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MANDATORY REGISTRATION – ESI

A business entity needs to procure, few of the registrations as per various state and central laws, depending upon the eligibility threshold provided under each act.

One of the essential registrations, subject to Employees’ State Insurance Act, 1948 (ESI Act), is employee state insurance registration.

Employees’ State Insurance Scheme of India, is an integrated social security scheme aimed at providing social protection to workers in the organized sector and their dependants in any contingencies related to health due to an employment injury or occupational disease. The scheme tailored to provides full medical facilities to insured persons and their dependants, as well as, cash benefits to compensate for loss of wages or earning capacity in different contingencies. Some of the provisions are as under –

I.  Applicability:

Any business employing more than 10 people shall be required to mandatorily procure the registration under the ESI Act.

There has been amendment in the definition of ‘Factory’ and the previous categorization of 10 employees with power and 20 without power, has been omitted. Any establishment employing more than 10 people is required to get registration mandatorily.

II.Contribution:

The ESI Scheme is mainly financed by contributions raised from employees covered under the scheme and their employers, as a fixed percentage of wages. The rates of contribution are:

A Employees’ Contribution 1.75% of Total Wages
B Employers’  Contribution 4.75% of Total Wages

In a situation where all employees are drawing above Rs. 15,000/-, you still need registration, we file a letter that there are no employees who draw a gross salary lesser than Rs. 15,000 per month and therefore no contribution, filing of returns etc. is still required. Therefore ESI registration is purely from a compliance perspective.

III. Collection of Contribution

An employer is liable to pay his contribution in respect of every employee and deduct employees’ contribution from wages bill and shall pay these contributions at the above specified rates to the Corporation within 21 days of the last day of the Calendar month in which the contributions fall due. The Corporation has authorized designated branches of the State Bank of India and some other banks to receive the payments on its behalf.

Contribution Period and Benefit Period

There are two contribution periods each of six months duration and two corresponding benefit periods also of six months duration as under.

Contribution Period Corresponding Cash Benefit Period
1st April to 30th Sept. 1st Jan of the following year to 30th June
1st Oct to 31st March of the year following 1st July to 31st December of the year following

 

IV. Wage Limit:

The existing wage-limit for coverage under the Act, is Rs.15,000/- per month (w.ef. 01/05/2010) That is, all employees earning up to Rs. 15,000 per month are applicable for ESI Contribution. Employees earning Rs. 15,001 per month and above are exempted from ESI Contribution.

The wage ceiling for coverage of an employee with ‘disability’ is Rs. 25,000/- per month (w.e.f. 1/April/2008).

V.  Penal Provisions for Delay in payment of contribution:

Period of Delay Rate of Damages (%)
Less than 2 months 5%
2 to 4 months 10%
4 to 6 months 15%
6 months and above 25%

 

VI. Maintenance of Records:

In addition to the Muster roll, wage record, and books of Account maintained under other laws, the employer is required to maintain the following registers for ESI:

1. Employees’ Register in new Form 6

2. Accident Register in new Form -11 and

3. An inspection Book.

The immediate employer is also required to maintain the Employee’s Register for the employees deployed to the principal employer (if any).

VII. Registration Procedure:

Registration of an Employer:

The Factory or Establishment to which the Act is applicable is to be registered within 15 days by submitting an Employer’s Registration Form (Form-01) to the concerned Regional Office and obtain an identification number called the Code number which is to be used in all the Correspondence relating to the Scheme. The Form 1 should be accompanied by a Form 3 (Return on Declaration).

Documents Attached with Form 1:

a)    Documents relating to the constitution of the Factory/Firm/Establishment,

b)    Evidence in support of the date of commencement of production/business/first sale,

c)    List of partners/ Directors with their addresses,

d)    Copy of the PAN

e)    Address proof like pass port/voter identity card, month wise employment position etc. are the essential documents.

Registration for Employee:

At the time of joining the insurable employment, an employee is required to fill in a

Declaration Form (Form1) and submit a family photo in duplicate to the employer, which is to be submitted to the ESI Branch Office by his employer.

The employee is then allotted an insurance number for the purpose of his identification under the scheme and issued a temporary identity card for availing medical benefit for self and family for a period of three months.

Thereafter, he is provided with a permanent photo identity card. A person once registered need not register again in case of change of employment. The same registration can be transferred from one place to the other.

Registration fees:

There are NO Registration fees applicable for Employees’ State Insurance Scheme.

Time limit for Registrations:

The entire process takes about 30 days.

 VIII.     Recent Amendments:

There have been quite a few amendments post ESI Amendment Act, 2010, some of them summed as below:

  • The definition of ‘dependent’ now includes “widow, a legitimate or adopted son who has not attained the age of twenty-five years, an unmarried legitimate or adopted daughter.

Definition of Employee: includes any person employed for wages,

a)    Directly employed by principal employer

b)    Employed by or through immediate employer or under the supervision of principal employer or his agent.

c)    Whose services are temporarily lent or let on hire to the principal employer and contract of service has been entered into.

d)    Apprentices engaged under Apprentice Act, 1961 and includes apprentices whose training period has been extended to any length of time.

  • Definition of Family: It has been amended to include “dependant parents, whose income from all sources does not exceed such income as may be prescribed by the Central Government” and “a minor brother or sister wholly dependent upon the earnings of the insured person”, provided parents are not alive and insured is unmarried.
  • Definition of Factory: It now states “means any premises including the precincts thereof whereon ten or more persons are employed or were employed on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on or is ordinarily so carried on, but does not include a mine subject to the operation of the Mines Act, 1952 (35 of 1952), or a railway running shed”.

