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HOW TO REGISTER A COMPANY IN INDIA: A COMPLETE GUIDE
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HOW TO REGISTER A COMPANY IN
INDIA: A COMPLETE GUIDE
Most of the founders are coders, designers, marketers, and folks from different professions. One critical thing
that most founders aren’t the best at are the basic legalities when it comes to starting and registering a
business.
Let me tell you how important it is to be on the right side of the law. The last thing that you want is getting
penalized over a legal mistake that you were not even aware of I know that your initial focus is to give shape to
your business idea and build a team that believes in your vision. Pitching to prospects, closing deals, and
meeting with investors along with developing the product takes up all your time.
However, when you embark on your journey as an entrepreneur, the first thing you should do is register your
company.
As a rule of thumb, you should never use your private bank account to make a business transaction. You never
know when this could bite you in the future.
Additionally, if you’re looking to raise funding, investors would never invest in a startup that is not registered. Or
in case of the incorrect company structure, they would ask you to first get this sorted.
HOW TO CHOOSE YOUR COMPANY NAME
Just as building a business is not easy, coming up with a name for your venture is equally difficult. It takes time
to find a name relevant for your business and rushing into a name for the sake of getting the website live does
more harm than good. Think of Google or Nike.
People remember and associate brands by their names. The process of naming a business is equivalent to
laying the base of a building. The name should be strong and well-aligned otherwise it would be remembered
for all wrong reasons.
To avoid messing up with the name of your company, take into consideration the following points
before registering the company name:
Choose a name that is easy to remember, pronounce and is short enough to communicate your brand
to the customers. Stay away from complex words so that it’s easy to convey the name even on phone.
The name should reflect the mission of your business. Let the name showcase what the company is all
about and the products your company sells. The last thing you’d want is people to think of cars when
your business is into selling food.
Choosing a brand name that sounds similar to an existing player is a bad idea. Hire a lawyer to review
the name before you register the company. In many cases, brands have had to change their names
because of extreme similarities. You don’t want to face this when you’ve spent millions of dollars over
marketing the brand.
Check if the domain name is available. In this age where a brand has to be present online, if the
domain name is already taken by someone else, it doesn’t make sense to choose that company name.
GUIDELINES FOR NAMING A COMPANY
Some of the directions of naming a company based on the Companies Act 2013, and Companies Incorporation
Rules 2014 are:
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"The Company who deals with financial activities need to have a name related to financial aspects.
Few names need the approval of Central Government that holds Union, Prime Minister, Statutory,
Scheme, National, Small Scale and Federal.
All of the Company established as a Nidhi can include the words Nidhi Limited at the end of the
company name.
The name should be in resonance with the principal object of the company.
Name which includes the word Insurance, Venture Capital, Bank and Mutual Fund need to get
regulatory compliance from the regulatory bodies like SEBI, IRDA and RBI.
You can change the name only after three years."
Once you decide the name of the company, the next step is to incorporate the company. The Ministry of
Corporate Affairs (MCA), under the Companies Act 2013 has made the new company registration process very
simple and efficient. You can get your company registered within seven days. The process is so seamless that
you can get the registration done without even going to the government offices.
DIFFERENT BUSINESS STRUCTURES
As a founder, you should be clear about the name and type of your startup. To register to incorporate your
entity under a specific business type, you should be aware of the technicalities of each type.
There are five main types of companies you can register in India:
Sole proprietorship
One-person company
Partnership company
Limited liability company
Private limited company
SOLE PROPRIETORSHIP
The sole proprietorship is the easiest form of company registration in India. One person manages sole
ownership, i.e., a sole proprietor. If you are looking to have full control of your business, this option serves
ideal.
ADVANTAGES:
No government registration required
No compliances to be fulfilled
No government regulatory paperwork
All profits earned are yours
You do not require double taxation
Pay income tax returns only on your income
ONE-PERSON COMPANY
A new type of business structure called One Person Company (OPC) was introduced by the Indian
government in 2013. Until 2013, a single person could not incorporate a company, you needed to have a
minimum of two directors to do that.
BENEFITS:
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Lesser compliance compared to a private limited
Limited liability for directors (meaning the owner’s personal assets wont be at risk in the event of an
unfortunate event)
Legal Recognition
Makes it easier to get loans from banks
Complete control of the company
Easy to manage
REGISTERATION PROCESS:
Obtain Digital Signature Certificate (DSC)
Obtain Director Identification Number (DIN)
Apply for Name
File all forms with Ministry of Corporate Affairs (MCA)
Collect your certificate of Incorporation
Approval Documents required:
Memorandum of Association (MoA)
Articles of Association (AoA)
Proof of registered office
Affidavit and consent of director
A declaration that all compliances have been made
PARTNERSHIP FIRM
If you decide to have partners in your business, the easiest way to go ahead with is to create a partnership
firm. All you need is a partnership deed which is an agreement between the partners. This agreement will
contain all the duties and obligations between the partners and how profit will be shared.
