In recent years, India has seen a constant increase in the start-up industry, fueled by the dreams of young Indian entrepreneurs. According to the Ministry of Corporate Affairs estimates, over 15,000 new start-ups arise each month and enter the Indian market to try their luck. However, just 20% of them survive, and only 0.001% go on to make it huge over time. While the limited scope of operations, profit-earning, growth, and expansion may be the primary causes of such low success percentages, certain typical errors committed by start-up owners can also have catastrophic implications.
It is not necessary for startup entrepreneurs who have only recently entered the sector to become acquainted with the technical and legal aspects of company formation. Even though the formation process is online and quick under MCA 21, startup owners frequently commit a few basic blunders during company registration. The purpose of this article is to highlight such errors and offer ideas for avoiding them in the future. The option of hiring professional counsel for the purpose is always available and recommended, to avoid problems in the long term.
The top three registration mistakes that KILL companies include picking the improper entity structure, failing to protect intellectual property, and failing to comply with necessary government registrations. Every year, billions of dollars are invested in new concepts, applications, and portals. While financing gives a business concept wings, entrepreneurs must be vigilant at all times because even a minor mistake can turn large investments into dust.
However, the process of registering a private limited company in India can be complex, time-consuming, and prone to errors. In this article, we will discuss how to avoid common mistakes and delays when registering a private limited company in India.
- Understand the Legal Requirements:
The first step in registering a private limited company in India is to understand the legal requirements. The Companies Act, 2013 governs the registration of private limited companies in India. Under the Act, a private limited company must have a minimum of two directors and two shareholders. The directors and shareholders can be the same individuals. The company must also have a registered office in India, which can be either commercial or residential property.
In addition to these basic requirements, there are several other legal formalities that must be completed. These include obtaining a Digital Signature Certificate (DSC) and Director Identification Number (DIN) for the directors, registering the company name, preparing the Memorandum of Association (MOA) and Articles of Association (AOA), and filing the incorporation documents with the Registrar of Companies (ROC).
To avoid delays and mistakes during the registration process, it is important to consult with a legal professional who can guide you through the legal requirements and ensure that all formalities are completed correctly.
Each entity form has its own set of advantages and disadvantages. The company type you choose can limit the number of people who can join as owners, new capital infusion, and so on, which is why you should familiarize yourself with the key elements of each business structure before diving in.
- Choose the Right Business Structure:
When registering a private limited company in India, it is important to choose the right business structure. There are several different types of business structures in India, including sole proprietorship, partnership, limited liability partnership (LLP), and private limited company.
A private limited company is the most popular business structure in India, as it offers limited liability and the ability to raise capital through the issue of shares. However, it may not be the right choice for every business. For example, if you are a sole proprietor or a small business owner, a sole proprietorship or partnership may be a more suitable business structure.
To choose the right business structure, consider factors such as the size of your business, the number of owners, the level of liability protection required, and the ability to raise capital. Consulting with a business advisor or legal professional can also help you make the right decision.
- Choose the Right Name for Your Company:
Choosing the right name for your company is an important step in the registration process. The name should be unique and not similar to any existing company or trademark. It should also be easy to remember and reflective of your brand.
To check the availability of your chosen name, you can conduct a name search on the Ministry of Corporate Affairs (MCA) website. If the name is available, you can reserve it for 20 days by filing the name reservation application with the MCA. Once the name is reserved, you can proceed with the registration process.
- Prepare the Memorandum of Association and Articles of Association:
The Memorandum of Association (MOA) and Articles of Association (AOA) are two important documents that must be prepared during the registration process. The MOA outlines the objectives and scope of the company, while the AOA outlines the rules and regulations governing the company’s internal affairs.
To avoid mistakes and delays, it is important to ensure that these documents are prepared correctly and in accordance with the Companies Act, 2013. It is advisable to engage a legal professional to help you prepare these documents.
- File the Incorporation Documents with the Registrar of Companies:
Once the MOA and AOA have been prepared, the next step is to file the incorporation documents with the Registrar of Companies (ROC). The documents that need to be filed include the MOA, AOA, and the forms for obtaining the DIN and DSC for the directors.
To avoid delays and mistakes during the filing process, it is important to ensure that all documents are complete and accurate. Any errors or omissions can result in the rejection of the application and delay the registration process.
- Obtain Digital Signature Certificates (DSCs) and Director Identification Numbers (DINs):
Digital Signature Certificates (DSCs) are required to sign electronic documents filed with the ROC. Directors of the company must obtain their own DSCs. Similarly, Director Identification Numbers (DINs) are unique identification numbers issued to directors of companies. These are also required for filing electronic documents with the ROC.
To obtain DSCs and DINs, directors must submit an application online and provide the required documents. It is important to ensure that all documents are accurate and complete to avoid delays in obtaining DSCs and DINs.
- Register for Taxes and Obtain Necessary Licenses:
After registering your private limited company, you must register for taxes and obtain any necessary licenses. This includes obtaining a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) from the Income Tax Department, as well as registering for Goods and Services Tax (GST) with the GST Department.
In addition, depending on the nature of your business, you may need to obtain other licenses and permits from regulatory authorities. It is important to consult with a legal professional to ensure that you have obtained all the necessary licenses and permits.
- Maintain Compliance with Regulatory Requirements:
Once your private limited company is registered, it is important to maintain compliance with regulatory requirements. This includes filing annual returns, holding shareholder and director meetings, maintaining proper accounting records, and complying with tax and regulatory requirements.
Non-compliance can result in penalties, fines, and legal liabilities. It is important to seek the advice of a legal professional to ensure that you are complying with all regulatory requirements.
- Ignorance of Taxes and Other Government Registration:
In India, many State and Central level authorities create and regulate company registration and startup registration policies, as well as business operations. These state and central government authorities in India demand company registration under various laws such as the Professional Tax Act and the Establishments Act.
Typically, businesses are unaware of the application of various registrations and end up paying substantial penalties and fines for noncompliance.
There are numerous government registrations available, including:
- Import and export codes (IEC): Import and export codes (IEC) are required for all import and export transactions.
- Shop and Establishment License: Each business location, such as a branch office, head office, registered office, and so on, need its shop license.
- GST Registration: Products and Services Tax registration is required for all individuals who offer goods or services in India.
- Employee Provident Fund: The EPF Act applies to every firm with more than twenty employees.
- Professional Tax: Professional Tax is levied on individuals who work for an employer or who are self-employed. Employers deduct and collect this tax, which is only applicable in certain Indian states.
Noncompliance with the aforementioned legal obligations as a small business startup may result in significant penalties imposed by the government. Spending large quantities of money on fines is bound to have a negative influence on your company’s growth prospects. As a result, it is strongly advised that you comply with all legal requirements within the time frame specified to avoid future problems. Wherever possible, seek professional guidance from legal professionals.
Many of you may be about to establish your firm and embark on an entrepreneurial path. InstaSpaces and our top legal experts are available to assist you and guide you through the essential steps. We guarantee that the legal actions will be handled with attention and speed. The experts will keep you updated on each step of the procedure and will counsel you on company registration in India.
InstaSpaces specializes in providing company registration, post-registration, and legal compliance services throughout India. For decades, we have served a diverse range of domestic and international clients, aided by a staff of seasoned professionals and legal experts. We have continually assured that the services we provide are timely, cost-effective, and of high quality. You can learn more about our services by visiting our website.
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