Bank Financing – Cash Credit i.e. CC……….(Series 1)

Meaning of Cash Credit:

Cash credit (abbreviated as CC) is a short term loan based on “Pay on Demand” concept. CC limit fulfill the working capital requirement which is required to run day to day operation in a business concern.  In this system, Bank or Financial Institution (known as lender) maintains a CC Account for their borrower just like current account.

Lender transfers the sanctioned amount into CC Account from which borrower can withdraw funds as per its business requirements. Therefore, under such financing scheme borrower is liable to pay interest only on the amount he has utilized on average basis during the month. Borrower can’t withdraw total sanctioned amount at a time rather he utilizes the sanctioned amount for payment of business dues. Moreover, borrower is also not allowed to utilize funds from CC account exceeding drawing power which is calculated by adding stock, debtors and after deducting creditors.

Security for Cash Credit: - Borrower is required to provide two types of securities for availing CC limit:- 

Primary Security:- The lender lend money against the security of stock and book debt of the business concern after deduction some margin. However, for the purpose of security obsolete stock and debtors exceeding 90 days are excluded.

Collateral security: - The lender is also required to give collateral security such as Residential/ Commercial property. However, in case of limits below 1 Cr. i.e. CGTMSE scheme collateral security is not required since limit amount is secured by CGTMSE coverage.

Collateral security coverage shall be less than or equal to CC limit as per norms of the lender which can differ from case to case.

Apart from above mentioned securities, lender also take personal guarantee of the borrower and guarantor.

Drawing Power calculation: - Drawing Power is calculated after deducting margin from “Stock less Creditors + Book Debts” for the last month/quarter. Lender have a practice of updating drawing power based on monthly/quarterly closing stock, book debt and trade creditors’ statement submitted by the business concern. Borrower shall be allowed to withdraw sanctioned limit or Drawing Power whichever is lower only.

Example for Calculating Drawing Power:-                              (Amt In lacs)          

Particulars as on 31.03.2015	Amount
Stock	50.00
Creditors	15.00
Total Debtors	70.00
Out of above debtors >90 Days	10.00

Margin on stock: 25%        Margin on Debtors: 50%             Sanctioned Limit: 60 Lacs

       Drawing Power Calculation:-                                                 (Amt In lacs)          

Particulars as on 31.03.2015	Amount
Stock	50.00
Less: Creditors	15.00
Paid Stock	35.00
Less:- 25% Margin	8.75
Eligible Stock for the purpose of DP calculation	26.25
Debtors	70.00
Less:- Debtors >90 Days	10.00
Debtors allowed	60.00
Less: 50% Margin	30.00
Eligible Debtors for the purpose of DP calculation	30.00
Total DP on Stock + debtors	56.25
Allowed Withdrawal Sanctioned Limit or DP whichever is lower	56.25

In my next blog I shall be writing about Bank Overdraft Limit. For any queries you may drop a mail on aashish@akvassociate.com

CA  Aashish Gupta 

CONVERSION OF COMPANY INTO LLP

 LLP:

LLP is a unique form of legally recognized corporate entity, which integrates the features of both the Limited Corporations and the Traditional Partnership Firms. As it is a unique Hybrid Combination of both Company and Partnership, LLP is especially suitable for small to medium-sized business enterprises and professionals particularly.

KEY BENEFITS:

1. One of the most important reasons for the conversion of a Company into a Limited Liability Partnership is derived from the Income Tax Act. The Income Tax Act, 1961 provides for  payment of Dividend Distribution Tax by the Company, but a Limited Liability Partnership (i.e. LLP) would not liable to pay Dividend Distribution Tax.

2. There is no limit on number of partners in the LLP.

3. Minimal compliance with the ROC (i.e. Registrar of Company) and lower cost.

4. No Capital Gain Tax: No Capital gain tax shall be charged on transfer of property from the company to LLP, if the conditions stipulated in the Section 47(xiiib) of the Income Tax Act 1961, are fulfilled.

5. Carry forward and set off losses and unabsorbed depreciation of the company is deemed to be loss/depreciation of successor LLP the previous year in which conversion was effected, thus such loss can be carried for further 8 years in the hands of the successor LLP, if the conditions stipulated in the Section 47(xiiib) of the Income Tax Act 1961, are fulfilled.

PROCESS OF CONVERSION OF COMPANY INTO LLP

A. OBTAIN DIN:

Earlier there was concept of DPIN, which has been abolished therefore. Now obtain DIN for those designated partners who don’t posses DIN already.

B. BOARD MEETING:

·         Call meeting of Board of Directors.

·         Pass Resolution for Conversion of Company into LLP.

·         Pass Resolution to authorize any director to Apply for Name of LLP.

