Outsourcing and lifestyle

I came across (not by chance) this article today at MercatorNet: Is outsourcing exploitation?. And I think it is quite an interesting read for those of us working in India and who have somebody working under us. Especially of course, if our clients are abroad. And even more importantly, if we have other companies as providers for us.

Outsourcing is definitely helping the life of many people. Slowly the lifestyle is improving in many parts of the world, and the gap between developed and developing countries is becoming smaller.

Some would like it to be quicker: let's work for that. We are the ones supposed to be helping the people working with us or for us to improve society in general.

Problems with re-submitting

Have I written about re-submission of e-forms earlier? I think I did, but I was quite optimistic. A few weeks back, I submitted a form 1A (to register the name of a new company which we are incorporating). However, it was rejected because a non-compulsory field was not filled up (if it is actually compulsory why they don't mark it as compulsory? I don't know).

At first, I tried re-submitting but the status of my SRN was "to be clarified" thus I couldn't re-submit. I contact the support of the MCA website and they quickly and efficiently changed my status.

Then, again I tried re-submitting. After downloading the latest e-form, filling it up (which in this case does not need digital signature), pre-scrutinizing it and trying to upload it, I was told: that I needed the latest version of the e-form. I thought: "this must be a small programming mistake which will be corrected in a few days time". So, I waited. After a few days, I tried again, but didn't work. So, I again sent an e-mail to same highly efficient people that had helped earlier... this time I wasn't so lucky. They didn't reply.

I decided to try again uploading after a few days... nothing. I wrote again to the support people, and no reply. Finally, the time for re-submitting is due. I have been sent an e-mail telling me that, if I want to submit the form again, I will have to do it afresh (i.e. paying the fee again). I've written to the support team complaining about this, but I only get silence... this is really quite disappointing!

I guess I could try fighting for this out, but perhaps the most efficient and less costly way of getting my things done is simply to spend again the Rs. 500 for submitting the form and forget about the issue (hopefully this time it will work fine). Perhaps I shouldn't forget so easily about this and claim my rights... but unfortunately I don't think I have the time, nor the patience to do so.

Stamp duty and registration fees

I've always been amused by the amount of signatures and colorful stamps that the people in the government offices like. The process of registering a company is not an exception.

Once you have got drafted the MoA and AoA, and the forms 1, 18 and 32 are filled up (my next post will be about those forms) you will need to get them stamped, paying stamp duty and registration fees.

Unlike the other expenses which are fixed and relatively low (in the range of 500) this fees are slightly different.

The exact amount keeps varying. I don't know how often (may be every few months) and is directly proportional to the authorized capital which you request.

There are several sites which give you the ranges, some more updated than others. Sorry I don't give a link this time but I'm writing from my PDA where it is rather difficult to surf and the info I have is in my laptop. But to give you an idea, for a company with authorized capital of Rs. 5 lakh, the registration fees are about Rs. 17,000.

(For those who are not in India, Rs. 5 lakh is equal to Rs. 500,000)

By the way, I don't think it would be a good idea to try doing this without your Company Secretary's advice.

Drafting Memorandum and Articles of Association

When I first started setting up the company, I wanted to do as much as possible (I hoped everything would be) on my own, until I reached the point for drafting the Memorandum of Association and Articles of Association. That's what made me decide that I needed professional help.

The MoA and AoA (short forms for Memorandum and Articles of Association respectively) are drafted by solicitors. I think the best way to do it, is through your Company Secretary who already knows well what you want and what you need, and for sure will be in contact with a good solicitor who can do the job within your budget (considering the fees of the CS are already within your budget, of course).

The MoA and AoA are quite important for the future development of your company. They will state what your company does. Hence, if the panorama of the MoA and AoA is not wide enough, you will find yourself into trouble when you plan to expand the services or products offered by your company, as in theory, your company should not be doing that stuff. Thus, when drafting the MoA and AoA ask the solicitor to try to include as many services and products as you can think of, which of course, are in a way related to the main service you are starting with.

For instance, if you are planning to set up a company to sell pencils, don't write just pencils in your MoA and AoA. It would be better if you write manufacturing and selling of stationery items, paper making and recycling, printing, publishing, etc, i.e. all kind of related activities which one day may fall in your sphere. The idea is that, when more business opportunities come your way, you do not be constrained by something as small as this. I guess you would just have to re-draft the MoA and AoA, but why to take the trouble if you can avoid it?

Re-submitting an eForm

In the latest form I submitted I've been asked to clarify certain points. Now what do I do?

