With the introduction of the INC-29, the Ministry of Corporate Affairs (MCA) has begun to make good on its promise to improve India’s ranking on the World Bank’s Ease of Starting a Business Index to inside the top 50 from the current 158 (read : Now, Incorporate a company with one form only).
The INC-29, a 5-in-1 form for company registration, combines the application for DIN allotment, name reservation, incorporation and even PAN & TAN, while making the process cheaper. As the entire incorporation process is in a single form, correct filing could mean approval in 48 hours, the government claims. If you’re an entrepreneur, you should be impressed. Relative to the old process, it has the potential to save you a lot of time, if properly implemented.
Here are, however, 3 critical observations on the procedure:
- Narrower Name Proposal
The Registrar has so far asked applicants to submit 6 names in order of priority. Even with the luxury of options, company names take 7 working days to be approved. The INC-29 will allow applicants to submit only a single name. It remains unclear how this will not lead to more rejections.
- Single Resubmission
The INC-29 combines forms, but does not eliminate any procedure. It’s just that you must now submit everything at once. This means that, should there be errors, you will get to know of all of them at once. This is a good change, but we should be concerned about the fact that only a single resubmission is allowed before you have to file the entire form and pay the Rs. 2000 again.
- No Tracking System
Under the non-INC-29 system, you always know which process you’re stuck at.
Despite these concerns, however, the INC-29 should massively improve the company registration process and ease the burden of our entrepreneurs.
But let’s put this into perspective.
Is the INC-29 good enough to give us a boost into the top 50 places in the world to start a business in? Just consider the following table, in which we’ve compared the old and new process in India to those in use in Maldives (currently in 50th position) and the USA and Singapore, the 2 countries that Indian entrepreneurs often choose to register their businesses in.
Clearly, INC-29 or no INC-29, we’re nowhere near where we should be. So, what do we need to do to improve?
Nothing out of the ordinary, of course. Simply mimicking the processes already adopted by the countries in the top 50 should be good enough. This would involve the following:
a) Shortening the Process
5 forms rolled up into 1 is awesome, but let’s not shy away from putting things into perspective. Company incorporation in the top 50 countries involves 5 or fewer steps that are completed in 3 to 15 days. In India, even after INC-29, we’ll still have 8 steps that will stretch on for 1 to 2 months. So while the incorporation process is being shortened to 15 to 20 days, the 4 mandatory licenses (Shops & Establishments Act Registration, Sales Tax, Service Tax and Professional Tax) will still take 10 to 35 working days each to obtain.
b) Removing Unnecessary Certificates
This should go without saying, but we’re still asking our entrepreneurs to file forms that needn’t exist. The Certificate of Commencement, for example, is necessary for a business to open something as essential as a bank account. And it’s not even like it is a decades-old process we’re yet to scrap, since it was introduced just 2 years ago. Why isn’t the Certificate of Incorporation sufficient?
c) Simplifying Naming Guidelines
Subjectivity in the naming procedure is the primary cause for delay in the incorporation process. The broad guidelines give the Registrar plenty of room to reject the proposed names. These oppositions are sometimes justified, but are more often arbitrary; occasionally, no reason is given at all. This, we feel, can be solved by technology. A search engine that can determine the availability of a company’s proposed name would be of enormous use. This would go a long way in propelling us to the top of the World Bank index.
d) Setting Timelines
Notice that we claim that the registration process will now take 1 to 2 months to complete. Why the wide gap? Because, regardless of the simplicity of a case, forms can take a long time to be approved. The same is likely to apply to the INC-29, too. It does simplify the filing process because the forms have been combined, but it is unlikely to speed things up significantly on the backend. So the claim that companies will be incorporated in 48 hours will likely go unsubstantiated, at least over the long term. The countries in the top 50 regularly incorporate companies in the shortest claimed time; in India, a handful of companies may experience prompt service but this is not true for the majority of them. If we are to stop losing out company registrations to Singapore, we need to be able to give deadlines and then stick to them.
e) Eliminating Duplication of Work
If we are to compete on the world stage, we should want our entrepreneurs to get to work sooner rather than later. But the current processes ensure that the early experience of an entrepreneur is unpleasant. Just to pay indirect taxes, you need Service Tax Registration, Professional Tax Registration and Sales Tax Registration. The process for getting these is almost the same, including the documents you need to submit, but you are meant to apply separately. Several countries, including the US, have solved this by bringing such processes under one body and managing various tax payments through the Tax Identification Number. Doing so in India would hugely simplify the registration process.
[Guest article by Niraj of Vakilsearch]