Company Registration for Startups: What You Need to Know

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Choosing the legal structure and obtaining proper registration are important steps for startups. Company Registration under the Companies Act of 2013 offers numerous benefits like a separate legal entity, perpetual existence, higher credibility and limited liability for directors and shareholders. 

To register a company, one must follow the guidelines and norms set by the Ministry of Corporate Affairs and register with the Registrar of Companies. Depending on the business model, startups may receive various government benefits and exemptions. 

Types of Company Registrations in India

Given below numerous types of company, registration followed in the usual course in India:

• One Person Company (OPC):
  An OPC is a type of company owned and promoted by a single individual. It offers limited liability and is suitable for sole proprietors seeking such protection. The OPC needs to comply with limited ROC requirements and file regular tax returns. Additionally, it enjoys certain benefits like tax exemption for the first three years under Startup India and favourable treatment on depreciation, without any tax on dividend distribution.
• Private Limited Company (Pvt. Ltd.):
  A Private Limited Company is a privately owned and distinct legal entity from its founders. It has its own shareholders, stakeholders and board of directors, with all individuals working for the company considered as employees. It is well-suited for businesses with high annual turnover. Besides regular tax and ROC returns, private limited companies are required to undergo audits. Similar to an OPC, they also enjoy tax exemption for the first three years under Startup India and favourable depreciation benefits.
• Public Limited Company:

A Public Limited Company is publicly owned and a separate legal entity formed by an association of members or volunteers under the Company Law. The liability of its members is limited to the shares they hold. A Public Company is ideal for businesses with a high turnover and looking to raise capital from the public, as they enjoy certain exemptions under the law. Alongside tax returns, mandatory audits are required for Public Companies.

• Limited Liability Partnership (LLP):

LLP is a single entity formed with the limited liabilities of partners as per the partnership agreement. LLP combines the features of a company and is suitable for businesses with lower investment needs or service-oriented enterprises. LLPs are required to file business tax returns and ROC returns regularly while also enjoying benefits on depreciation.

Other Types of Companies Various other types of companies include Cooperative, Unlimited Company, Partnership Firms, Sole Proprietorship, Hindu Undivided Family, etc.

Benefits of Company Registration for Startups in India

Following are the benefits of company registration for startups:

1. Separate Legal Entity

• A registered company is considered an artificial person with a distinct and separate legal identity from its members.
• It can own assets, incur liabilities, sue and be sued in its own name.

2. Limited Liability of Members

• The liability of company members is limited to the face value of the shares they hold.
• Personal assets of members are protected and they are not liable for the company’s debts beyond their shareholding.

3. Perpetual Existence

• A company continues to exist even if its founding members, directors or shareholders leave.
• Its existence is not affected by changes in its ownership or management.

4. No Minimum Capital Requirement

• No minimum paid-up capital is necessary to incorporate a private limited company.
• The company’s capital structure is flexible and can be adjusted to accommodate future funding needs.

5. Exemptions for Certain Companies

• Charitable organisations and NGOs registering as Section 8 companies receive tax benefits and exemptions from the Central Government.

6. Higher Market Credibility

• A company registered as per MCA norms gains higher credibility in the marketplace.
• Compliance with specific regulations builds trust and makes the company more reliable for suppliers, vendors, investors and other businesses.

Choosing the Right Business Structure

Before registering a company with the government, selecting the appropriate business structure is important, as it significantly impacts the tax returns and legal compliances. The primary considerations when deciding on the type of business structure for your company are:

1. Number of Owners and Partners

• One Person Company (OPC): Ideal for a business with a single owner seeking complete initial investment.
• Private Limited Company or Limited Liability Partnership (LLP): Suitable for businesses with multiple owners looking for investments from other parties.

2. Initial Investment

• Partnership, Sole Proprietorship or Hindu Undivided Family (HUF): Ideal for businesses with a limited initial investment.
• LLP, OPC or Private Limited Company: Suitable for businesses seeking higher initial investments with foreseeable returns.

3. Business Liability

• Sole Proprietorship, Partnership or HUF: Appropriate for businesses where partners or members are willing to bear unlimited liability, including risks to personal assets.
• Private Limited Company, Public Limited Company and LLP: Suitable for businesses where members seek limited liability, up to the amount of their contribution or share value.

