What is a Shelf Prospectus? Meaning & Provisions Under the Companies Act, India

Benefits of USA Company Registration

It is highly advisable to go for U.S. incorporation when aiming to raise capital from U.S. investors or penetrate the U.S. market with product sales. Beyond the inherent credibility associated with a U.S. business entity, it instills investor confidence and aligns with U.S. regulatory expectations.

• It boasts a thriving and a diverse business ecosystem, providing access to a vast market, diverse consumer base, and a network of established businesses and startups.
• Companies incorporated in the U.S. often find it easier to attract investment, whether through venture capital, private equity, or public markets.
• It is home to renowned innovation hubs such as Silicon Valley, which fosters creativity, collaboration, and technological advancement. This can be especially beneficial for tech startups and businesses in emerging industries.
• It offers a relatively straightforward process for business incorporation. Many states, like Delaware, have business-friendly regulations and efficient online platforms that facilitate the setup and management of companies.
• While the U.S. tax system is complex, businesses may find advantages in various tax incentives and deductions, especially if structured as certain types of corporations.
• It can serve as a strategic base for international expansion, providing a gateway to both North American and global markets.

Types for Company Registration in USA from India

The United States offers several types of legal structures for businesses, each with its own characteristics and implications. Here are some of the most common types:

•  Single-Person Businesses

•  S Corporations

•  C- Corporations (C-Corp)

•  Limited Liability Companies (LLCs)

•  Non-profit Organizations

Regarding U.S. business structures, two predominant forms of incorporation stand out: Limited Liability Companies (LLCs) and C-Corporations (C-Corps). These structures offer distinct features tailored to diverse business needs and goals.

• If you want lower compliance and small franchise fees: An LLC may be a suitable choice, especially for small businesses or startups with simpler structures and a desire for reduced administrative burdens.
• If you want to raise funds: If the goal is to attract external investment, issue stock, or go public in the future, a C Corporation is often more attractive to investors and provides the necessary flexibility for these activities.

Minimum Requirements to register a company in the U.S.

To register a company in the U.S., several essential criteria must be met.

• Minimum Number of Individuals:
  At least one person is required to register a company in the U.S. This person can act as the sole owner or be part of a group of owners (members or shareholders), depending on the chosen business structure (e.g., LLC, corporation).
• Registered Agent in Delaware:
  If choosing to register the company in Delaware, having a registered agent in the state is a legal requirement. The registered agent is a person or entity designated to receive legal documents, official correspondence, and other important information on behalf of the company.
• U.S. Address:
  A U.S. address is required for official correspondence and legal purposes. This address can be either a physical location (such as a brick-and-mortar office) or a virtual address, depending on the nature of the business and the chosen state of registration.

Documents required for U.S. Incorporation

A succinct breakdown of the documents needed for the initial stages of business registration.

• Name Approval:
  The process for name approval is straightforward. In Delaware, you can perform a real-time search for the desired business name and immediately reserve it if available. This reservation ensures that your chosen business name is secured for your use.
• Director Details:
  Provide details about the directors or members of the company. This typically includes full names, addresses, contact information, and roles or titles within the company.
• Number of Shares and Value Per Share:
  Specify the number of authorized shares the company is allowed to issue. Also, determine the par value or the assigned value to each share.

Process for Company Registration in the USA

Must-Have Documents After Incorporation

Here’s a list of documents that a business typically receives after the registration process:

1. Certificate of Incorporation

• This document, issued by the state authorities, officially recognizes the establishment of the corporation. It includes important details such as the company's name, location, and date of incorporation.

2. EIN (Employer Identification Number)

• The EIN is a unique identifier assigned by the IRS for tax purposes. It typically takes 3 to 4 weeks through standard processing, but an expedited option is available, reducing the timeline to 3 days if you already possess a Social Security Number (SSN).
  This unique identifier, similar to India's PAN (Permanent Account Number), is necessary for various business activities, including opening a bank account, hiring employees, and filing tax returns.

3. Bylaws of the Company (Similar to Articles of Association)

• Bylaws are internal rules that govern the operation and management of the company. They outline procedures for meetings, decision-making, and other essential aspects of corporate governance.
  In some ways, they are similar to the Articles of Association mandated in India.

4. Banking Resolution

• A banking resolution is a formal document that authorizes specific individuals within the company to open and manage bank accounts on behalf of the corporation. It provides clarity and legal authority for banking-related activities.

