When small businesses first start, breaking the law can lead to heavy penalties from the government that might hinder their ability to expand. It is strongly advised to follow all legal requirements within the allotted time periods to avoid these problems. To continue on the path to success, companies must have a thorough awareness of the many dangers and errors they must avoid. In this blog, the most common mistakes made during company registration are discussed along with the benefits of company registration, types of company, etc.
Why is Company Registration Important?
The formation of a company or the incorporation of a firm, also known as company registration, is the act of registering the business, conferring legal existence, and distinguishing it as an entity. Having a company registered under the law in India can be very helpful for the entrepreneur.
Following are some of the benefits of company registration:
- Separate Legal Entity
- Benefits in Taxes
- Limited Liability
- Credibility and Trust
- Brand Protection
- Access to Funding
- Opportunities for expansion
To avail of all the benefits mentioned above, a company registration process is needed. Corpbiz helps entrepreneurs in the company registration process so that they can avoid mistakes made during company registration.
Types of Companies in India
A new entrepreneur looking to start a business has many options that they can choose as per their goals. Some of the types of company present in India are:
A company that has just one person in total control is known as a sole proprietorship. Many entrepreneurs launch tiny companies under their own names and run them as one-person operations. The proprietor of such an institution is not seen as a separate entity. To launch a sole proprietorship firm in India, no official registration is needed.
Although it is simple to register this business, all obligations belong to the proprietor. For instance, the proprietor’s income must be stated in the personal income tax returns itself, and no separate tax returns need to be submitted.
For starting a company in India, it is important to register the company as a sole proprietor firm. Corpbiz assists new entrepreneurs in the same. Corpbiz provides expert guidance and assistance for sole proprietorship firm registration.
Private Limited Company
A private limited company is the best option if you want to enjoy your business as a private entity. In order to protect their assets, shareholders typically assume equal liability for debts. The entire shares that every shareholder has in these firms make up their net capital. The shares of a private limited business cannot be traded or transferred openly, in contrast to many other companies. An entrepreneur can enjoy the following advantages if the company is registered as a private limited company:
- Can sue and be used by others
- Separate legal entity
- Dual relationship
- Easy to exit
- Total possession of property
It is important to register the company as a private limited company. With Corpbiz’s assistance, you can register a private limited company without any hurdles.
One Person Company
A corporation or commercial organization with a single individual director and member is known as a “one-person company.” As a consequence, one individual will oversee all aspects of the company’s operations without taking on all personal responsibility. Corpbiz provides assistance with expert guidance for One Person Company in India.
Section 8 Company
Section 8 companies, also referred to as non-profit organizations, operate for charitable reasons. The goals are related to advancing literature, science, the arts, education, helping the underprivileged, and environmental preservation. Furthermore, none of the funds they earn is kept for them; all earnings go towards achieving these goals. To register Section 8 companies, there is much compliance that is to be followed. Corpbiz can help you with section 8 company registration.
One partner or more can establish a partnership and carry out company operations after agreeing on their roles and profit-sharing. You must employ a legally enforceable contract known as the Partnership Deed in order to register a partnership firm. Under company registration, you can designate tasks, obligations, and the quantity of shares possessed. To register a partnership firm, you can avail Corpbiz’s expertise and hassle-free services.
Public Limited Company
The public is able to own shares in public limited firms, unlike private limited companies. It is set up in accordance with business legislation and trades easily on stock market platforms. It is recommended that enterprises of this nature apply for the ROC certification before engaging in any commercial activity. You can register a company as a public limited company with Corpbiz. Corpbiz offers end-to-end support in the whole registration process.
Limited Liability Company
The Limited Liability Partnership Act of 2009 governs the incorporation of limited liability partnerships. In contrast to partnership businesses, limited liability companies do not subject their participants to limitless obligations stemming from the business. Their liability for debts or losses is restricted to the investments they have made. The partners of a limited liability partnership are regarded as distinct legal entities. Individual partners are secured and protected from joint liability upon the commission of another partner’s wrongdoing because no partner is accountable for the independent activities of other partners.
Corpbiz assists with a limited liability company registration, ensuring the whole company registration process is easy and fast.
