm BEN-2

  • The eForm BEN-2 serves the purpose of submitting a return to the Registrar concerning the declarations made under Section 90 of the Companies Act, 2013.

Important Points for Successful Submission

Fee Structure

S.NoPurpose of the FormNormal FeeAdditional Fee (Delay Fee)Logic for Additional FeesRemarks
1.Return to the Registrar under Section 90The Companies (Registration Offices and Fees) Rules, 2014The Companies (Registration Offices and Fees) Rules, 2014Date of receipt of the oldest declaration30 days from the date of receipt of the oldest declaration or 30 days from the date of deployment of the form, whichever is later

Submission Timeline

  • The eForm BEN-2 must be submitted within 30 days from the date of receipt of the oldest declaration or within 30 days from the date of deployment of the form, whichever is later.

Procedural Steps

  1. Initiate Submission:

    • Access the MCA-21 portal and locate the eForm BEN-2.
  2. Fill in Details:

    • Provide accurate details of significant beneficial owners, including names, addresses, and other prescribed information.
  3. Attach Required Documents:

    • Ensure all necessary supporting documents are attached as per the guidelines provided in the eForm.
  4. Payment of Fees:

    • Pay the requisite fees as per the fee structure mentioned in the Companies (Registration Offices and Fees) Rules, 2014.
  5. Verification and Validation:

    • Review all entered information for accuracy and completeness before submitting the form.
  6. Submit the Form:

    • Once satisfied, submit the eForm BEN-2 through the MCA-21 portal.
  7. Receipt Acknowledgment:

    • After successful submission, obtain the acknowledgment receipt for future reference.

Compliance Tips

  • Adhere strictly to the specified timeline of 30 days for filing the eForm from the date of receiving the oldest declaration or from the date of form deployment.

  • Keep abreast of any updates or circulars from the Ministry of Corporate Affairs that may impact the compliance procedure or filing deadlines.

By following these procedural steps and adhering to the specified timelines and fee structures, companies can ensure successful and compliant submission of the eForm BEN-2, fulfilling their obligations under Section 90 of the Companies Act, 2013.