This happened to me this week after submitting Form 1A the other day. Few days after submitting I checked the "Transaction status" and found out that it was "Waiting for Clarification". As far as I had read, it was required to re-submit the form. However, when I tried doing it, the system didn't allow me.

I contacted via e-mail the MCA people and they replied very quickly and to the point after one or two days. Now they had changed my status and I could re-submit the form.

Today, while trying to do so it took me a while to find out how to do it, but finally got it: in the home landing page there are three tabs below the main horizontal menu which say: Services, eForms and MyDocuments. My mistake was to think everything I could do in the site was under the tab services. For re-submit you have to go to "eForms", where you will find a button "eForm Upload". There, if you enter the SRN (Service Request Number) and click the Re-Submit button you will get a Java app window through which you will be able to upload.

Again, make sure you have downloaded and filled up a fresh Form 1A before you re-submit, otherwise, the system will reject you automatically.

e-Filing: Submitting forms at Ministry of Company Affairs

Submitting a form has always scared me as something being a waste of time: filling up a form without knowing for sure what to write, standing on a queue for a long time, getting a challan and go to pay it at another place, go back with the receipt and get the acknowledgment, etc. Or get a middle man who would do this for you and twenty other people at a much quicker pace but opening a wide space for illegalities and corruption which ultimately harm the whole system.

Thank God, the Ministry of Company Affairs decided to do away with all that not very long ago. Now-a-days, you can only submit forms through their e-Filing system at www.mca.gov.in. From there you can do everything, from downloading the pdf form to paying the fees and getting your approval or whatever you are trying to get.

Today I submitted my application for a new company which I’m opening with my friend.

First, you need to register in the site. At least, for submitting Form 1A it is enough to register as a “Registered User” (the other option is “Business User”).

Once you are inside, do read the steps for filing forms. An interesting warning they give there is that you should download the latest form every time you want to submit a form as they change often (in my case I had filled up an old Form 1A I had saved from last year, and had to do it again in a newly downloaded form).

You will see it is quite a simple procedure: download the form, fill it up, pre-scrutinize it (correct any errors you may get), add your digital signature to the form, submit it… all of this through a Java applet (get ready to wait for few seconds/minutes while the whole thing is uploaded). Then, you will be re-directed to the payment get-way which may be through net banking (there are only a few options of banks), credit card or printing a challan and paying at the bank physically (I guess this is in case you want to remain in the old good times).

After you have paid you will get a confirmation message, but which disappears in almost no time. Thus, just in case, check the payment status. If it says PAID, then great, otherwise you will have to use the re-submission facility (you should have taken note of your SRN) and pay again.

All of this is, of course, for Form 1A, where you don’t need the signature of a Company Secretary or Chartered Accountant. Later on, for other forms you will need it and most probably they will do the for you.

By the way, as a correction to my previous post a name through Form 1A is now only for 60 days, instead of 6 months as it used to be earlier. For renewing you have to pay Rs.250 in case you haven’t incorporated your company yet.

Legal: DIN. Director Identification Number

We always have heard or read about the “board of directors” and “directors’ meetings” of different companies… but who are the directors? How many directors a company can have?

Every Private Limited company must have at least two directors and one of them is the Managing Director (MD). Later on in the process, you will have to submit a series of forms (1A, 1, 18 and 32) in which the details of directors will be given. An essential detail for each Director is the Director Identification Number (DIN).

The DIN is a number provided by the MCA (Ministry of Company Affairs) to each director in India. This number identifies the director and once you have it, you can use the same DIN for as many companies as you wish.

The process is not very complicated, but being almost the first step and not knowing much about these issues I went about it rather cautiously. It involves to submit a series of forms sequentially, DIN1, DIN2, DIN3 and DIN4. However, only DIN1 is essential in the case of a new company and new director.

First, you will have to download the DIN1 form from the MCA web-site. Then, apply online to obtain a so-called “provisional” DIN for the director. In fact, eventually this DIN becomes the definitive one, but they want people first to apply online and then send their papers to the MCA.

Once you get the provisional DIN, you fill up DIN1 and get all the documents required there (identity proof, residence proof, etc) along with the form attested by a Notary (they will charge some Rs.200 for sticking all kind of colourful stamps and rubber stamps). All the documents must be in English or Hindi, otherwise, you must get them officially translated and certified by an embassy, this especially in the case of foreign directors.