Process of Company Registration
To register any type of company in India, there are a few common steps that are to be followed in all company registration processes. The process of company registration consists of the following:
Step 1: Firstly, select the name of the company as per the guidelines.
Step 2: Then, apply for the DIN and obtain the same.
Step 3: After that, we have to apply for the digital signature certificate, which will be used later in the registration process.
Step 4: To start with the registration process, we have to apply on the MCA portal and submit all the documents and application forms.
Step 5: Grant of the certificate.
Mistakes to Avoid During the Company Registration Process
Some of the common mistakes made during company registration are:
Name of the company
The name of the company is one of the initial mistakes made during company registration. The most important initial step in the registration procedure is deciding on the appropriate name for your business.
The legality of your selected name is subject to the provisions of the Names and Emblems Act 1950, the Trademark Act 1999, and the Companies Act 2013. Your firm’s name shouldn’t sound similar to an LLP or an already-existing corporation. Additionally, it shouldn’t break any laws or be deemed undesirable by the central government. A list of names and terms that should not be used in a company’s name is included in Rule 8 of the Companies Incorporation Rules 2014 and requires prior clearance from the Central Government.
Type of company
Selecting the appropriate business type to register in accordance with the requirements is the second frequent mistake made during company registration. Choosing the right business structure is essential since it establishes the operational and legal basis for your organization. A common mistake made during company registration is to select a structure quickly without thinking through all of its long-term effects. It is critical to evaluate choices such as partnerships, corporations, sole proprietorships, and limited liability companies, onsidering aspects including ownership, taxation, liability protection, and potential for future expansion.
Errors pertaining to the business description are the third most frequent mistakes made during company registration. The firm’s description, including its name, operations, location, distinctive brand, target market, and, above all, business objective, should be included in the application for company incorporation. A firm’s accurate definition, determined at the time of creation, serves as the basis for key documents such as the Articles of Association, Memorandum of Association, business strategy, and policy. Planning the company’s post-incorporation development and expansion is made easier by this precise description.
Documents required in the company registration process
It is important to make sure that all necessary papers are properly connected and filed as part of the business registration procedure. These mistakes made during company registration may cause an unneeded delay. Attaching the necessary supporting documentation is required after completing the company information in PART B of the online SPICe+ application form. The PAN, identification documentation, proof of the applicant director’s registered address, and proof of the registered office address are necessary supporting papers.
Appointment of directors
Mistakes made during company registration can potentially have an impact on the selection of directors. A company does not have to nominate all of its shareholders as directors. A company’s board of directors should be a strong group that includes industry experts, market analysts, shareholders, and lawyers. The Board of Directors must exercise knowledge, experience, and competence in order to make a number of crucial choices. Not every stockholder in the business may have these abilities.
The mistakes made during the company registration have the potential to bring the company to its knees. As a result, it is always a good idea for a business owner to keep ownership and management of the firm separate and to choose the Board of Directors and individual directors with the highest care and consideration to avoid these mistakes made during company registration.
Drafting of rental agreements
Drafting the rental agreement and having a written record of it is crucial. This is one of the other general mistakes made during company registration. To avoid disagreements, you and your landlord should draft a formal rental agreement. Since only written and registered agreements are enforceable in court, oral agreements may cause issues. Applying for registration entails going to the State Government’s sub-registrar’s office and providing information about the business, including its name, address, rent amount, length of lease, conditions of renewal, notice periods, and facilities offered. Avoiding these mistakes made during company registration in the initial stage helps in reducing the risks in the later period.
No shareholder/founder agreement
A shareholder/founder agreement should always be established for mistakes made during company registration. One of the most important papers to be created, approved, and signed by all of the company’s shareholders is the shareholder’s agreement. Resolution of shareholder disputes might become quite difficult in the absence of such a documented agreement. Therefore, it is recommended to avoid these mistakes made during company registration.
Not aware of local rules and regulations
For every company, adherence to local, state, and central rules is crucial. During the registration procedure, failure to comply with compliance standards may result in penalties, fines, or even the suspension of your company activities. State-specific post-incorporation compliance requirements exist, even though the Union Ministry of Corporate Affairs oversees the registration process. There may be severe consequences if certain state-specific laws are broken. Therefore, it is essential to be informed of and abide by all local rules in order to prevent mistakes made during company registration.