4. Applicable Income Tax Rate

The business structure chosen has a direct impact on the taxation applicable to both the business stakeholders and the company itself. For instance, a sole proprietor is only required to file individual income tax, whereas a company must file both income tax and tax returns with the Registrar of Companies. Making the right decision regarding the business structure ensures optimal tax planning and compliance with relevant tax regulations.

• HUF and Sole Proprietorship: Taxed at regular slab rates, with business income added to individual income for sole proprietorships.
• Private Limited Company, Public Limited Company, Partnership, etc.: Subject to a flat income tax rate of 30%.

5. Investors’ Confidence

Investors prefer investing in registered and legal entities rather than more profitable ones. Businesses like Private Limited Companies and LLPs are more likely to attract investments compared to sole proprietorships.

6. Impact on Audit Requirements

Registering a company legally exposes the business to the necessity of conducting accurate audits of its accounts and financial records. Compliance with audit regulations may require hiring auditors and maintaining a team of accountants on the payroll. Selecting the wrong business structure can lead to increased costs associated with these audit requirements, potentially affecting the company’s revenue.

7. Facilitating Business Expansion

Selecting the correct business structure is important for business expansion plans. Certain business structures may have specific rules and regulations governing the process of expansion. Moreover, some structures are more investor-friendly than others, making them more attractive for potential investors. 

Requirements for Incorporating a Company in India

The following are the basic requirements for incorporation of a company in India:

Directors

• Private Limited Company: Minimum of two directors required.
• Public Company: Minimum of three directors required.
• At least one director must be an Indian resident for at least 182 days.
• Private Company can have a maximum of 200 shareholders, while there is no upper limit for shareholders in a Public Company.

Digital Signature Certificate (DSC) Requirement

• Shareholders, proposed directors and authorised signatories need a valid DSC.
• DSC is obtained from a certified agency approved by the Controller of Certification Agencies.
• DSC is essential to attest and submit forms during the registration process.
• Required to apply for a Director Identification Number (DIN).

Director Identification Number (DIN) Requirement

• Every proposed director must have a DIN.
• DIN can be applied for through Form DIR-3 on the MCA website, along with the SPICe+ Form.
• The form must be submitted with valid identity and address proof of the director, signed by a chartered accountant.

Name of the Company

• Choose a unique and distinct name for the company during the registration process on the MCA website.

How to Register a Startup Company in India?

Registering a start-up company in India involves a few essential steps. The process has been streamlined with the introduction of Form INC-29 by the Ministry of Corporate Affairs (MCA), which combines various procedures into one, making the incorporation process more efficient and faster. 

Given below is the process for Company Registration in India:

1. Application for DSC (Digital Signature Certification)

• Startups should apply for a Digital Signature Certificate (DSC) with the Ministry of Corporate Affairs (MCA).
• DSC is a legal document used for verification and electronic signing of documents.

2. Application for DIN (Director Identification Number)

• Apply for the Director Identification Number (DIN) after obtaining the DSC.
• DIN ensures compliance when recruiting a director for the company.

3. Name Availability of Company

• Check the availability of the desired company name.
• Use the MCA portal to ensure the name is not already taken and complies with intellectual property laws.

4. Filing Memorandum of Association and Articles of Association Online

• File the Memorandum of Association (MOA) and Articles of Association (AOA) online.
• This legal filing provides certainty of the company’s formation and must be done through the MCA Portal.

5. Application for PAN and TAN

• After completing all necessary filings, apply for a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).

6. Certificate of Incorporation

• The MCA and Registrar of Companies (ROC) review the application.
• If there are no issues, a Certificate of Incorporation is granted to the applicant.
• The Certificate of Incorporation provides legal status upon the company.

Final Thoughts

For startups in India, choosing the right legal structure and obtaining proper registration are important steps. Incorporating a company under the Companies Act of 2013 offers numerous advantages, including separate legal entity status, perpetual existence, higher credibility and limited liability for directors and shareholders. Startups can benefit from various government exemptions based on their business model. 

The process of online company registration through the Ministry of Corporate Affairs website has been made convenient and efficient. Before proceeding with registration, startups should carefully consider the business structure that best aligns with their goals and future plans. By following the stepwise guide for company registration, startups can lay a solid foundation for their growth and success.