·          

APPLICATION FOR NAME AVAILABILITY:

File e-form LLP-1 with ROC.

Attachments: Board Resolution passed by the Company approving the conversion into LLP shall be attached with the aforesaid form.

C. Obtain name Approval Certificate from ROC.

D. DRAFTING OF LIMITED LIABILITY PARTNERSHIP AGREEMENT:

Contents of Agreement are:

·         Name of LLP

·         Name of Partners & Designated Partners

·         Form of contribution

·         Profit Sharing ratio

·         Rights & Duties of Partners

·         Proposed Business

·         Rules for governing the LLP

It is not necessary to have the LLP Agreement signed at the time of incorporation, as the details of the same needs to field in e-form 3 within 30 days of incorporation but in order to avoid any dispute between the partners as to the terms & conditions of the agreement after the conversion into LLP.

E. FILLING OF INCORPORATION DOCUMENTS: File E-Form- 2 with ROC along with following ATTACHMENTS:

·         Proof of Address of Registered office of LLP.

·         Subscription sheet signed by the promoters.

·         (Notice of Consent & Appointment of Designated Partners with their personal details)

·         Detail of LLP(s) and/ or company(s) in which partner/ designated partner is a director/ partner

F. FILLING OF APPLICATION FOR CONVERSION:

File E-FORM- 18 with ROC along with following ATTACHMENTS:

·         Statement of shareholders.

·         Incorporation Documents & Subscribers Statements in Form 2 filed electronically.

·         Statement of Assets and Liabilities of the company duly certified as true and correct by the auditor.

·         List of all the Secured creditors along with their consent to the conversion.

·         Approval of the governing council (In case of professional private limited companies)

·         NOC from Income Tax authorities and Copy of acknowledgement of latest income tax return.

·         Approval from any other body/authority as may be required.

·         Particulars of pending proceedings from any court/Tribunal etc.

G. After all formalities and filings been complied by the applicants and approved by the Ministry, REGISTRAR OF LLP TO ISSUE A CERTIFICATE OF REGISTRATION in Form No. 19 as to conversion of the LLP. The Certificate of Registration issued shall be the conclusive evidence of conversion of the LLP.

H. FILLING OF E-FORM-3:

This form provides information in respect to the LLP Agreement entered into between the partners.

ATTACHMENT: LLP Agreement

I. CERTIFICATE OF INCORPORATION as LLP from ROC.

J. FILLING OF E-FORM-14: (INTIMATION TO ROC)

After Receiving Incorporation Certificate Limited liability partnership to file within 15 (fifteen) days of the date of registration, information to the concerned Registrar of Companies with which it was registered under the provisions of the Companies Act, 2013 (1 of 2013) about the conversion and of the particulars of the limited liability partnership in within 15 days of conversion into LLP.

ATTACHMENTS OF E-FORM 14

·         Copy of Certificate of Incorporation of LLP formed.

·         Copy of incorporation document submitted in Form 2

By CA Shivani Agarwal For more details contact- shivani@akvassociate.com

VAT/ SALES TAX REGISTRATION IN RAJASTHAN UNDER RVAT ACT, 2003

Every person, who carries on business of selling, buying, supplying, distributing goods or making purchases or sales whether in cash or credit or for commission, remuneration or other valuable consideration can get registered for Sales Tax/ VAT in Rajasthan and every dealer who is liable to pay tax under sub section (1) or (5) of Section 3, shall get himself registered.

Who is liable to Pay Tax under section 3(1) or 3(5)

S.No.	Type of Dealer	Liability to Pay Tax
1.	Importer of Goods (Sec. 3(1))	Always liable (Obligatory)
2.	Manufacturer of Goods (Sec.3(1))	If Turnover > Rs.5 Lacs.
3.	Other Dealers (Sec. 3(1))	If Turnover > Rs. 10 Lacs.
4.	Casual Trader (Sec.3(3))	Always be liable.
5.	Dealer registered under CST Act, 1956	Always liable even if not liable to pay tax as per sub section (1) to (4) of section 3.
6.	Dealer registered under RVAT Act, 2003 having Regn.Certificate in force	Always liable irrespective of Turnover.

A Casual dealer liable to pay tax U/s 3(3) and a dealer dealing exclusively in exempted goods is not compulsorily required to get registered.

The basic principle of VAT is that the tax paid on purchases made within the state can be adjusted against the tax payable on sales by the dealer and thus the net liability of the dealer is the tax on value addition of goods sold only.

The dealer is required to apply for registration within 30 days from the day he becomes liable to pay tax under the act.