5. Common Stock Certificate

• Common stock certificates represent ownership in the company. When shares are issued, these certificates are given to shareholders as evidence of their ownership stake in the corporation. They typically include details such as the shareholder's name, the number of shares, and the date of issuance.

Compliances for U.S.- Incorporated Companies

Let's dive into the detailed aspects of compliance for businesses in the US, particularly those with C-Corporation structures and operations in Delaware.

1. Federal Income Tax

• The Federal Income Tax rate of 21% applies to C-corporations in the United States. They are required to file a tax return annually using the IRS Form 1120. This form outlines the corporation's income, deductions, credits, and taxes owed, etc.

2. Withholding Tax and Related Party Transactions Disclosure

• Similar to Tax Deducted at Source (TDS), withholding Tax in the U.S. involves deducting a portion of payments made to non-residents for services, dividends, or interest. Additionally, disclosure of related party transactions is a key compliance requirement, ensuring transparency in financial dealings with affiliated entities.

3. Delaware State Franchise Tax

• Delaware imposes an annual franchise tax on corporations, and the amount varies depending on the type and size of the corporation. The calculation is often based on factors such as authorized shares or assumed par value capital.

4. Delaware State Corporate Income Tax

• In addition to federal taxes, C-Corporations operating within the state of Delaware are subject to state corporate income tax at a rate of 8.7% on income generated within the state.
  To meet state tax obligations, C-Corporations file the Delaware Form 1100, providing detailed information on income, deductions, and other relevant financial data.

5. Other Regulatory Compliances in Delaware

• Beyond tax-related obligations, businesses in Delaware must adhere to additional regulatory requirements. This includes filing an annual report with the Delaware Secretary of State.

In a nutshell, be it India or the U.S., there will be a lot of compliances to keep a record of. By diligently meeting these obligations, you can fulfill legal mandates and contribute to a robust and trustworthy business environment.

Incorporation in U.S. vs India

When expanding operations from India to the United States, a common strategy involves incorporating a new U.S. company, followed by transferring shares from the Indian parent company (which must be a Private Limited Company) to the newly formed U.S. entity. The Indian company would become a subsidiary of the U.S. company, and there is no such limit to the number of subsidiaries an entity can have.

Keep in mind the compliances and FEMA guidelines to be adhered to during this process, which establishes the U.S. company as a subsidiary of its Indian counterpart, creating a legal and financial separation. The benefits of this approach include improved access to U.S. markets, legal autonomy for each entity, and strategic financial advantages.

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*Prices and documents can differ based on the company type.

What is a Trust?

A trust is a legal arrangement where one party (the trustor or settlor) transfers assets to another (the trustee), who manages them for the benefit of a third party (the beneficiary). Trusts can be:

• Private trusts – Created for specific individuals or groups (like family members).
  
• Charitable/public trusts – Established to serve the public good through activities in education, healthcare, relief, or religion.
  

Creation of Trust

Setting up a trust involves a few essential steps:

1. Define the purpose – Clearly outline the mission or goal of the trust.
   
2. Draft a Trust Deed – This is the legal document that outlines the trust’s objectives, details of trustees, mode of operations, and more.
   
3. Appoint Trustees – These are individuals who will manage the trust's affairs.
   
4. Identify Beneficiaries – Define who will benefit from the trust.
   
5. Register the Trust – For a charitable trust to be recognized legally and receive tax exemptions, registration with the local authority is crucial.
   

What is a Charitable Trust?

A charitable trust is a type of public trust established to carry out philanthropic, religious, educational, or social activities. Unlike private trusts, these operate for the benefit of society at large and not for any specific individual or family.

Charitable trusts must be registered under applicable laws, such as the Indian Trusts Act, 1882, or state-specific legislation, to be legally recognised and to enjoy tax benefits.

Benefits of Setting Up a Charitable Trust

Here’s why setting up a charitable trust can be highly beneficial:

• Tax Exemptions: Registered charitable trusts can avail of tax benefits under Sections 12A and 80G of the Income Tax Act.
  
• Legal Recognition: Gives legitimacy and builds trust among donors and beneficiaries.
  
• Structured Fund Management: Enables systematic handling of funds and activities.
  
• Credibility and Transparency: Boosts donor confidence and supports fundraising.
  
• Long-Term Impact: A legal trust ensures that social efforts continue beyond the lifespan of its founders.
  

Legal Structure Options for Charitable Trust

When setting up a charitable organisation, you can choose from a few legal structures:

• Public Charitable Trusts – Governed by the Indian Trusts Act or state laws. Ideal for small to mid-sized social initiatives.
  
