Step by Step process to Register a Company
Hello and “Wake up” to all the entrepreneurs out there!
I am assuming that some, if not all, entrepreneurs-to-be, have definitely become successful entrepreneurs and a few of them are en route to becoming so, even as I write this from my desk! I am sure as you took that final leap-of-faith into an unknown zone, where no defined parameters exist to measure your success, immediate or long term, no-one waited out there to hold your hand, or to wipe your sweaty brow mixed with tears or to even ensure that you had made a safe landing! And once that leap was taken there was no looking back! This info-blog, as I would like to call it, brings to you yet another step closer to your safe landing i.e., Registration of your precious business in which you would have perhaps invested your life’s earnings!
If you are hesitating to do this for reasons like, you may be clueless about how long your business is going to last, I can perfectly understand that feeling of trepidation. But having said that, I shall still hope that after reading through the information given subsequently, you will be convinced without doubt, of the necessity to register your business.
There are several good reasons why it makes ample sense to register your company. The first basic reason is to protect one’s own interests and not risk personal assets to the point of facing bankruptcy in case your business faces a crisis and also is forced to shut down. Secondly, it is easier to attract VC funding as VCs are assured of protection if the company is registered. It provides tax benefits to the entrepreneur typically in a partnership, an LLP or a limited company. (These are terms which have been described later on). Another valid reason is, in case of a limited company, if one wishes to transfer their shares to another it’s easier when the company is registered.
Very often there is a dilemma as to when the company should be registered. The answer to which is, primarily, if your business idea is good enough to be converted into a profitable business or not. And if the answer to that is a confident and a resounding yes, then it’s time for one to go ahead and register the startup. And as mentioned earlier on it’s always beneficial to do it as a preventive measure, before you could be saddled with liabilities.
Depending upon the type and size of the business and the way you want to expand it, your startup can be registered as one of the many legal formats of the structure of a company available to you.
So let me first fill you in with the required information. The different company structures available are
a) Sole Proprietorship .That’s a company owned and operated or run by just one individual. No registration is needed. This is the method to adopt if you want to do it all by yourself and the purpose of establishing the company is to achieve a short-term goal. But this puts you at risk of losing all your personal assets should misfortune strike.
b) Partnership firm.Is owned and operated or run by atleast two or more than two individuals. In the case of a Partnership firm, as the laws are not as stringent as that involving Ltd. Company, (limited company) it demands a lot of trust between the partners. But similar to a proprietorship there is a risk of losing personal assets in any eventuality.
c) OPC is a One Person Company in which the company is a separate legal entity which in effect protects the owner from being personally liable for any losses.
d) Limited Liability Partnership (LLP), where the general partners have limited liability. LLP combines the best of partnership firm and a company and the partners are not personally liable to lose their personal wealth.
e) Limited Company which is of 2 types, i) Public Limited Company where the minimum number of members needed are 7 and there is no upper limit; the number of directors must be atleast 3 and ii).Private Limited Company where the minimum number of people needed are 7 with a maximum upper limit of 50. The number of directors must be 2.
In general if there is any risk which is likely to be incurred, then a company structure is the most suitable for the business.
The type of company structure could change over a period of time as business grows and the number of partners increase and the structure that suits them the best and is most advantageous with regards to taxation, raising funds etc. is then incorporated. For eg., OPC can be changed to a Pvt. Ltd. Company, Pvt Ltd. Company can be changed to a Public Ltd. company but a proprietorship or LLP cannot be changed.
Most startups prefer to have one of the above formats, except that of a Public Limited Company which is not the preferred mode of operation.
The Companies Act of 1956 sets down rules and regulations for the establishment of both public and private companies.
Specific laws govern the registration of different types of companies and the laws have to be stringently followed. Moreover, the laws are different in different countries. If one trades online though, one needn’t register the company in every country, but trademarks and domain names can be registered.
The routine way of registration of the company could take a-while and may seem to be an expensive affair. But the effort and the expenses are worth their weight in gold.
To outline a few details without getting into the nitty-gritties, there are a few steps to be accomplished viz.
1). Applying for DIN (Director Identification Number). This is a mandatory, unique identification number given to a Director of a company. This allows the Director to be accessed any time in case of fraud. 2) Applying for DSC (Digital Signature certificate) is to establish the identity of the person and is used to authenticate all e-forms sent to the RoC (Registrar of Companies). 3). Applying for the name to be registered after which depending on the type of company desired the applicable incorporation forms are to be filled and sent.4). Sending in a bunch of relevant documents, including the MoA (Memorandum of Association) and AoA (Articles of Association) 5). Applying for PAN (Personal Account Number) and TAN (Tax account Number). Greater details can be had from the government website of the MCA, http://www.mca.gov.in/MCA21/index.html. This whole exercise could take up to a month from the date of filing.
To make the above process faster and cheaper, registration can also be done as a single step using a new form INC-29. This is called the Integrated Incorporation Form which combines the steps of getting Director Identification Number (DIN), Name Availability and Incorporation, and applying for PAN and TAN into a single step. This allows a new company to be incorporated within 24 working hours after filing of INC 29 with MCA portal.
The disadvantages of INC 29 are that as it allows for all steps to be combined, if there is even a minor issue with one of the elements there is no way of knowing which is the site of the problem as there is no tracking system, and one may have to go through the entire procedure again.
For MSMEs (Micro, Small and Medium sized enterprises in the manufacturing and service sector), registration is not required, but they can seek MSME Registration under the MSMED Act of 2008. This is advantageous for the company. It benefits the MSME by making it eligible to get lower rates of interest, exemption from excise duty, subsidies on tax, power, investments and other support.
The procedure and laws for registering foreign companies in India, are different, wherein they have to be permitted by the RBI (Reserve Bank of India) to open offices, for the purpose of trading etc.
To summarize, this blog has attempted to capture the types of business establishments (excluding not-for-profit organisations), essences of registering a company, form INC-29, registration of MSMEs and offices of a foreign company.
Hope this fuels more interest and sorts out a few doubts concerning the topic.