When all this is ready you will send these documents to MCA DIN Cell. The address is given in the form. After a few days you will get to know online through the MCA site whether your application has been approved and you have been granted the DIN. Mine was rejected in the first attempt due to one paper which was not well certified according to them. In case of this rejection, you get a letter telling you about it and you also can call to ask the specific reason so that when you apply again, you don’t commit the same mistake. Hence, I again collected all my papers and sent the application which was finally approved.

Due to the embassy certificates which are rather expensive, the total cost of this process was high. Otherwise for an Indian citizen it will be just a few hundred Rupees to apply for the DIN.

A note about DIN for foreign nationals, added on 30 April 2009:

When I was getting my DIN (I'm Mexican) I tried just submitting my papers notarized in India, with the notaries outside Bandra High Court. However, my application was rejected. Later on, I got my documents attested by my embassy in New Delhi, sent them again to MCA, and got them approved. I thought this might be a rule, but it seems I was wrong.

Raju, a reader of the blog, sent me the following message:

[...] I also had a quick question for you with regards to applying for DIN as a foreign director. We are currently facing some issues with getting the documents for DIN attested by the right person/people. My business partner is from the US and it might be difficult for him to travel back to New York to get the documents notarized. On your post on DIN, you mentioned something about embassy charges. Did you get your documents notarized/attested at an embassy in India? If not, is there no other option but to get the documents attested from the US?

After telling him my story, and him trying it out, he came back with the good, but confusing (for me) news:

Just wanted to drop you a note to say we finally managed to get the DIN approved. It was our 4th attempt. :-) The notarisation from the US Consulate was rejected but we were told by the MCA DIN Cell that if the foreign director is in India, an Indian notary can do the attestation as long as a notarised copy of a valid Indian visa is also submitted.

Well... I guess it is matter of trying out different things until it works!

Thanks to Raju for telling me his experience and allowing me to post it here.

Legal: Digital Signature/Certificate

Going back on how to set up a Private Limited company... The first step is to get a digital signature or also called digital certificate.

Not knowing exactly what a digital signature was, before starting to research on it, I got a quite amusing reply from a friend. He told me is just to scan your written signature, save it as a jpeg or gif (an image format) edit it for clarity and finally paste it to whichever document or email you are about to submit. It would have been difficult to be much farther from reality!

The digital signature is a system by which the party receiving your document will be certain that you are the one signing. This is done through a third party who will certify you are the one doing so. Of course, the third party must be a certified company which is well known and reliable to everybody. Some companies offering this are, for instance, TATA or MTNL.

The full process is not too difficult to understand, and you can see it here. I'm sorry, but I can't find a great graphic display which MTNL had in their web-site which would make it easier. However, in few words, when you attach your digital signature to a document and submit it (for instance, the e-forms submitted to ROC), a file is sent to MTNL, which receives it, decodes it and sends another file to ROC telling them, hey, this guy is in deed whom he says to be or at least he has in his computer the key I have given him to tell is himself.

There are several types of Digital Signature (or certificates) and I remember I was rather confused to which I should get. If you are an individual and need to sign the e-forms as the Managing Director of your company (which is what you need for a Pvt. Ltd), then you want a Class 2 Individual Certificate. According to the MTNL site cost for this certificate is Rs.600 for 2 years. Sincerely, I don't know how difficult is to do it on your own because I was short of time at the moment I did it and gave it to the CS (Company Secretary) to do it for me. In that case, the bill came to Rs.1,600 or so.

MTNL seems to be the best option for Digital Certificate because is easier to get it and is less costly than other options, but you may always compare with other companies.

Terror attacks in Mumbai

Last night I happened to be working late on e-mails, while waiting for Peter. He was supposed to check out from the Taj Mahal Hotel in Colaba by 10 pm; we would then come to my house to drop a parcel and from here go to the airport to catch his plane back to his country. Then, we got a call from another friend, informing us of the events going on in the city and it was not hard to guess that Peter was still trapped in the hotel. After a very intense night, thank God now he is safe and resting.

It is really sad to see the amount of terrorism that is going on in the world and very particularly in India itself. Violence cannot be justified by any reason and especially terrorism is a form of violence which goes beyond any limit.

I don't know which their reasons for doing this were, and you can be sure that I do not agree with what they have done. But, if something should be learnt from the terrorists, is their capacity and efficiency with which they planned and executed their attack. I'd wish that all of us were able to work with the same intensity and effort as they did, but for good causes and through good and legal means.