DETAILS TO BE MENTIONED IN THE PARTNERSHIP DEED
Name and address of all the partners
Name and address of the partnership firm
Starting date of the firm
Capital each partner has invested
Profit share ratio among partners
Salaries/commissions to be paid out to partners
Rights of each partner
Duties and obligations of each partner
Other clauses which are mutually agreed upon
BENEFITS:
Easy and convenient to form
Risk is shared between partners
No need to submit annual returns to the MCA
Statuary Audit is not mandatory
Easy to wind up
Flexibility
LIMITED LIABILITY COMPANY
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Limited Liability Company(LLC) takes advantage of other business structures corporation, partnerships, and
sole proprietorship. Limited Liability Company is entitled as flexible business structures, and LLC separates
personal and business liabilities. Every owner will have their tax liabilities shared.
BENEFITS:
The paperwork in LLC is much lesser as compared to other registrations.
This makes LLC more flexible and easier to form.
LLCs keep their members safe from the liabilities like personal debts and legal hearings.
It also provides tax flexibility where the income, expenditures, and profits become the part of owner’s
tax returns.
In LLCs, one does not have to necessarily follow a business structure to run one’s organisation.
Profit sharing is also flexible in LLCs.
PRIVATE LIMITED COMPANY
A Private Limited Company aka LTD is a type of company that has a minimum of two and a maximum of 200
members. As the name suggests, it cannot raise the funds from the public, which means the company cannot
publicly issue the shares. There is no paid-up capital required now to set up an LTD.
BENEFITS:
The liability of the company’s owner with respect to the company’s debt is only limited to his/her shares.
The shares of the company are easily transferrable to the other person.
The company can issue debentures and can receive funds from public platforms, thus making it easier
to raise the money.
There are more tax benefits in LTDs and the percentage of applied tax is also lesser as compared to
other types of company registrations.
IMPORTANCE OF CHOOSING THE RIGHT
BUSINESS STRUCTURES
It's significant to select the business structure carefully as it impacts your income tax returns. Each business
structure has its own compliances, and therefore you need to keep this in mind on how to set up a company in
India. The company needs to file annual returns and income tax return with the company registrar.
The company's account books are audited mandatorily every year. The legal complications need spending
money on tax filing experts, accountants, and auditors. Choose the right business structure when thinking of
registering your company in India.
A businessperson should have a clear idea of the type of legal compliance she/he is willing to take care of or
deal with. Some of the business structures are investor friendly while others are complicated. The investor will
prefer to go with a legal and recognised business structure.
Here are some crucial questions you should ask yourself before deciding on how to start your company in
India:
1. SHOULD YOUR INITIAL INVESTMENT INFLUENCE YOUR BUSINESS STRUCTURE CHOICE?
Yes! If you need to spend less, then you should go with either partnership or sole proprietorship. You
can prefer to choose a Private Limited Company or LLP in case you can recover the compliance and
setup costs (The cost of registration of a sole proprietor company is nearly Rs 2,500 while that of a
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partnership firm is nearly Rs 5,000. If you incorporate a private (LLP or LLC) company with a minimum
authorised capital of Rs 1,00,000, the registration will cost you Rs 7,000.)
2. WHAT ARE THE INCOME TAX RATES FOR EACH BUSINESS?
For a proprietor, the income tax returns are similar to the individual income tax return filings:
TAXABLE INCOME TAX RATE
UPTO 2,50,000 INR NIL
2,50,000 TO 5,00,000 5%
5,00,000 TO 10,00,000 20%
ABOVE 10,00,000 30%
For an LLP, the income tax returns are filed under the form ITR-5. For the turnover of more than 40
lakhs, you need to get a tax audit.
3. HOW MANY PARTNERS OR OWNERS THE BUSINESS HOLDS?
In the case of an individual managing the entire company then it's an excellent option to choose a
person company. If there is more than one owner, then you can choose a Private Limited Company or
Limited Liability Partnership.
4. ARE YOU WILLING TO BEAR THE ENTIRE BUSINESSLIABILITY?
HUF, partnership, and Sole Proprietor business structures will have unlimited liability. The money will
be recovered from the partners or members in the profit sharing ratio in the case of default loans. The
personal asset risk is high in this case. LLPs and companies have limited liability. The member liability
is restricted to the contribution amount made by the share value of each member.
