Lawfarm Team
Asked May 19, 2016

Want to start a Scholarship firm

  • 1 Answer
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I want to start a scholarship firm to reward scholarship to students according to an online examination. Is it legal to do so and also if legal what documents need to be prepared for that?

Answer 1

Firms can be set up in India for any lawful purpose, provision of scholarship being one such purpose. This means that you can set up a lawful scholarship firm in India without any legal complications.  Any business registered as a firm can be of two types-
  • Sole proprietorship firm. If you wish to be the sole owner of the firm then this is the type of firm you would need to get registered. The first step in setting up a ‘sole proprietorship firm’ involves opening up of current account in the name of the firm. Now, yours being a service based business, you’d require five documents for completing the registration process of your firm:
  • Service tax certification. When a person commences a new business, he/she is required to obtain service tax registration within 30 days of commencement, if the business will have taxable service in excess of Rs.9 lakhs. However, in this case Service tax registration is mandatory in the starting as mostly banks do not open a current account without service tax registration in the case of service based business. To obtain service tax registration, a copy of PAN Card, proof of address of business and one business place address proof or constitution of the business [Partnership deed, Incorporation Certificate, etc.,] is required.
  • Chartered Accountant Certification regarding nature of business.
    • Letter head with firm’s name and address.
  • Stamp in the name of the Proprietorship.
  • Address and ID Proof.
  • Partnership firm. For setting up a partnership firm, a partnership deed is to be created on a stamp paper of Rs. 500, purchased from the notary. A copy of the partnership deed is to be filed with the Registrar of Firms in case the firm is being registered. Though registration of a partnership firm is not mandatory in India, it is advisable to get the firm registered for ensuring smooth functioning in the future. Registration of partnership firm requires five documents:
  • An application, along with a prescribed fee is to be submitted to the Registrar of the state where the firm is set up.
  • Application for registration of Partnership in Form No. 1[1].
    • Duly filled specimen of affidavit[2].
  • Certified true copy of the partnership deed.
  • Ownership proof of the principal place of business or rental/lease agreement thereof.
  • The statement or application must be signed by all the partners or agents assigned by them especially for this purpose. As per S. 59 of the Indian Partnership Act, 1932[3], when the Registrar is satisfied, he shall record an entry of the statement in a register called the Register of Firms, and shall file the statement. However, if you are interested in setting up a non-commercial organisation and have a group of at least 7 members, then you can set up a ‘society’ for the purpose of providing scholarship to students as the registration process of ‘societies’ is the simplest and fastest process. Since, you want to base your scholarship on an examination, it will either fall under ‘societies established for the promotion of science, literature, or the fine arts for instruction’ or under ‘societies established for diffusion of useful knowledge’. This ensures that the society for scholarship can be registered under S. 20 of the Societies Registration Act, 1860[4]. The registration process of such societies involve-
  • Subscription of the names of the members in the memorandum of association and filing of the same with the registrar of the joint stock companies so that you may form a society of your own[5].
  • Upon such memorandum and certified copy being filed, the Registrar shall certify under his hand that the society is registered under this Act. Every such registration includes a payment of fifty rupees to the registrar or such smaller fees as(the State Government) may from time to time direct.[6]
  •   [1]  Available at: http://www.karunadu.gov.in/karigr/modeldeeds/Frm1.pdf. [2] Format available at: http://www.mca.gov.in/LLP/din_format.html. [3] Available at: https://indiankanoon.org/doc/105190/. [4] Available at: https://indiankanoon.org/doc/1853329/. [5] S.1 of the Societies Registration Act, 1860; available at: https://indiankanoon.org/doc/233246/. [6] S. 3 of the Societies Registration Act, 1860, available at: https://indiankanoon.org/doc/76226/.
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