I really hope I'm not misunderstood here. What I mean is that, if there were many more entrepreneurs in the world who worked with the same eagerness to achieve their goals as the terrorists do, but using means which are legal, charitable, socially responsible, and full of other values, I'm sure the world would improve in matter of no time.

Similarly, I'd like that entrepreneurs would learn from the policemen last night; especially of course, those who gave their lives in combat. Certainly, entrepreneurs will not go to die in an encounter, but we should be willing to spend our lives working hard to create more business. If this effort is done not thinking just of oneself, but thinking of society as the policemen were doing last night, their reach in helping society would be as great, even if less known to others.

I know this post is a little off the line of the other posts, but I thought it would be great if all of us bloggers came out to say how we condemn terrorism and what should be done about it... this is my small contribution towards that.

Legal: About Sole Proprietorship, Partnership Firm and Private Limited

Last Friday, after posting on the blog, I had a meeting with my college-friend with whom I'm setting up the new business. We were deciding whether to go directly for a private limited, or to start by a partnership firm or sole proprietorship for some months before registering the company at the ROC.

Prior to this meeting I had read some information about the two proposed forms of business but still had some doubts, hence we went to visit his CA.

This meeting again proved is important to do your homework... I could understand everything thanks to what I had learnt in the morning.

Either partnership firm or sole proprietorship have the same unstable or shaky or at least non-corporate look to other companies, while a private limited looks more reliable to your possible clients.

However, the difference in costs is quite significant. The upfront cost to set up a Private Ltd is at least Rs.15,000 to 20,000 (very minimum); for a partnership firm is about Rs.8,000; finally, for a sole proprietorship is nil: you just need to go to the bank and open your account in the company's name.

This is, as you can read here, because the sole Proprietorship depends directly on its owner, both for liability as well as taxes; in fact, the company and its owner are one. The same way, it is very similar for a partnership firm but the profits and liability is distributed among the partners.

Our conclusion is that for a business which is beginning and a large amount of investments has already been done, you should go for the Sole Proprietorship or Partnership Firm. But if you have time and money is better to go for Pvt. Ltd. as it will give a much more reliable outlook to your enterprise.

Update on 23-02-11: Would you like to see the Spanish translation? Click here!

From the rising to the first fall of this entrepreneur

Yesterday, while drinking tea and listening to a CD of Carlos Santana, I was reading a chapter of The World is Flat by Thomas Friedman, where he talks about an African proverb which was posted by a manager translated into Mandarin in a Chinese Factory:

Every morning in Africa, a gazelle wakes up.
It knows it must run faster than the fastest lion or it will be killed.
Every morning a lion wakes up.
It knows it must outrun the slowest gazelle or it will starve to death.
I doesn't matter whether you are a lion or a gazelle.
When the sun comes up, you better start running.

Being an entrepreneur is not easy for anybody and even the biggest guys fall down once in a while. I guess that if you managed not to be eaten by the lion, you will get up, learn from your fall and become stronger, hoping not to fall again.

From my previous post, we had said that the target was to hire some few people to work with us full-time and have many more freelancers doing work for us. This is a system which was working well in Argentina, where we have part of our team, and which we thought could also work in India.

My first year, i.e. 2007, was a great experience in which I learnt many things of which I had no idea (and I will eventually share in this blog). I learnt legal stuff, human resources, production, sales.... the list of the things I learnt could go on, but later on I'll keep on writing on this.

Anyhow, we started only with freelancers and soon afterwards we also got some people sourced by a company in Goa which provides IT man-power (or I should say women-power as they mainly had girls in their team). By the end of 2007 we already had some few people in our team and we started looking for a place on rent in Pune. Even though at the beginning only 5 people would be working from there, the office would fit at least some 25 to 30 developers.

By that time we were running a project on .NET which was supposed to be finished by December 2007 and it was being developed by the guys in Pune who would eventually join the office at the beginning of 2008. The project got delayed, and delayed, and delayed.... and delayed. These delays made me realize that those guys in Pune were wonderful people, but were not the right ones to start a new development office with. In the end, the project was not properly delivered, we cancelled it, I had to say goodbye to those developers, say goodbye to the office we were about to rent, and in fact, due to the loses that we had in that project, we had to say goodbye to many of the other people in the team as well. From here onwards I had to look for a new way to start all over again. This was mid-Jan 2008.
The gazelle tripped and fell, but it was not caught by the lion. It got up, it learnt from its experience, and now runs faster and hopefully will not fall again, at least not in the same way as it did before.