• Societies – Registered under the Societies Registration Act, 1860. Suitable for large-scale, membership-based organisations.
  
• Section 8 Companies – Formed under the Companies Act, 2013, for nonprofit purposes. Best for organisations looking for high compliance standards and credibility.
  

Depending on your goals, each structure has different compliance requirements, operational flexibility, and advantages.

Documents Required for Registering a Charitable Trust

To register a charitable trust, you’ll typically need the following documents:

• Trust Deed (on non-judicial stamp paper)
  
• PAN card of the trust and the trustees
  
• ID and address proof of all trustees (Aadhaar, passport, voter ID)
  
• Passport-size photographs of trustees
  
• Proof of registered office address (rent agreement, utility bill)
  
• No Objection Certificate (NOC) from the property owner (if applicable)
  
• Trust objectives clearly stated in the deed
  

Charitable Trust Registration Process

Follow these steps to register your charitable trust:

1. Draft the Trust Deed – Clearly define your objectives, trustees, operations, and rules.
   
2. Get it Notarised – Ensure it’s on proper stamp paper and signed by the settlor and trustees.
   
3. Submit to the Registrar – File the trust deed with the local Sub-Registrar office along with identity proofs and passport-size photos of trustees.
   
4. Pay Registration Fees – Fees vary depending on the state and property involved.
   
5. Apply for PAN – After registration, get a PAN card for the trust.
   
6. Apply for 12A and 80G Certification – These allow income tax exemption for the trust and its donors.
   

Conclusion

Setting up a charitable trust is a meaningful way to contribute to society, but it requires careful planning, legal clarity, and compliance. Registering your trust legitimises your efforts and opens up access to tax benefits and funding opportunities.

Whether you're working toward education, healthcare, or social welfare, a properly structured and registered charitable trust ensures that your good work has a lasting impact.

Frequently Asked Questions

Closure of LLP - Overview

The Limited Liability Partnership (LLP) closure process is a significant decision that can arise from various circumstances. Whether driven by voluntary factors, such as a mutual decision by the partners to discontinue operations, or involuntary factors, like non-compliance with statutory requirements, understanding the reasons and methods of closure is crucial.

The decision to close an LLP often stems from the following reasons:

1. Voluntary Closure:
   Partners may mutually agree to cease operations due to business inactivity, an unprofitable venture, or a strategic shift in focus. This proactive decision is usually taken when all stakeholders conclude that continuing operations no longer align with their goals.
2. Involuntary Closure:
   Sometimes, an LLP faces closure due to external circumstances such as non-compliance with legal or regulatory obligations, accumulation of penalties, or other statutory violations. In such cases, authorities may initiate the process of striking off the LLP from the official records.

Method or Procedure of Closing an LLP

Closing a Limited Liability Partnership (LLP) in India can be carried out through two primary methods: Voluntary Winding Up and Striking Off. Each method has its unique set of requirements, advantages, and limitations. Choosing the right approach depends on the LLP’s operational and financial status. Let’s look into the details of these two LLP closing procedures:

1. Voluntary Winding Up

Voluntary winding up is a process initiated by the partners when they collectively decide to dissolve the LLP. This method is typically chosen when the partners agree to cease operations due to inactivity, unprofitability, or a strategic decision to exit.

Advantages of Voluntary Winding Up:

• Controlled and Planned Process
• Avoids Penalties for Non-Compliance

Disadvantages of Voluntary Winding Up:

• Time-Consuming
• Settlement of Liabilities Required

2. Striking Off

Striking off is a simpler and faster method for closing an LLP. It is suitable for LLPs that have been inactive for a significant period and have no outstanding liabilities. This process involves applying to the RoC to remove the LLP’s name from the register.

Advantages of Striking Off:

• Simplified and Less Expensive
• Suitable for Dormant LLPs

Disadvantages of Striking Off:

• Not Applicable for LLPs with Liabilities
• Limited Scope for Active LLPs

Step-by-Step Procedure to Close an LLP

A brief overview of the process for closure of LLP in India:

1. Passing a Resolution for Winding Up

The first step is for the partners to pass a resolution for voluntary winding up. A majority of partners must agree, and the resolution must be filed with the ROC within 30 days.

2. Appointing a Liquidator

The partners must appoint a liquidator to oversee the winding-up process. The liquidator’s role includes realising the LLP’s assets and settling its liabilities.

3. Realising Assets and Paying Off Liabilities

The liquidator identifies and sells the LLP’s assets to clear all outstanding liabilities. Surplus funds, if any, are distributed among the partners.