The mistakes related to the company’s office address are another kind of mistake made during the company registration. Filling out the application’s address section frequently leads to confusion. The location of the main office or headquarters, where major business activity will take place, and the personal address of the director signing the application are the two sorts of addresses required on the form. Proof of residency no more than two months old is required to substantiate these addresses. The only acceptable forms of evidence of address for the application are invoices for phone, water, and electricity.
No expert guidance during the company registration process
Seeking professional counsel is crucial to guarantee that no mistakes are made during the company registration. The majority of entrepreneurs either don’t know what regulations they need to follow in order to launch their company or choose not to since doing so would need expensive legal fees. Furthermore, your company may have to close if legal action is taken against it for not following mistakes made during the registration process. Therefore, it is advised that you work with experts and seek compliance services from Corpbiz in order to prevent mistakes made during company registration.
Mistakes Made Post Company Registration Process
It is vital to avoid both mistakes made during company registration and post-registration. Some of the mistakes that are made post-company registration are:
Not giving importance to intellectual property rights
New company owner often make mistakes during company registration when they do not protect their brand name and trademark. The innovative concepts, designs, inventions, and creative ideas of a firm are referred to as intellectual property. If you don’t defend it, someone could take your idea and pass it off as their own, which might cost you money and harm your reputation. Small business must safeguard their intellectual property to maintain the legitimate ownership of their goods.
Protecting intellectual property laws is crucial, as is abstaining from stealing another company’s trademark, watermark, or logo.
Not planning taxes
At the central, state, and local levels, India has a wide range of direct and indirect tax regulations. It is crucial to be aware of and comprehend all applicable tax rules, as well as to account for all applicable taxes when filing taxes. The profitability of your business might be severely impacted by inaccurate calculations and assumptions.
Not keeping accurate accounting records.
Even before your company is fully registered or before you start activities, you will incur business expenditures. Keeping track of all these costs is crucial since you will require them for tax reporting purposes. When your business starts turning a profit, you may have to pay more taxes if you don’t account for these costs.
Not understanding market conditions.
Many mistakes made during company registration are due to a lack of comprehension of market conditions. Due to India’s great diversity and abundance of languages and cultures, it might be challenging for foreign investors to adapt to the demands of the local market. Issues may arise for foreigners, especially when obtaining services or buying raw materials.
It is vital to ensure that the mistakes made during company registration are not made. The mistakes made during company registration often lead to delays in the process. By eliminating the mistakes made during company registration, business owners can successfully register the company. Essentially, these mistakes made during company registration can be avoided by professional advice. Mistakes made during company registration can also have post-registration effects. Hence, mistakes made during company registration should be minimized.
Frequently Asked Questions
After registering your business, you can, in fact, alter its name, but doing so requires formality and Ministry of Corporate Affairs permission. It is best to use caution while selecting a name throughout the registration procedure in order to prevent issues thereafter.
Penalties for breaking state-specific legislation might be severe. In rare circumstances, it can also lead to legal action being taken against your company, which might eventually cause it to close.
Having professional support may help you avoid costly mistakes, ensure that all legal criteria are met, and manage the complicated registration procedure. It’s an investment in the expansion and efficient running of your company.
The quick answer is that, yes, business registration is typically required. Nevertheless, there are differences depending on the kind of corporate structure and operations.
You would be held personally responsible for any debts or litigation pertaining to your firm if the company wasn’t registered. You are protecting your assets and personal money by registering your firm.
The fine for failing to register a corporation might reach Rs. 10,000 for each day that the default continues. In the absence of MCA registration, a company’s legal status is deemed to be that of its owners.
A legal document that attests to a company’s establishment under the Companies Act of 2013 is a certificate of incorporation. It serves as proof that the business is formally listed with the Registrar of Companies.
For every firm with annual revenue over Rs 40 lakhs in a fiscal year, registration under GST is required to avoid these mistakes made during company registration.
The Ministry of Corporate Affairs (MCA) oversees the Registrar of Companies (ROC), an entity that handles national company and limited liability partnership administration.
The goals, internal administration, and parameters of an organization are outlined in the MOA and AOA. The foundation of the company’s constitution consists of two fundamental documents: the MOA and the AOA.
Read Our Article: How to Get A CA for Company Registration?