5. WHAT ARE THE PLANS FOR GETTING THE AMOUNT FROM INVESTORS?
Investors stay away from unregistered business structures. Entities like Private Limited Company and
LLP are trusted by angel investors and venture capitalists. You should seek the help of a lawyer before
choosing the best business structure for you.
6. HOW TO CHOOSE THEBEST SUITED STRUCTURE?
The critical factors to look into while choosing to incorporate a company in India are:
Taxation: The business owners who desire to report losses and profit of their business on their
personal tax returns and who are taxed on the net earnings from the company need to select "pass-
through entity". This includes partnerships, sole proprietorships, and LLC in India. The owner who
needs to utilise a corporate structure to take advantage of corporate tax rates should go with C
Corporation or S corporation business structure.
Risk: A business is always risky and business owners should consider opting for a business
structure capable of securing their personal and valuable assets from the business responsibilities.
A corporation or LLC can insulate the personal assets of the owner from the business litigation and
creditors.
Complexity: LLCs and corporations need detailed record keeping and adherence to an extensive
list of needs to control Limited Liability protection.
Control: The level of control the business owner has towards the business directly impacts the
company registration structure. For example, if you are the business owner who adheres to manage
the company as an individual, then you should be ready to stay as a sole trader.Complexity and
cost of legal structure and formation: There are various legal structures, and each has an ideal set
of complications, procedures, and cost. For instance, a sole trader required few reporting needs
that he/she can do by themselves. A more complicated structure like a trust holds requirements of
strict reporting and should be set up by an accountant or solicitor.
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Tax implications: The business legal structure holds essential effects on the tax amount you pay.
A sole trader can enjoy the tax benefits by claiming on a personal tax return whereas a trust does
not need to pay income tax on profits.
HOW TO REGISTER A COMPANY
Here are some of the procedures for registration of the company under companies’ act 2013. There are four
critical steps to be followed on how to register a company in India.
Obtaining DSC (Digital Signature Certificate)
Obtaining DIN (Director Identification Number)
Filling a New User Registration or eForm
Incorporating the company
OBTAINING A DSC
The first step is to apply for the DSC of the directors also derived as Digital Signature Certificate. DSC is e-
signature which enables you to complete the online company registration process in India. It takes two days to
obtain DSC after submitting the documents.
The Information Technology Act, 2000 has included provisions for utilising digital signature on every submitted
document in the form of electronics to make sure the authenticity and security of the documents are filed
electronically.
This is an authentic and secure way to submit a document electronically. Similarly, all filings done by the LLP
and companies under the government program of MCA21 are needed to be filed utilizing the digital signatures
by the person who is authorized to sign the documents.
OBTAINING DIN (DIRECTOR IDENTIFICATION
NUMBER)
The second step is to acquire an identification number. Obtaining a DIN is mandatory according to the
amendment act of 2006. Every intending and existing directors need to acquire DIN. To get this, file a DIN e-
form. The form can be taken from the official State of Ministry of Corporate Affairs.
Once receiving the generated DIN, they should let know about their organisation about DIN. The director can
let them know about their company using DIN 2 form. The company should then intimate the ROC (Registrar of
Corporate) regarding all DIN of the directors via DIN-3 form.
FILLING A NEW USER REGISTRATION OR E-FORM
This part is about having an MCA portal or registered user account for e-Form filing, for different transactions,
for online fee payment as business and registered user. Creating an account is free.
INCORPORATING THE COMPANY
The final part of the company registration online is incorporating the company name, notice for appointment of
managers, secretary, and company directors, and registering the opinion of the situation of office and office
address.
DOCUMENTS REQUIRED:
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DSC - Digital Signature Certificate
Form - 1 for Incorporation of Company in India
Form-32 for particulars of managers, secretary, and proposed directors
Director Identification Number of all proposed company directors
Original copy of the formal letter which is published by ROC about company name availability
Form- 18 for address or situation of the proposed company.
FORMALITIES TO BE FOLLOWED:
Obtain a TAN card
Documents obeying act of shop and establishment if required
Registration document of STPI (Software Technologies Parks of India) if required
Both foreign and Indian directors need to have authorized agencies digital signature certificates
Obtain a PAN (Permanent Account Number) from the income tax department of India Registration
documents of IEC (Import Export Code) from foreign trade director general for international trade if
required
RBI approval for investing in FIPB and India support of foreign companies if required.
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