10 Common Mistakes to Avoid During Company Registration in India

Company registration is a simple and easy process. However, you need legal guidance to complete it smoothly. Choosing a wrong legal structure, non-protection of IP, ignorance about post compliances can lead to fines and penalties. Here, we will tell you how and what to avoid while registering a company and post-registration.

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10 Common Mistakes to Avoid During Company Registration in India

When you are ready to take off with the new venture the final step is company registration process which makes your dream of entrepreneur true. While registering a company in India, all the steps have to be followed strictly and more than that they have to be followed accurately. Nothing could be slipped through the crack as that could cause major setbacks. Here are some of the common mistakes that need to be avoided during the company incorporation procedure.

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Typos and incorrect company names in Company registration Form

Any business gets recognized first by its name and trademark or logo. Hence the company name cannot be gone for a toss and one has to pay attention while filling out the name application form. The application has to be double-checked during the final review screen before submission.

Selecting the wrong business type during registration

There are different types of companies like private limited, public limited, limited liability partnership, non-profit organization, sole proprietorship, franchise, partnership, etc. and each has its own advantages and disadvantages. For instance, in a private limited company, there are less legal restrictions and the company is limited, it has a few people. On the other hand, in a public limited company, there is a vast scope wherein the owners can increase the capital through shares, however, by adhering to legal rules.It is recommended to connect with industry experts to know the legalities involved while registering the particular type of company.

Wrong supporting data in company registration form

While filing an application, many supporting documents are submitted and the data mentioned in the documents have to be accurate. Invalid and incorrect data leave room for rejection of the company registration application.

Adding too many directors and shareholders for the company

It is not necessary that all directors who are going to run the company to become shareholders and owners and vice versa. Shareholders have an equal share of the profits and rights within the company, and directors have separate responsibilities. Both the directors and shareholders must be aware of their roles and the company must have the exact numbers as prescribed in the Companies Act 2013.

Incorrect share allocation of your company

Share allocations have to be well taken care of. While forming a company it is important to decide on the share structure; adding the share classes, different amounts of shares and rights for each share class. A proper share allocation avoids unnecessary complications and costs

The absence of shareholder’s agreement in your application

Often when entrepreneurs venture, they mainly look for increasing the projected income, expanding the business, attracting investors, enhancing the infrastructure, etc. There are high chances they skip important documentation and agreements and one such thing is a shareholder’s agreement. This again may be sounding minor but creates a huge impact in the long run, if not done. A shareholder agreement must have the specifications on what needs to be done in the event of shareholder(s) death, or withdrawal and so on.

Wrong business description

This may sound so easy but without a clear-cut idea on how the corporation will benefit a shareholder, what are the terms laid out for various types of shares that the business is going to offer, what are the voting rights of each shareholder, a business description cannot be mentioned. Hence, it is important to have a good lot of information on shares and other aspects to avoid any future conflicts. None of the items should be neglected as that will cost more. It is always better to take time and seek professional help with regard to deciding on the number of shareholders, directors, etc.

Lack of awareness of local business laws and taxes

Although businesses are governed by the Companies Act 2013 in India, the rules and laws may vary depending upon the state or city the company is registered. It is difficult for a layman to understand all the existing taxes and laws and hence it is better to talk to professionals who can provide the right guidance. A basic understanding of the tax structure and business laws surely helps.

Choosing the wrong service provider for company registration

There are plenty of service providers offering different types of services related to company registration. Before zeroing down, thorough research on the credibility of the service provider has to be done.

Buying a complete package

With increased options available in the market, choosing a budget package might be tempting but analysing each is more important. It has to be cost-effective as well as cover all the mandatory things.

Read about Company Registration with MCA in India.

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