Since the last decade, India has seen a paradigm shift in its business environment; the change that was implemented made it easier and more efficient for entrepreneurs to establish companies. In this direction, one of the significant moves has been of the simplification of the key policies for the formation of new companies in India through legislative changes. With these reforms, not only have the processes been streamlined but also encouraged a surge in new businesses, contributing to India’s growing economy. Let’s have a glance at some of the major changes in company formation policies that have had a lasting impact.
Digital transformation and the online registration system
Perhaps the biggest and most noticeable change in the formation of new companies in India is the shift from manual, paper-based processes to online systems. Back in 2016, the Ministry of Corporate Affairs (MCA) brought about a simplified online portal known as the “Spice” (Simplified Proforma for Incorporating Company Electronically). With the ease of the digitized form of documentation, all that entrepreneurs now must do is submit a single application for company incorporation. They can even submit their Director Identification Number (DIN) and Permanent Account Number (PAN) allotment digitally.
Introduction of Goods and Services Tax (GST)
Another simplification was the Goods and Services Tax (GST), implemented in 2017. Businesses have benefited largely from this simplification in taxation for businesses. Under GST, the tax structure is unified and has replaced multiple indirect taxes such as VAT, excise duty, and service tax, creating a single tax regime across the country.
As it is a uniform taxation module, the newly formed companies manage their tax liabilities easily. No more is the tax system different across states making filing taxes cumbersome. With GST, the process has become more streamlined.
Insolvency and Bankruptcy Code (IBC)
Before 2016, insolvency procedures in India used to move forward at a snail’s pace; this also delayed the liquidation or restructuring of struggling businesses. As the Insolvency and Bankruptcy Code (IBC) was introduced, this problem has now been addressed by providing a time-bound process for resolving insolvency.
From the perspective of the formation of a new company in India, it reduces the risks associated with business failure. Entrepreneurs have a transparent and specific legal framework for resolving financial distress. With this, a greater amount of confidence is instilled in potential business owners. As the exit process is quicker and more efficient, both domestic and foreign investors feel more secure about launching new ventures in India.
Start-up India Initiative
In 2016, the government launched the Start-up India initiative. This initiative aimed to foster entrepreneurship and innovation. This initiative by the government offered tax benefits, reduced regulatory burdens, and simplified procedures for obtaining licenses.
The initiative sparked a new wave in the formation of new companies in India initiative, impacting the sectors such as technology and e-commerce positively. Start-ups now benefit from the exemptions from capital gains tax, easier access to funds through government schemes, and fewer regulatory hurdles.
Amendments in the Companies Act, 2013
The Companies Act of 2013 has undergone several amendments in the last decade to streamline the formation of new companies in India. The most prominent one is the Companies (Amendment) Act of 2017 which was instrumental in easing the process of forming small and medium-sized enterprises (SMEs).
The amendment made it simple to follow the process of compliance for private limited companies by reducing the number of mandatory filings. With this, the rules for issuing shares and managing shareholder agreements too became easier. These reforms have made a blooming picture for the incorporation of SMEs, further boosting entrepreneurship.
This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.