Company IncorporationLegal Advice

10 Myths and Misconceptions About Company Registration Debunked

In this article, we address the top 10 myths and misconceptions about company registration and tell you how the registration process can be made simple and easy.

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Company registration is a natural first step in the establishment of any business as it offers multiple incentives. Despite the fact that registered businesses benefit far greater than unregistered businesses, the vast majority of businesses in India operate as sole proprietorships or partnerships.  

With start-ups sprouting up in every nook and cranny of the country, it is necessary now more than ever to highlight the importance of undertaking company registration. Indian entrepreneurs are hesitant to embrace the corporate structure because of various myths and misconceptions surrounding the company registration process. In this article, we will debunk the top ten assumptions about the company formation process. 

We have selected some of the biggest business registration myths in India as we wish to present a clear picture of what is truly permissible under the law. As it is critical to understand how the law affects your business in order to avoid making any expensive mistakes.

(1) Myth – A commercial location is necessary for company incorporation

Debunked – You can legally register your company in a residential location. Many entrepreneurs are unaware that they can lawfully form a private limited business on any residential premise. According to the provisions of the Companies Act, 2013, there are no restrictions under corporate law that prevent the registration of new businesses in residential locations. However, it is mandatory for a company to affix its name and the registered address of its office at each site where it conducts business.

(2) Myth – Original  documents need to be submitted by applicants

Debunked – Scanned copies that have been properly attested by the applicants are accepted. Many scammers prey on entrepreneurs by pressuring them to submit all of their original paperwork during the company registration procedure. This is an attempt to defraud and cheat entrepreneurs who are unaware of the real procedure. It is never required to submit original legal documents in the company incorporation process. 

(3) Myth – GST registration is mandatory

Debunked – There is a misconception that GST registration is mandatory, which is not true. Only those individuals who provide taxable services are compulsorily required to apply for GST registration. GST registration is not required if the annual turnover does not exceed the threshold fixed by the government, this gives small scale service providers the option of availing of GST exemption.

(4) Myth  – Minimum level of annual turnover is required for company incorporation

Debunked – You do not need any minimum level of turnover or sales to register a company. A new business with little to no sales, which is barely earning any revenue can also register itself. 

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(5) Myth – Allocation of shares to directors is mandatory for company incorporation

Debunked – It is a myth that every director of a company must hold shares. The shareholders who have invested their money into a company need not be directors. Similarly, directors of companies are not required to have any shares in the company.

(6) Myth – The rate of taxation applicable to private companies is a disadvantage

Debunked – The rate of tax applicable to private companies can sometimes be higher compared to that of an individual trader or partnership firm. However, the tax on corporate entities is calculated after deducting expenses from revenues. This advantage is not available to sole proprietorships and partnerships. Moreover, greater allowances for tax deductions have been made possible for registered companies.

(7) Myth – Investment in a company can only be made by human beings

Debunked – It is completely false that only human beings can be owners or shareholders of a company. According to law, a company is an artificial person and hence even an incorporated company can invest in the shares of another corporation.

(8) Myth – The share capital of a company must be deposited in a bank at the time of incorporation

Debunked –  There is immense scope for flexibility in a private limited venture. It is not compulsory for the share capital of a company to be deposited in a bank at the time of incorporation. Similarly, the moment your business is incorporated, from that day itself all the modifications related to capital, business, official address and many more are possible.

(9) Myth – Maintenance of company is expensive

Debunked –  It is a myth that the maintenance of a company is very expensive. There is only a minimal amount of expense when it comes to matters such as accounting, compliance and tax filings. Vakilsearch can render these services for your business at an affordable cost.

(10) Myth –  Registration of a company needs to be renewed every year

Debunked – It is not mandatory to renew the registration of your company every year. One time registration of your company is enough. Further, your company will be registered with the MCA till the end of time unless it undergoes the legal procedure of winding up. 

Conclusion

On a concluding note, do not be misled by myths and misconceptions, do your own research through official and authentic channels. Vakilsearch offers information on company registration that is reliable and credible. Additionally, our company incorporation service is feasible and economical. Get in touch with us today and get first-class legal aid from our skilled experts.

 

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