The New Companies Bill for SMEs

With the Indian SME becoming the backbone of the emerging Indian economy and the growing Indian stature globally, there are structures to be created which facilitate growth for the SMEs towards their emergence as large sectoral players.

Source: http://www.thehindubusinessline.com/2010/07/14/images/2010071453431901.jpg

While we at IndiaMart have been constantly sharing with our SME partners on their views on the subject, many of them have responded back with the thought of a new set of directives to be proposed by the Governments which allows softer norms for SMEs to comply with, which create a holistic environment of growth and spur innovation and collaboration.

We realize that many a times SMEs in India face issues due to lack of information and hence this Knowledge Forum for the Indian SMEs (IndiaMartb2b.blogspot.com) aims at empowering the Indian SME with knowledge and helping them grow! This post dwells upon the companies bill passed for the SMEs in India which at least a step is motivating for the SMEs and we welcome the same.

What is the New Companies Bill and what does it mean for the SMEs?
A small company shall be defined as a company which satisfies three conditions:

• It should not have a paid-up share capital and a turn-over beyond a specified limit
• The company should not be regulated by any sectoral regulator
• It should not hold any subsidiary company

There has been talk all around as to how to create a holistic growth oriented environment for SMEs in India and how to increase their say in the growing corporate business environment?! Many suggestions have since come up and thought leaders have proposed plans.

We all realize the power of the ever growing SME segment in India. Its slowly becoming the backbone of true innovation and growth of the emerging Indian economy globally. For this growth momentum to gain speed and to sustain while creating and delivering value over the longer horizon, the government has to be involved actively and participate in creating and coming up with rules and regulations, which help the SMEs grow.

What is the proposed Bill like: in simple words!

At IndiaMart, our core focus has always been to make things easier and simpler for our partner SMEs and hence we explain the New Companies Bill in its entirety while maintaining simplicity:

• A company should not have a paid-up share capital and a turnover beyond a specified limit. According to MSME Development Act, 2006, a small enterprise is one having an investment of more than 25 Lakh Indian Rupees but less than 5 crore Indian Rupees, if it is dealing in the production of goods whereas if the enterprise is dealing in the rendering of services then the investment in equipment should be more than 10 Lakh Indian rupees but should not exceed the limit of two crore.
• The new bill also clearly states that a company is not to be regulated by any sectoral regulator, for it to gain a recognized status of an SME, this clearly implies that the companies which are governed by a sectoral regulator cannot be classified as SMEs. 

Example: Telecom companies, governed by (TRAI) do not classify under the provision for the small companies in the new Companies Bill

MSME Doing its bit towards Growth of the SME in India

MSME in India has been working to lower many burdening mechanisms which have been existing which make it difficult for a small and emerging company to grow faster. Apart from infrastructure being created and managed, there are new laws being set which relax the requirements for Small and Medium enterprises and help them flourish, towards becoming large working corporate.

• The new bill also mandates that the enterprise that is having other subsidiaries to it, cannot be classified as a small company and hence will not be able to enjoy the privilege of certain exemptions which are validated for SME's.

Its time that SMEs be recognized

Many of our partner SMEs have since time raised the concern that Small and Medium companies need to be recognized and there have to be a different set of levels of compliance for SME's. There have to be new set of expectations to be created for the SMEs which have to be regulated under a formal bill which allow the SMEs to practically explore new and emerging opportunities towards growth.

The new bill proposes to exempt small companies from certain provisions of the company’s act. Those exemptions will be notified by the central government separately.

We are sure, as emerging SMEs you will sure have pointers to raise and concerns to share which can help many fellow SMEs towards mutual growth. Drop in your comments to the post and we shall take steps that your voice be heard!

Legalities for SMEs: Writing a Partnership Agreement

Legalities for SMEs are critical
For any small and emerging business, legal aspects of the business are one of the most crucial and critical to follow and get into. Each geography of the world has a certain way in which it functions and so are the laws.

The knowledge team at IndiaMart is committed to creating opportunities for the Indian SME, which enable smooth functioning and hence add onto the economic growth. This blog aims at making the readers understand the partnership form of business a little more closely and formally.

Partnership: the Start-up!
Many small businesses in India are initiated as partnerships, partners could be in the form of friends known to each other, within the family etc.

If you're in a partnership, it's highly advisable to have a formal, written partnership agreement. 

While it may not be a mandate required by the law, a partnership agreement enables the partners, in designing a strong framework for defining each partner's:

• obligations
• settling the conflicts
• disagreements and other difficult-to-resolve issues

that naturally occur in nearly every business relationship. This ultimately helps in ensuring the long term healthy sustenance of your business.

Starting the Partnership Agreement Creation
Create your written partnership agreement with the assumption that anything at anytime can go wrong with your partnership. There can arise frictions between partners over trivial issues such as money, power or ego. There should all possible "what-if" situations taken care of in the partnership agreement. You will always see that the agreement will make things clearer and more structured for your business and its healthy sustenance.

How can you save money in the application drafting process
Drafting the first phase of the application process and then taking it to your attorney will at least help you save on the initial consulting cost. Some of the pointers below can help you in drafting the first level of your Business Partnership Agreement:


Basics:

• name of the partnership?
• purpose of the partnership?
• duration of the partnership?

Responsibilities, remuneration and the role:

• Define each partner's role?
• Define each partner's responsibilities in the business.
• What commitments in terms of time do each partner needs to make?
• Define the income of each partner, and structure the P&L distribution *this always creates issues if not drafted well enough

Contributions

• Define each partner's contribution to the partnership in terms of cash, assets, loans, investments, and/or labor?
• Future seeking : Are there any additional contributions to the partnership expected in the future from any of the partners, and if so, how will they be handled?

Self Exit/ Expulsion of existing partners/ New partners joining

• Any specific guidelines to be followed if one partner wants to leave the partnership?
• How will any of the partner be allowed to sell his/ her stake to any external entity?
• Define and set terms for expulsion for the partners *this has to be clearly set and athered to
• Define clearly the terms for the New partners and how will they be allowed into the business, will they work on the same terms as the partners before?

Resolving Disputes

• Define clearly the methods that will be used to settle disputes that can't be otherwise resolved?
• Will you use mediation or binding arbitration?

Handling Finance

• Who handles the banking matters and what arrangements are made for the partnership?
• Define, if all the partners or some designated ones are signatory authority on signing cheques
• Who will oversee book-keeping process?

If the partnership needs to be dissolved?

• How and when can the partnership be dissolved?

Defining valuation

• Define clearly the third party institution who will take a call over the business valuation

If you wish to know more, leave a comment to this post and our team of experts will be happy to help you!!