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Monisha Chaudhary
| Updated: 15 Mar, 2022 | Category: Company Registration

Why Company Registration is important for small businesses?

small businesses

While thinking about starting a new business, the idea of registering a company seems lucrative but at the same time a mighty step into the business world. However, it brings abundant benefits for the business owners once they get their business registered in the form of a Company.

The benefits may range from a wide array of perks. Hence, lets discuss about certain benefits of registering a small businesses in the form of Company:

Personal Liability is Limited:

We all are aware of the monetary and other risks associated with running a small businesses. When the funds are limited and the risks are abundant, it becomes difficult to expand. The company being a separate legal entity, reduces the personal risks of the promoter. This means that the personal assets of the promoter won’t be attached towards the business losses. This allows the owner to take more risks in the favor of the business. Overall, the company and the promoters are two different persons in the eyes of the law.

Tax liability is minimized

Now a days, government is coming up with new schemes to promote small businesses. There have been whole lot of initiatives such as Startup India which are encouraging the small promoters to bring their businesses in the formal domain. Various tax exemptions and minimal compliance facilities are also provided to the new entities. Therefore, the promoter has the leverage to put more funds into the business rather than paying excessive tax.

Legal Status

A company is a well-recognized form of business and enjoys better legal status as compared to a sole proprietorship or partnership firm. It is trustable entity in the eyes of the law and therefore can also sue and be sued in its own name, represented by an authorized signatory.

Brand creation and visibility

It is very difficult to recognize any global brand which has not been registered in the form of a company. It is the very first step towards building a better business. Having a legal statute, a business can cross borders and reach to the masses. A single company may lead to a group of companies and so on. It is easier to conduct the due diligence upon a registered entity and hence more people can impose their trust upon.

Dealing with third parties

There are many businesses which only deal with the registered companies. Therefore, in order to expand operations, the registered entities enjoy the privileges over the unregistered ones. Over a period of time, the small businesses gain the confidence and becomes well recognized.

Helpful in getting investments

A small business gets its recognition in the market and amongst its customers when it is visible in the eyes of the law. Any party willing to invest in the aforesaid business can easily verify the compliance and tax status of the firm on the government portal. This enables a wide range of the investment opportunities for the new business.

 Helps in expansion

A duly registered Company is more efficient in maintaining its accounts and records and therefore better able to manage its inflows and outflows. This helps a business to keep a keen watch over its funds which can be utilized in the expansion of the business. Within a period of time, it is easier for the small business to add a new product line and new service line.

Way forward for stock exchange listing

In the initial phase, the small business can register itself as a private limited company. It is easier to manage a private limited as only few people are involved and no outside interference is there. However, when the small business reaches its break even and is willing to make a big mark, it may get itself listed in the stock exchanges. Hence it is easier for a private limited to convert itself to a public limited and hence go ahead for listing. In this way, a business will have access to huge public funds which can be utilized for taking the Company to new heights.

International Market access

International tie ups can only be possible when the concern is a registered entity. Moreover, the mergers and collaborations are also feasible between two registered companies. A small business can therefore enter the new domain of international business and can access the international markets.

Right of transferability

A company is either limited by shares or limited by guarantee.  This allows the promoters or shareholders of the company to transfer their shareholding to another person who is interested in the business and is ready to contribute the further capital. It is an easier way to meet the fiscal needs of the business and can be lucrative as compared to other forms of debts.

Conclusion

If you are concluding about setting up a company, you can do it as soon as possible. As we are comprehended from the examples above, registering the business is very crucial to overall growth of the business. If order to incorporate your business in the form of company or an LLP in India, an incorporation form shall be filled and  be submitted  to the Ministry of Corporate Affairs[1]. The whole registration process is now conducted electronically, making it quick and efficient. The failure to get your company registered well in time may cost you loss of growth and opportunities and it may also hamper the survival of your business in the long run.

Read our Article:How to Incorporate a Company in India: Complete Guide

Monisha Chaudhary

Experienced Legal and Advisory professional with 5+ years of workings in the field of compliance, statutory governance and licensing, RBI, IRDAI matters etc.

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