Common Mistakes to Avoid When Registering a Company in India

This is an exciting business idea to start an enterprise in this thriving hub of India, which has emerged as a hotbed of technology, education, and entrepreneurship. However, registering a company may seem an easy affair. It involves several legal steps plus involved procedures. Most entrepreneurs make mistakes during the company registration process that cause delays, and extra costs, and sometimes also lead to legal problems in the future. 

In the following blog, we have tried to highlight the most common mistakes people make while registering a company in India. We are also adding tips as to how to avoid those common mistakes:

Not Choosing the Right Type of Business Entity

One of the very first decisions that you have to make while registering a company is the choice of business structure. In India, the most common types of business entities are:

• Private Limited Company (Pvt Ltd)
• Limited Liability Partnership (LLP)
• Public Limited Company
• Sole Proprietorship
• Partnership Firm

How to Avoid This Mistake

Carry out research on the different business structures or consult a business consultant who will determine which one of them fits your business goal best, the number of partners, and long-term objectives.

Failing to Choose a Unique Company Name

The company name should be unique and memorable for branding as well as for legal requirements. While registering a company, the name cannot be identical or confusingly similar to any other business name.

How to Avoid This Mistake

1. The Ministry of Corporate Affairs (MCA) portal can be referred to while searching for existing names of a company or trademark.
2. Discuss this with a trademark lawyer before you settle on a name, ensuring it doesn't conflict with prior existing intellectual property rights.
3. Use popular domain registrars to check the availability of a specific domain name.

Incomplete or Incorrect Documentation

The paperwork involved in getting a company registered is huge. It includes proofs of identity and address, copies of a Memorandum of Association (MOA), and Articles of Association (AOA) among other documents. The most common reason for delay in getting a company registered is the submission of an incomplete or incorrect set of documentation.

How to Avoid This Mistake

Be prepared with the documents that you need before applying. Ensure that all the documents used are correct and free from mistakes. In this process, you can refer to a professional or access an online company registration service that offers step-by-step procedures for preparing documents.

Ignoring Tax and Legal Compliance Requirements

The whole concept of beginning a business is much more taxing and complex than most people imagine, along with the significant tasks involved in registering the company. The most common misconception areas are the continuous tax requirements. Such as GST registration, income tax filings, and labor law compliance.

How to Avoid This Mistake

• Ensure that your business is registered with the GST (if applicable).
• To know about the taxation structure of the country, one needs to have a word with a tax consultant or even a chartered accountant.
• Keep track of all compliance deadlines to avoid penalties.

Delayed or Incorrect Shareholding Agreement

Thus, a shareholding agreement within a private limited company is the most critical because on paper. It is essential to determine how ownership should be divided among the founders of this company and other stakeholders. If not documented properly, this may bring about disputes in later periods and will adversely impact the business and its future growth.

How to Avoid This Mistake

This would also provide the shareholding agreement to include, in broad terms, the share of the company each partner has. The rights and obligations pertinent to each, and the mechanism for resolution if a dispute arises. It would be judicious to draft this document under consultation with a legal expert. 

Not Setting Up a Proper Business Bank Account

Most novice entrepreneurs commit the mistake of using personal banking accounts to run businesses. The creditability factor will most likely be affected, including suppliers, customers, and investors. Open a separate business bank account upon registration of your company. This will help make bookkeeping easier for you.

How to Avoid This Mistake

Register the business and open a separate business bank account to centralize your accounting procedures and ensure that your personal and business finances remain segregated.

Conclusion

Choosing the right CA for your company registration is essential, as the role of a CA in company registration can help avoid common mistakes. Most usual errors can be avoided, which will ensure that the registration process for the company goes on without a hitch. Thus become a strong foundation for some businesses in one of the most dynamic cities of India.

Frequently Asked Questions