Entrepreneurs frequently embark on the exciting adventure of building their businesses in India's vibrant startup environment. However, despite all the excitement and enthusiasm, certain frequent mistakes can destroy a new business before it starts.
Startup owners who are just beginning their journey in the industry may find it unnecessary to delve into Company Registration's technical and legal aspects. This blog aims to highlight some of the key mistakes entrepreneurs often make when registering a company in India, offering valuable insights to help navigate the complexities of the startup landscape.
Selecting the right type of Entity:
Many businesses are now considering expanding their operations by company setup in India. Choosing the right type of business entity is crucial at the outset of any business endeavor. Foreign investors have a range of options available in India, each tailored to suit the company’s objective’s intended purpose and anticipated duration of operations.
It is impossible to form various types of entities in India like branch offices, representative offices, project offices, LLP, private limited companies, etc, however, it is very critical to understand the objectives of carrying out the business in India and then choosing the right type of entity.
Here are some of the critical mistakes to avoid when a company is set in India:
Usage of restricted or trademarked words in the name of the company:
Using restricted or trademarked words in the company name is a common mistake that can lead to legal complications and delays in the registration process. Thus it is important to do a name search as well as a search of the list of trademarks to ensure that there is no rejection from the ministry.
Providing Incorrect office address:
When filling out the application form for company registration, it's essential to provide accurate information. The form typically asks for two types of addresses: one for the main office or headquarters where business activities occur, and another for the personal address of the company director. However, The offices generally prefer a co-working space address nowadays to register the company. this has found various challenges for the approval as the coworking spaces have generally failed to provide a complete set of documents regarding the address proof.
Choosing the Wrong Business Structure:
Another common mistake to avoid while incorporating a company in India is choosing the wrong business structure. This could not only impact in the short run but has major implications from the perspective of profit distribution as well as transfer of shares later. Thus it is vital to understand the implications and the different business structures and accordingly make necessary decisions.
Neglecting Indian Laws and Regulations:
Businesses must be mindful of Indian laws and regulations, especially concerning reporting requirements. Failure to comply with these regulations might result in penalties and serious legal consequences. Additionally, it’s important to keep track of the changing rules to make sure the business follows them and doesn’t accidentally break any. This helps avoid problems that could harm the company’s operations and reputation in India.
Having Insufficient documentation:
One of the most frequent errors committed during the registration of a company in India is the lack of proper documentation. The Memorandum of Association (MOA) and Articles of Association (AOA) are important papers that describe what a company aims to do and its internal rules. During the company incorporation process, incomplete or inaccurate information documents can cause delays, rejections, and legal issues. Additionally, documents needed include identification proof, PAN (Permanent Account Number), and address proof of the director applying.
Failing to seek professional advice:
Seeking professional advice is a significant mistake many entrepreneurs make when setting up a company in India. Professional guidance helps navigate the intricate process of company registration, avoiding costly errors and streamlining operations for long-term success. KDP Accountants is a reputable firm known for its expertise in Indian business and company setup procedures backed by a team of experienced professionals.
Conclusion:
Setting up a company in India requires careful attention to detail. It is important to stay clear of frequent mistakes including picking the incorrect entity type, inaccurate addresses, selecting inappropriate structures, ignoring legal compliance, not having enough paperwork, and not seeking professional advice is crucial. With the assistance of professionals like KDP Accountants, companies can do this and ensure smooth operations and market expansion in India by laying a strong foundation for success.
The above note is subject to further study and clarifications. This note does not form an opinion from our end and before taking any decision based on above, it is recommended to consult our experts on the subject.Kamdar, Desai & Patel will not be liable for any damages (including, without limitation, damages for loss of business projects, or loss of profits) arising in contract, tort or otherwise from the use of or inability to use this article, or any of its contents, or from any action taken (or refrained from being taken) as a result of using this article or any such contents.