4. Filing the Necessary Forms with the ROC

The LLP must file forms such as Form 24 and other requisite filings with the ROC to notify the authorities about the closure.

5. Obtaining the Final Order of Dissolution

After reviewing all filings and confirming the settlement of liabilities, the ROC issues a final order of dissolution, formally closing the LLP.

Filing LLP Form 24: Step-by-Step Process

Closing a Limited Liability Partnership (LLP) in India requires filing LLP Form 24 with the Ministry of Corporate Affairs (MCA). Below is a simplified step-by-step process to help you navigate this procedure:

1. Cease Business Operations

Before applying for closure, ensure that the LLP has either never commenced business or has stopped all commercial activities. If your LLP is still active, suspend all operations before proceeding.

2. Settle Liabilities and Close Bank Accounts

LLP Form 24 can only be filed if the LLP has no outstanding creditors and all bank accounts are closed. Obtain a closure letter from the bank as proof.

3. Draft Partner Affidavits

All designated partners must prepare an affidavit declaring:

• The LLP has ceased operations from a specific date or never started.
• The LLP has no liabilities, and partners agree to indemnify any future claims.

4. Prepare Supporting Documents

Attach the following documents to LLP Form 24:

• Copy of the latest Income Tax Return (if filed). If no returns were filed, this is not required for non-operational LLPs.
• A statement of accounts showing nil assets and liabilities, certified by a Chartered Accountant, dated no more than 30 days before filing.

5. Resolve Pending Filings

Ensure that:

• The LLP Agreement is filed, if not already done.
• Any overdue Form 8 and Form 11 are submitted up to the date of cessation of business.

6. File LLP Form 24 with MCA

Submit the completed LLP Form 24 with all attachments to the MCA. Once reviewed, a notice of striking off will be published on the MCA website if no objections are raised.

Documents Required to Close the LLP

Here is a list of LLP closure documents required during the process:

• Board Resolution for Winding Up: Document signed by all partners approving the winding-up process.
• Liquidator’s Consent: Written consent from the appointed liquidator.
• No-Objection Certificate from Creditors: If applicable, creditors must provide a no-objection certificate.
• Final Accounts and Balance Sheet: Statement of accounts showing all liabilities cleared.
• Tax Clearance Certificates: Certificate from the tax authorities confirming no pending dues.

 Conditions for LLP Closure

Certain conditions must be met before initiating the LLP closure process:

• Settlement of Debts and Liabilities: All outstanding debts and liabilities must be cleared.
• Statutory Filings: All statutory filings and compliance requirements must be up-to-date.
• Approvals: Necessary approvals from all partners and creditors (if applicable) must be obtained.

Advantages and Disadvantages of LLP

Like any business entity, an LLP has its own advantages and disadvantages that should be carefully considered before choosing this structure.

Advantages of an LLP

1. Limited Liability: The liability of partners is limited to their agreed contribution to the business, protecting personal assets in case of business debts or losses.
2. Separate Legal Entity: An LLP is a separate legal entity from its partners, meaning it can own assets, enter into contracts, and sue or be sued independently.
3. Flexibility in Management: There is no strict separation between ownership and management, allowing partners to manage the business as per their agreement.
4. No Minimum Capital Requirement: Unlike private limited companies, LLPs do not have a minimum capital requirement, making them more accessible to small businesses and startups.
5. Ease of Compliance: LLPs have fewer compliance requirements compared to companies, such as no mandatory board meetings or annual general meetings.
6. Unlimited Number of Partners: An LLP can have any number of partners, offering greater flexibility in expanding ownership.
7. Low Registration Cost: Setting up an LLP is more affordable than incorporating a private limited company.

Disadvantages of an LLP

1. Limited Recognition: LLPs are not as widely recognised as private limited companies, which may affect investor confidence or business collaborations.
2. Restrictions on Fundraising: LLPs cannot raise funds through equity, making them less suitable for businesses looking to attract venture capital or private equity investment.
3. Limited Scope for Public Trust: LLPs are not listed on stock exchanges, so they may lack the transparency that comes with publicly traded companies, leading to lower public trust.
4. Difficulty in Expansion: LLPs are not ideal for businesses aiming for rapid scalability, as the inability to issue shares limits their access to growth capital.

An LLP is an excellent choice for small businesses, professionals, and startups looking for a flexible, cost-effective business structure with limited liability. However, it may not be suitable for companies that require significant funding or aspire to scale rapidly. 

Frequently Asked Questions