India has one of the most interesting startup markets in the world, and hence the company registration process is especially important in the country. However, the journey has not been without some obstacles.
In this article, we shall cover the common mistakes that business owners make when registering their companies and discuss the most important issues, how to avoid them during the process. Through the knowledge and the understanding of these mistakes, entrepreneurs can improve the chances of an easy and fluent company registration process.
Mistakes to Avoid During Company Registration
Given below are the common registration mistakes to avoid during online company registration in India:
- Incorrect Company Names
Choosing the right name is the first step when starting a company, but many entrepreneurs stumble here. Names cannot resemble existing companies or violate laws like the Companies Act 2013 and Trademarks Act 1999. Deceptively similar names will lead to rejection during registration.
Publicly searching the government trademark database can prevent this issue. Even if the name is approved, legal disputes can arise later from established brands if there is a violating resemblance. Overall, insufficient research and foresight regarding names frequently troubles founders.
- Incorrect Company Type
Entrepreneurs must decide between private limited company registration, public limited, One Person Company and other structures when starting up. Each format has different requirements and regulations regarding ownership, fundraising, operations, taxes and more. Founders often incorrectly assume simpler is better and opt for partnership firms and sole proprietorships over private limited entities.
However, those structures provide less legal protection for businesses. In other cases, overambitious founders may prematurely register as large public limited companies when their scale does not justify it. Ultimately, not carefully weighing factors like business plans, liability risks, costs and control leads to preventable registration issues.
- Incorrect Company Description
The company description forms the basis for founding documents like Memorandum and Articles of Association, business plans and promotional material. Inaccuracies get cemented into various records.
Additionally, vague, exaggerated or misleading portraits of the company can count as misrepresentation in the eyes of regulators. Factors like precise name, thorough description of activities, clear portrayal of brand identity, realistic conveyance of objectives and more need to come through correctly in the documentation to avoid major problems.
- Incorrect Supporting Documents
From PAN details to registered address proofs, supporting documents must be accurate and properly attested during incorporation. Rented office spaces need extra documents like rent agreements and no objection certificates from landlords.
Common errors include outdated address proofs, landlord name spelling errors, unauthorised signatories and missing pages. Such issues lead to cumbersome application rejection and reapplication. Entrepreneurs must cross-check all attachments before final submission to avoid setbacks.
- Unnecessary Appointment of Directors
Founders often appoint shareholders as directors without fully grasping the responsibilities and legal implications of directorship. However, shareholders and directors serve different functions. Directors handle company operations, compliance and liability while shareholders enjoy rights over assets and dividends.
Appointing all shareholders as directors dilutes accountability and exposes more individuals to legal risks. Companies flourish when skilled professionals oversees management as directors separately from financial stakeholders. Making unnecessary director appointments simply to appease shareholders leads to governance issues.
- Not Drafting and Registering the Written Rental Agreement
Many startups operate from rented offices but fail to establish proper rental agreements with landlords. Verbal contracts have no legal validity in rental arrangements. The absence of a comprehensive written agreement that details rental terms, facilities provisions and other specifics leaves the company vulnerable during conflicts.
Landlords can potentially refuse access while oral agreements carry no weight in legal proceedings. Registering the rental contract under the Registration Act, 1908 further strengthens the company’s position. Overall, skipping written agreements undermines startups’ interests.
- The Absence of Founders/Shareholder’s Agreement
Shareholder agreements govern founder relationships, investments, equity structures and more. Without one, disputes regarding financial rights, decision making authority, transfer of shares and other issues can arise. For instance, some founders may want to acquire shares of exiting founders while others may oppose dilution of stakes.
An agreement outlining transfer provisions and way forward protects interests. The absence of clear rules and processes for dispute resolution leads to complex conflicts between founders down the line.
- No Thorough Information on Local Laws
While pvt ltd company registration falls under the Union Corporate Affairs ministry, state governments impose location specific rules and compliance requirements. For example, shops and establishments acts, contract labour regulations and various licences differ across states.
Not familiarising with local public health, safety, tax and labour regulations leads to noncompliance. This results in penalties or outright suspension of operations. Entrepreneurs must invest time in understanding post-incorporation rules applicable regionally.
- Incorrect Office Address
The company registration form requires addresses for both the director signing the application and the registered office where main business operations will be based. Entrepreneurs often accidentally switch the two due to confusion.
In other cases, the provided registered address may not match attached rental agreements or property ownership documents. Any mismatch between submitted details and attached proofs leads to application rejection which causes incorporation delays. Verifying addresses across all documents is important to avoid this registration issue.
- Not Seeking Professional Help
Complex compliance requirements related to taxes, accounting, auditing, legal issues and corporate governance often overwhelm first-time entrepreneurs. Attempting to handle all post-incorporation obligations alone frequently leads to non-compliance and penalties. Seeking services of professionals like company secretaries, chartered accountants and lawyers at Whizseed minimises problems of infringement.
- Poor Incentives for Employees
Promising startups often focus extensively on product development, funding and marketable aspects while ignoring incentives structures to attract and retain talent. However, skilled employees remain the backbone of innovative companies. Despite strong vision, lacking competitive compensation packages, equitable stock option plans, bonuses, insurance coverage and advancement avenues leads to substandard hires.
- Failing to Plan Ahead
Entrepreneurs often register companies in haste without concrete business plans in place targeting milestones for the next few years. However lack of planning reflecting in unclear priorities, absence of budgets, arbitrary decision making causing haphazard resource allocation.
How can Whizseed help?
Whizseed specialises in simplifying company registration processes and compliances for entrepreneurs across India. Our experienced team of professionals ensures cost-effective, timely, and fully compliant registration supported by comprehensive post-registration services.
We guide startups through local business laws and help implement best practices related to accounting, taxes, documentation, and corporate governance. Partnering with Whizseed reduces registration and compliance burdens entrepreneurs face when founding new ventures.
Final Thoughts
Compliance with legal requirements is key to success for small business startups. Failure to comply may cause the government to impose penalties that far exceed the amount. Therefore, unlawful actions should be avoided, and competent personnel will assist entrepreneurs when it is required. Entrepreneurs can gain a good advantage if they avoid those common mistakes and follow the recommendations listed in this article. This increases their chances not to fail with company registration in India.