Documents Required for VAT and/or CST Registration

For Proprietorship Concerns

1. PAN Card of Proprietor.

2. Address proof of proprietor like Driving License or Aadhar Card or Voter’s ID etc.

3. Name of Entity.

4. Contact No. and Email ID of the Dealer.

5. Address Proof of Business place of Entity (Utility Bills like Electricity Bill, Water Bill).

6. Rent Agreement of Business place if Rented and Property papers if owned and No objection                 certificate if owned by close relative.

7. Eight Passport size photographs of Proprietor.

8. Cancelled cheque of Bank Account.

9. Comprehensive list of Commodities to be Purchased, Sold, Manufactured or Packed..

10. Detail of Branches of the Entity, their address proofs and registration certificates if any.

11. Detail of Closed businesses and Other Businesses of the proprietor in Rajasthan.

12. Two Guarantors having TIN in Rajasthan (Not already given more than 3 Guarantees) or NSC of Rs.20000/-

13. Forms to be filed and submitted are Form VAT-01, Form –A (For CST), VAT-02, VAT-01B (On Rs.10/- Affidavit), VAT-64 (If Guarantors) (On Rs.200/- Affidavit for VAT and On Rs. 400/- Affidavit for CST).

14. Power of Attorney in favour of the authorized representative.

15. Checklist of the documents.

Additional Documents for Private or Public Limited Companies

1. Certificate of Incorporation.

2. Memorandum and Articles of Association of the Company.

3. PAN Card and Address proof of all the directors.

4. Resolution authorizing a director to deal with the assignment.

5. PAN Card of Company.

 Additional Documents for Partnership Firms / LLP

1. Partnership Deed.

2. PAN Card and Address proof of all the partners.

3. Certificate of incorporation in case of LLP.

4. Resolution authorizing a partner to deal with the assignment.

5. PAN Card of the partnership firm.

 After submitting all these documents (Sealed, Signed and Notarized), registration certificate issuing authority will issue Registration Certificate in Form VAT-03 for VAT and Form-B for CST.

By CA Amit Agarwal

For more details contact-amit@akvassociate.com

SOLAR ENERGY TO POWER ALL OF THE HUMANITY- (Series-1)

A massive study on solar power by researchers came to conclusion that solar energy holds the best potential for meeting the planet's long-term energy needs while reducing greenhouse gases.

With the flourishing of Solar Power Energy throughout the world, the sky will be much bluer, the water will be cleaner and clear; that our homeland will be full of sunshine. The next generations will chase each other happily in the bright sunshine and fragrance of beautiful flowers, that a green civilization will be spread to every inch of the Earth.

Following studies all around the world prove the energy of Solar Power and scope in the future:-

1. In 2009, the total global electricity consumption was 20,279,640 GWh. The sun creates more energy than that in one hour.  

2.The amount of solar energy that falls on the earth’s surface in 40 minutes equals the total annual energy consumption of all the world’s people. Put differently, 27 years’ worth of worldwide energy consumption equals only one day’s worth of solar energy hitting the earth.

3. All the energy in the earth’s reserves of coal, oil, and natural gas equal just 20 days of energy produced by the sun, but only 1% of that solar energy is used to generate power.

So how far away is solar from meeting 100% of the world's energy needs? Eight doublings, says Ray Kurzweil, which will take just 16 years. And supply is not an issue either, he adds: "After we double eight more times and we’re meeting all of the world’s energy needs through solar, we’ll be using 1 part in 10,000 of the sunlight that falls on the earth. And we could put efficient solar farms on a few percent of the unused deserts of the world and meet all of our energy needs.

Many industrialized nations have installed significant solar power capacity into their grids to supplement or provide an alternative to conventional energy sources while an increasing number of less developed nations have turned to solar to reduce dependence on expensive imported fuels.

 As in the year before, the top installers of 2014 were China, followed by Japan and the United States, while the United Kingdom emerged as new European leader ahead of Germany and France. Germany remains for one more year the world's largest producer of solar power with an overall installed capacity of 38.2 GW. 

California’s Topaz project is the largest solar power plant in the world with a 550 MW capacity, and it is now in full operation. It is located in San Luis Obispo County and has 9 million solar panels.

A solar-powered airplane currently soaring over the Pacific Ocean, from Japan to Hawaii, has set a slew of new world records, logging the farthest and longest flights made so far in a solar-powered aircraft.The Solar Impulse 2 plane set the new distance and duration records when it flew 3,519 miles (5,663 kilometers) in 80 hours. The solar-powered aircraft is currently partway through a planned journey around the world."Can you imagine that a solar-powered airplane without fuel can now fly longer than a jet plane?!" Bertrand Piccard, chairman, co-founder and alternate pilot of Solar Impulse (the company that owns the plane),  said in a statement. "This is a clear message that clean technologies can achieve impossible goals!"

For more information and interesting facts about solar energy wait for my next blog.

By CA Shivani Agarwal

shivani@akvassociate.com