Thus the definition has now deleted the segregation on basis of number of employees in premises which uses power and without aid of power. Now it is just 10 employees, employed in a previous year.

  • Social Security Officers: The Inspector(s), appointed under ESI Act, shall now be referred to as Social Security Officers.
  • Section 51E: Insertion of new section, which states: “An accident occurring to an employee while commuting from his residence to the place of employment for duty or from the place of employment to his residence after performing duty, shall be deemed to have arisen out of and in the course of employment if nexus between the circumstances, time and place in which the accident occurred and the employment is established”.

 

Disclaimer: This is not a legal opinion and should not be construed as one.  Please speak with your attorney for any advice.

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Limited Liability Partnership

LLP, a legal form available world-wide is now introduced in India and is governed by the Limited Liability Partnership Act 2008, with effect from April 1, 2009. <link> http://www.mca.gov.in/MinistryWebsite/dca/actsbills/pdf/LLP_Act_2008_15jan2009.pdf.  LLP combines the advantages of ease of running a Partnership and separate legal entity status and limited liability aspect of a Company.

 Here are some of the main features of a LLP

  •  LLP is a separate legal entity separate from its partners, can own assets in its name, sue and be sued.
  • Unlike corporate shareholders, the partners have the right to manage the business directly
  • One partner is not responsible or liable for another partner’s misconduct or negligence.
  • Minimum of 2 partners and no maximum.
  • Should be ‘for profit’ business.
  • Perpetual succession.
  • The rights and duties of partners in LLP, will be governed by the agreement between partners and the partners have the flexibility to devise the agreement as per their choice. The duties and obligations of Designated Partners shall be as provided in the law.
  • Liability of the partners is limited to the extent of his contribution in the LLP.  No exposure of personal assets of the partner, except in cases of fraud.
  • LLP shall maintain annual accounts.  However, audit of the accounts is required only if the contribution exceeds Rs. 25 lakhs or annual turnover exceeds Rs.40 lakhs.

 A LLP is indeed advantageous because of comparatively lower cost of formation, lesser compliance requirements, easy to manage and run and also easy to wind-up and dissolve, no requirement of minimum capital contributions, partners are not liable for the acts of the other partners and importantly no minimum alternate tax (as of date). But, LLP cannot raise money from the public.

 The process for incorporating a LLP is pretty simple. The flow chart here depicts it clearly http://www.llp.gov.in/.

 The Registrar of Companies (ROC) is the authority having jurisdiction over the incorporation.  The steps required are:

 Decide on the Partners and the Designated Partners

  • Obtain Designated Partner Identification Number (DPIN) and a digital signature certificate.
  • Decide on the name of the LLP and check whether it is available.
  • Draft the LLP agreement
  • File the LLP Agreement, incorporation documents and obtain the Certificate of Incorporation.

 In order to help you decide on which legal form to choose, here’s a feature comparison between the LLP, Partnership firm and a Company:

Features

Company

Partnership firm

LLP

Registration Compulsory registration required with the ROC.  Certificate of Incorporation is conclusive evidence. Not compulsory.  Unregistered Partnership Firm will not have the ability to sue. Compulsory registration required with the ROC
Name Name of a public company to end with the word “limited” and a private company with the words “private limited” No guidelines. Name to end with “LLP”” Limited Liability Partnership”
Capital contribution Private company should have a minimum paid up capital of Rs. 1 lakh and Rs.5 lakhs for a public company Not specified Not specified
Legal entity status Is a separate legal entity Not a separate legal entity Is a separate legal entity
Liability Limited to the extent of unpaid capital. Unlimited, can extend to the personal assets of the partners Limited to the extent of the contribution to the LLP.
No. of shareholders / Partners Minimum of 2.  In a private company, maximum of 50 shareholders 2- 20 partners Minimum of 2.  No maximum.
Foreign Nationals as shareholder / Partner Foreign nationals can be shareholders. Foreign nationals cannot form partnership firm. Foreign nationals can be partners.
Taxability The income is taxed at 30% + surcharge+cess The income is taxed at 30% + surcharge+cess Not yet notified.
Meetings Quarterly Board of Directors meeting, annual shareholding meeting is mandatory Not required Not required.
Annual Return Annual Accounts and Annual Return to be filed with ROC No returns to be filed with the Registrar of Firms Annual statement of accounts and solvency & Annual Return has to be filed with ROC
Audit Compulsory, irrespective of share capital and turnover Compulsory Required, if the contribution is above Rs.25 lakhs or if annual turnover is above Rs. 40 lakhs.
How do the bankers view High creditworthiness, due to stringent compliances and disclosures required Creditworthiness depends on goodwill and credit worthiness of the partners Perception is higher compared to that of a partnership but lesser than a company.
Dissolution Very procedural.  Voluntary or by Order of National Company Law Tribunal By agreement of the partners, insolvency or by Court Order Less procedural compared to company.  Voluntary or by Order of National Company Law Tribunal
Whistle blowing No such provision No such provision Protection provided to employees and partners who provide useful information during the investigation process.

 But, LLP might not be a choice due to certain extraneous reasons, for example, DOT would approve the application for a leased line only for a company; Angels / VCs would be comfortable investing in a company.

 The framework for incorporating a LLP is in place and currently registrations are centralized at Delhi.

 Please leave your questions in the comments section.

Disclaimer:  This article is for informational purposes only and is intended but not promised or guaranteed to be correct, complete and up-to-date. This is not a legal advice or opinion.